Josh Trent
Executive Vice President, Employee Health & Benefits
Even if you’re not expecting double-digit premium increases in 2027, it may be worth taking a closer look at what an alternative funding strategy could mean for your healthcare plan costs. And it may make sense to start that conversation well before renewal.
Most organizations are used to modest increases, but 2027 could bring bigger changes in health plan costs than 2026, depending on the market and plan design. At Marsh McLennan Agency (MMA), we’re seeing some employers experience notable increases.
That’s why a more flexible strategy may be worth exploring if you’re looking for ways to manage expenses. But how do you know whether alternative funding is a fit for your organization?
There’s a lot to consider before making a decision. Changing a funding arrangement doesn’t happen overnight. Many companies don’t pursue this path because it can take time for potential benefits to show up, and there are still a number of variables to evaluate before you can tell whether the approach is working as intended.
Still, alternative funding may be a practical option for some organizations. And now may be the right time to start the conversation, well before you need to make the decision.
What can alternative funding do to help you manage spend?
- You may retain some unspent funds, depending on the funding arrangement. Traditional fully insured plans typically involve paying premiums to the carrier, while some alternative funding structures may allow employers to keep surplus funds.
- You may gain more claims transparency. That can help identify the main drivers behind rising costs and support more targeted wellness or chronic condition programs where they may be most useful.
- You may be able to reduce certain insurer-related margins and overhead costs associated with fully insured arrangements. By paying only for the healthcare services your employees use—and using stop-loss insurance to help manage catastrophic claims—you may have more control over plan costs.
- You may not be subject to state premium taxes, depending on the structure and jurisdiction. Tax treatment varies, so it is important to confirm how a specific arrangement would apply to your situation.
How do you evaluate the right level of risk and cost?
The real question is how much risk your organization is prepared to take on now and in the future. Here are some quick definitions to help you get oriented, starting with lower-risk options and moving toward arrangements with more inherent risk:
Fully insured
You pay a fixed premium to an insurance carrier, and the carrier assumes financial responsibility for covered claims. This shifts much of the unpredictability and cost risk from your organization to the insurer.
Dividend/shared returns
This arrangement may allow the employer to share in underwriting profits, but it can also involve additional risk and cost variability.
Minimum premium
This hybrid approach may appeal to some small and mid-sized employers. It typically combines some self-insurance features with a cap on total liability.
Level-funded
A level-funded plan blends predictable monthly payments with the potential cost advantages of self-funding.
Self-funded with specific and aggregate stop-loss
This arrangement allows employers to take on direct financial responsibility for claims while helping limit exposure. Specific stop-loss helps protect against high individual claims, while aggregate stop-loss helps cap total annual claims.
Self-funded with or without a health captive
Depending on the structure, employers may self-fund independently or participate in a captive arrangement designed to help stabilize risk and potentially share results with other members.
Self-funded without stop-loss
In this approach, your organization assumes all costs and all risk.
Note: A stop-loss policy may reimburse you for medical costs that exceed a predetermined limit. A captive program is a licensed structure through which participating organizations may help underwrite and manage risk.
More alternative funding choices than ever
The more you understand the landscape, the more informed your decisions can be. Options may include insured marketplace solutions, level-funded arrangements, captives, ASO and bundled self-funding, unbundled or traditional self-funding, care navigation, MERPs, HRAs and ICHRAs, reference-based pricing, and cash-pay or direct provider contracting. Working with a broker to understand the potential advantages and limitations of each option can help you evaluate the best fit for your organization.
Factors to consider before making a decision
- What provider and network options are available?
- What is the fee structure?
- What role can stop-loss coverage play?
- How might a PBM (pharmacy benefit manager) affect cost?
- How strong are the member advocacy and patient support services?
- What cost-containment features are included?
Questions to ask before choosing alternative funding
- How satisfied are you with your current level of control over plan design, costs, and provider networks?
- How comfortable is your organization taking on some risk in exchange for potential cost savings?
- Has anyone discussed a health benefits captive with you and how it may benefit your company and employees?
- Do the options available at renewal feel restrictive, leaving you with only a few carrier choices?
- How would you view transitioning from a fully fixed cost structure to a more variable model?
- What strategies are you currently using to manage employee health risk?
- How important is cost in your health insurance decision-making?
- What incentives or benefits might you expect if your health plan claims perform favorably this year?
Our Strategic Forecasting Model can help
Deciding whether self-funding is the right option—and which configuration may be the best fit—can feel overwhelming. The MMA Strategic Forecasting Model can help you:
- Make more informed decisions about your medical, prescription drug, dental, and vision plans
- Analyze rates and employee contributions to help project annual costs based on current and potential enrollment
- Review employee costs, including out-of-pocket spending and payroll contributions, to help estimate potential cost share
- Demonstrate the impact of market trend versus subsidy target trend on future annual costs
MMA can help assess risk and support planning around healthcare spending.
Pursuing an alternative funding strategy is a journey, not a quick decision. But it may be worth considering for organizations that want to explore different ways to manage healthcare spend and risk.
To learn more, contact your MMA representative.
Funding arrangements, tax treatment, and potential savings vary based on plan design, employee demographics, claims experience, and applicable laws. Results are not guaranteed.
