The Stop-Loss Math Behind Franchise Level-Funded Health Plans

A level-funded health plan is a self-funded plan dressed up to look fully insured. The employer pays a fixed amount each month that covers projected claims, administrative fees and a stop-loss premium, and at year-end, if actual claims ran under that projection, some or most of the surplus comes back as a refund. If claims ran over, a stop-loss policy absorbs everything past a set dollar line called the attachment point. That structure explains why franchise level-funded health plans have gone from a niche workaround to the default choice at a huge share of small employers: enrollment among covered workers at small businesses rose from 6 percent in 2018 to 38 percent in 2023, according to Kaiser Family Foundation survey data. For a multi-unit franchise operator comparing the same plan across five, ten or thirty locations, the pitch sounds identical to the one a single-location owner hears. The math underneath it is not, because a multi-unit operator is really running several small groups that share a logo, and the carrier prices each one on its own claims history whether anyone at headquarters planned for that or not.

What the attachment point actually controls

There are two attachment points that matter, not one. The specific, or individual, attachment point is the ceiling on what the plan pays for any single claimant before stop-loss coverage starts. The aggregate attachment point is a second ceiling, set on the plan's total claims across everyone covered, usually expressed as a percentage over projected claims, and it is the one most brokers skip past when walking through a quote because it rarely gets triggered. Move the specific attachment point up and the monthly premium drops, because the employer is carrying more of the risk itself. Move it down and the premium climbs, because the carrier is carrying more. In 2024, stop-loss premiums for self-funded plans rose 11.5 percent on average, according to a Segal Group analysis, but the increase was not evenly distributed: plans with a $500,000 specific deductible saw premiums jump 29 percent, while plans with a $200,000 deductible rose only 7.1 percent. The gap between those two numbers is the actual decision a franchise operator makes every renewal season, and most brokers present it as a single line item rather than the lever it is.

Why franchise level-funded health plans price each location on its own

A single-location owner with 15 employees pools risk across those 15 people and gets one claims history. A franchise operator running six locations with 90 employees combined usually does not get that pooling, because carriers underwrite by legal entity, and most multi-unit operators set up each location as its own LLC for liability reasons that have nothing to do with insurance. One expensive claim (a premature birth, a cancer treatment, an organ transplant) can blow through a single location's attachment point even though the operator's full 90-person workforce could have absorbed the cost without blinking. The fix is not complicated once someone knows to ask for it: several carriers will underwrite a multi-unit operator's locations as one combined group if the broker requests it at renewal, rather than defaulting to the entity-by-entity quote the system generates automatically.

Why claims experience follows the operator, not the brand

Level-funded renewals are claims-rated. A fully insured small-group plan spreads risk across a community rating pool and insulates any single employer from its own bad year. A level-funded plan does the opposite on purpose: the operator's own trailing 12 months of claims sets next year's fixed monthly payment. Small businesses with ACA-compliant fully insured plans are looking at a median proposed premium increase of 11 percent for 2026, according to Kaiser Family Foundation analysis of insurer rate filings. A franchise operator on a level-funded plan with one bad claims year can see a renewal well above that baseline, even while a fully insured competitor three doors down absorbs the same 11 percent everyone else is seeing. The brand name on the sign does not show up anywhere in that calculation.

The renewal shock multi-unit operators don't see coming

Year one is usually the best year. Roughly 37 percent of employers on level-funded plans received a refund in 2022, averaging about $8,400, and employers who switched from fully insured to level-funded coverage saved an average of 17 percent, according to a UnitedHealthcare report on the product. Those numbers are real, and they are also why the plan gets sold as close to free money. A six-location operator who saved $40,000 in year one on the strength of a clean claims history can watch that entire surplus disappear at the next renewal if even one location has a bad year, because the fixed monthly payment resets against actual claims rather than a fresh projection. The 11.5 percent national average rise in stop-loss premiums undersells this, since that figure is a blended average across carriers and plan sizes. A single location with one high-cost claimant can see its own renewal move two or three times that fast.

Three numbers to pull before the next renewal

The first number is the specific attachment point on the current plan and whether it moved from last year without anyone flagging it. The second is the aggregate attachment point, expressed as a percentage over projected claims, which shows how much cushion exists before the aggregate stop-loss layer kicks in at all. The third is the claims run-out report from the plan's third-party administrator for the trailing 12 months, broken out by location if more than one EIN is involved, pulled before the renewal quote arrives rather than after. Brokers do not withhold this information out of bad faith. Multi-unit operators simply do not ask for it, because the paperwork looks identical to last year's and nobody on the finance side has a reason to open it until the number at the bottom changes.

What a second bad year actually means

A single bad claims year on a level-funded plan is a budgeting problem. A second bad year in a row, with no change to the attachment point or the underwriting structure, means the plan is still being run the way it was sold: as one product, not as a set of location-level numbers that need separate attention every renewal. Franchise operators who track claims data the way they track royalty statements, pulling it into the same dashboard they use for location-level P&Ls instead of leaving it buried in a broker's PDF, catch that pattern a year before the renewal notice forces the conversation. That is the kind of location-level visibility Revscale builds for multi-unit brands, and a franchise level-funded health plan is exactly the sort of number it should sit alongside royalty statements and unit economics on. The number that actually matters is rarely the one on this month's invoice. It is the twelve-month line sitting behind it, and most franchise systems still don't have a place to see it.