Rising Health Plan Costs Are Forcing Employers to Rethink Their Strategy

JUNE 6, 2026

Rising health plan costs are putting sustained pressure on many employers, driven by increasing claims severity, significant pharmacy spending, and greater renewal volatility. Groups with fully insured health plans will have limited visibility into what’s driving claims costs — and ultimately will have little control over premium increases. In this environment, more organizations are exploring alternative options to help control health plan spending long-term.

Funding Strategies That Offer Greater Control and Flexibility

Alternative funding strategies like these offer a different path — one centered on control, flexibility, and alignment with actual claims experience:

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 premiums at renewal. Unlike fully insured health plans, 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

Partially self-funded health plans may present greater savings opportunities for employers that are able to take on a little more of their health plan risk. Employers that already have a partially self-funded health plan in place may see additional savings from these strategies:

Unbundled Partially Self-Funded – 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.