Why Are Fully Insured Health Plans Getting More Expensive for Small Businesses?

JUNE 2, 2026

Over the past several years, a growing share of employers have left the community-rated, fully insured health plan market in search of more sustainable rates. Some have shifted away from fully insured to self-funding, while others have chosen to drop health plans altogether. For the remaining fully insured groups, this has led to double-digit increases at renewal — even for employers with a stable claims history. Renewals will only get worse as healthier groups leave the risk pool.

Switching to a level-funded plan can help employers with better-than-average risk regain control over their health plan spending, while maintaining predictable monthly expenses and stop-loss protection against high-cost claims.

Level Funding Provides a Way Out of the Community-Rated Pool

For small businesses in the U.S., the Affordable Care Act (ACA) mandates how fully insured plan premiums are determined. Under the ACA, small group health plans of 50 or fewer employees (100 or fewer in California, Colorado, New York, and Vermont) must include essential health benefits and offer a minimum level of coverage. Insurance companies can only use factors like geographic rating area, age, coverage category (individual or family), and tobacco use to calculate and set premium rates for the fully insured plans or coverages they provide to small businesses. Employers enrolled in one of these plans, often referred to as “community-rated health plans,” would be subject to the plan rates — regardless of their individual claims experience.

Under a level-funded plan, however, the premium is calculated based on the individual company’s health plan experience. For employers who are not ready or not eligible to completely self-insure, level funding provides an opportunity to move away from community-rated plans.

The premium for a level-funded health plan includes estimated claims costs and administration fees, as well as stop-loss coverage — where the employer's out-of-pocket expenses are capped at a predetermined amount to protect against high-cost claims. Level-funded plans also feature reduced premium taxes and fewer mandated coverages. Companies with average or better-than-average claims can save 5% to 10% by switching to a level-funded plan.

Employers may also be eligible to receive a partial refund of premiums if claims costs are lower than what had been estimated at the beginning of the plan year. Companies with good claims experience could see an additional 5% to 10% in dividends.

For employers concerned about the risks of level funding, stable monthly payments and embedded stop-loss coverage help financially insulate the plan if you go through a bad claims year. Level-funded plans that see a shift from a good claims experience to a less favorable one can return to the fully insured market for the next plan year. Companies that have already explored level funding and determined it was not a good fit may still be able to reduce health plan costs by adjusting their plan designs.