7 signs an employer may be ready to switch from fully insured
These are key signs an employer may be ready to switch from a fully insured plan to a more flexible level funded or self-funded plan.
Rising health care costs are putting employer-sponsored benefits under unprecedented pressure. For the 2027 plan year, insurers in the fully insured small group market have filed requests for a median premium increase of 14%, according to KFF data.1 Broader commercial group market medical trends are projected to increase between 9%2 and 10%3 due to surging prescription drug and utilization costs.
Against that backdrop, a growing number of employers are rethinking how they fund their plans. Today, 67% of covered workers are enrolled in self-funded plans, up from 63% just one year prior, and the share of small firms offering level funded plans has grown from 7% in 2019 to 37% in 2025.4
For employers still in fully insured plans, that raises a natural question: Is it time to make the switch?
Transitioning from a fully insured plan to a level funded or self-funded plan can feel daunting, especially for employers used to the simplicity and security of fully insured plans. However, a level funded or self-funded plan can be a strategic choice for those looking for greater flexibility in the benefits they can offer employees and those that are able and willing to take on more financial risk in order to do so.
While the risk of selecting these types of plans may be higher than a fully insured plan since employers take on the financial responsibility of employee health claims as they occur, level funded plans look to offset that risk with the savings potential of a surplus share5 if claims come in lower than forecasted — and self-funded plans may pose greater long-term savings opportunities given they tend to be more customizable, which allows employers to offer employees a more attractive and competitive benefits package that meets their unique needs.
But knowing whether it's time to make the switch can be difficult. Here are 7 signs an employer may be ready:
1. Stable and predictable claims history
If employers have low or predictable health care claims over several years, this can be an indicator they might want to consider switching to a level funded plan — as they could be good candidates for receiving a potential surplus share5 — or even a self-funded plan. Minimal volatility in employee health care costs makes it easier to forecast expenses.
2. Sufficient employee headcount
Headcount matters when it comes to funding type. Larger organizations with 500 or more employees are much more likely to self-fund compared to smaller or midsize businesses, according to a survey.3 Why? Larger workforces help spread risk more effectively through the business, helping an employer absorb high-cost claims.
3. Strong financial health
An employer should consider their own financial health before moving from fully insured funding. For instance, a business should consider their cash flow and the reserves they have to cover unexpected claims. Employers should also consider their own willingness to invest in stop loss insurance to protect against the costs of high-cost, high-severity claims.
4. Desire for more transparency into plan performance
Employers who are interested in gaining more visibility into how their or their employees’ health care dollars are being utilized may want to consider switching to a different funding type. For instance, with self-funded plans, employers can see aggregate claims data from their workforce, which in turn can give them insight on which wellness initiatives to prioritize. Employers with level funded plans are also able to access monthly claims and utilization reports for greater visibility into their plan’s performance.
5. Strategic human resources and benefits leadership
If employers have a strong human resources team on staff, they may want to consider a level funded or self-funded plan. Why? A strategic-minded staff may have more capacity and know-how to proactively manage their benefits program. But they are not alone in doing so, as many receive guidance from a broker or consultant and additional support from a third-party administrator (TPA) like UMR or a carrier like UnitedHealthcare that handles claims processing, network access and the administration of other services and usually assigns a dedicated account team that can collaborate with the client to optimize plan performance.
6. Willingness to accept risk and innovation
Level funded and self-funded plans are inherently riskier than their fully insured counterparts, but if leadership is open to taking on more risk in exchange for potential savings and enhanced benefits that support recruitment and retention efforts, they may be good candidates for these types of plans. Stop loss insurance can help offset some of that risk, whether that’s individual stop loss (ISL) — also known as specific stop loss or specific deductible stop loss — which protects an employer from high-cost claims generated by a single covered member within a plan period, or aggregate stop loss (ASL), which protects an employer when total claims across the covered population exceed a predetermined percentage above expected plan-year spending.
7. Support from advisors
If an employer has trusted advisors (think: brokers, consultants or a dedicated account team) that are advocating for a transition from fully insured, it may be a good indicator that an employer is ready for a change. These individuals can access actuarial analyses and benchmarking data to further reinforce whether the decision to switch makes sense.
Considerations involved for making a successful transition
Whether employers are moving from a different health benefits carrier or a different funding type, it can be a complex process, and some employers may shy away from such a move given the potential disruption to their operations and to the employees they want to attract and retain. Yet, taking the leap may be worth it in terms of cost savings, ROI and a better benefits experience for their workforce.
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