Can 1099s Get Group Level Funding? — Many small employers rely on contractors and ask if 1099s can join a group level-funded health plan. On this page, Diversified Insurance Brokers breaks down how eligibility is defined, what carriers typically require, when owner/partner rules differ from contractor rules, and practical ways to support 1099 workers without jeopardizing group underwriting.

What You’ll Learn

• How level-funded group health plans are structured and why carriers prioritize W-2 eligibility
• When 1099s don’t qualify—and the narrow situations where owner/partner rules differ
• Practical alternatives for supporting contractors alongside a compliant W-2 group plan

How Group Level-Funded Plans Work

Level-funded plans blend predictable monthly funding with stop-loss protection. Each month you pay a set amount that covers claims funding, fixed administration, and stop-loss premiums. If claims run favorably, some plans may return a portion of unused claims funds at year-end. To understand where level-funded plans fit versus fully insured coverage, start with our group health insurance overview for employers.

Because pricing depends on enrolled risk, carriers define who counts as an eligible employee. They typically require a minimum employer contribution and proof of payroll. For a deeper dive into why many employers choose this funding model, see why group level funding can make sense when participation and stability are achievable.

Can 1099 Contractors Join a Group Level-Funded Plan?

Short answer: Generally no. Most carriers only allow bona fide W-2 employees (and, under certain state/carrier rules, owners/partners/spouses) to enroll in the level-funded plan. Independent contractors are not on payroll and usually fall outside the plan’s eligibility class. Enrolling ineligible contractors risks underwriting issues, participation failures, or post-issue corrective actions.

Important nuance: Some states allow very small “groups of two,” but documentation often revolves around payroll or ownership—still not typical contractor status. If you’re weighing group formation or timing, review how “creditable coverage” and group size thresholds interact in your state using our guide to creditable coverage by employer size.

Common Underwriting Requirements

• Minimum participation: Carriers require a certain number or percentage of eligible W-2 employees to enroll (after valid waivers).
• Employer contribution: Employers typically must fund a minimum share of employee-only premiums.
• Verification documents: Payroll/wage reports and ownership attestations are commonly requested.
• Eligible classes: Carriers define classes (e.g., full-time W-2s). 1099 contractors are normally excluded from these classes.

What If Your Workforce Is Mostly 1099?

Plenty of growing companies rely on contractors—especially in early stages. If converting all contractors to W-2 status isn’t feasible, you can still support them in parallel while keeping your level-funded plan compliant for W-2s:

• Separate coverage pathways: Keep group enrollment limited to eligible W-2s. Provide contractors with education and a path to short-term medical coverage options when appropriate.
• Bridging gaps between jobs: For contractors with temporary needs, outline short-term health insurance options they can use while projects or life events change.
• Defined roles and timing: If you plan to transition core contractors into W-2 status, coordinate the timing with open enrollment and underwriting to preserve your level-funded plan stability.

Owners, Partners, and Spouses vs. Contractors

Carrier rules for owners/partners and spouses are often different from rules for contractors. These distinctions vary by entity type and state. When you’re mapping eligibility, review your roster with us and confirm how each person will be treated—then align your plan design with your broader employer services strategy.

Down to Two-Person Groups (Varies by State)

Some carriers accept very small groups—sometimes down to two—with specific documentation. Because state rules and carrier definitions differ, it’s best to confirm employer size, class definitions, and contribution/participation standards before quoting. If you’re close to thresholds, we’ll help you structure eligibility so your level-funded option remains viable and your group health insurance plan design meets your goals.

Examples & Scenarios

Scenario 1 — Mixed workforce: A 14-person firm has eight W-2s and six contractors. The level-funded plan is issued for W-2s after meeting employer contribution and participation rules. Contractors receive guidance to evaluate short-term health insurance options for near-term coverage.

Scenario 2 — Stabilizing participation: A seven-person startup has three W-2s and four contractors. Two long-term contractors convert to W-2 status prior to the effective date, meeting participation and enabling a competitive level-funded quote. The leadership team coordinates the change with open enrollment and aligns with their broader employer services strategy.

Related Topics to Explore

• Creditable coverage and employer size
• How short-term health insurance can bridge coverage
• Contact Diversified Insurance Brokers

Why Work with Diversified Insurance Brokers

• Access to 75+ A-rated carriers and modern level-funded solutions
• Since 1980 — independent, client-first guidance for employers nationwide
• Advanced case design for unique workforce mixes and complex eligibility
• Fast, personalized quotes and clear next steps for your team