Optimize Health Plan Spending With Alternative Funding Strategies

JUNE 3, 2025

Employers looking for a more cost-effective way to manage health plan spending often dismiss self-funding, considering it too risky or extreme. While self-funding can be a desirable alternative for larger groups with more predictable risk, smaller to midsize organizations have several opportunities to access savings without going completely self-funded.

Level Funding – Think of this strategy as the entry level of self-funding. Level-funded plans operate similarly to a fully insured plan — the employer pays a monthly premium to the insurance company to cover claims, and purchases stop-loss coverage in place of carrier pooling charges to cover high-cost claimants. Switching to a level-funded health plan can save employers 5% to 10% on premium at renewal. Unlike a fully insured health plan, level-funded plans provide an opportunity for potential refunds for employers with a favorable claims experience, up to an additional 10%.

Medical Stop-Loss Captives – Under a medical stop-loss captive arrangement, multiple employers pool their risk together. Employers pay premiums to the captive to cover claims that exceed the predetermined stop-loss threshold. A captive strategy can provide employers with access to the lower premiums of level-funded plans, as well as better stop-loss rates and cost management programs. Captive members may also see a potential refund — often higher than a stand-alone, level-funded plan.

TPA Level-Funded Plans – Third-party administrators (TPAs) have been expanding access to level-funded products outside of captive arrangements, providing employers with more options from which to choose. For example, some TPAs are allowing pharmacy carve-outs under their level-funded health plans, giving employers the ability to compare pharmacy benefits managers (PBMs) and choose the most cost-effective option. Carrier-based level-funded plans typically do not offer such flexibility.

Cost-Saving Strategies for Self-Funded Health Plans

Employers that already have a self-funded health plan in place may see additional savings from these strategies:

Unbundled Partially Self-Funding – This approach provides the most flexibility with self-funded plan design. Employers pay the insurance carrier or TPA for claims administration, but compare and purchase plan components (such as stop-loss and pharmacy) separately for additional savings.

Stop-Loss Benchmarking – For partially self-funded plans, insurance carriers generally recommend lower-deductible, higher-premium stop-loss programs; however, this often results in more stop-loss coverage than is necessary and higher costs for employers. Benchmarking stop-loss coverage can help determine the optimal level for the program, which can reduce the fixed costs of health insurance for the employer — sometimes substantially.

Population Health Management – Implementing programs designed to improve health outcomes for plan members can help reduce the overall cost of claims. Strategies that increase routine physicals and recommended screenings can help identify cost-driving conditions and provide medical intervention while treatment costs are still low.