Rising healthcare costs are making it difficult for brokers and large employers to design an affordable but attractive health benefits package for their employees. Traditional group health plans aren’t doing enough to control costs, and their inflexibility is forcing employers to look for alternative options that offer scalability, transparency, and protection from catastrophic claims.
This article will cover why traditional group plans are falling short in 2025 and discuss four alternative funding strategies that can help large employers keep their budget in check.
In this blog post, you’ll learn:
Why traditional group health plans are becoming less effective for large employers.
How alternative funding strategies work to improve cost control and transparency.
How to choose the best health plan funding strategy for you and your employees.
Traditional group health plans have been the go-to funding strategy for large employers for years. With a fully-insured plan, employers pay a fixed monthly premium to an insurance carrier, and the insurer assumes the financial risk of paying the employees’ medical claims. While this method is still the most common way of offering health benefits, it doesn’t give employers much transparency into what’s driving costs or how they can reduce high claims.
The problem has only gotten worse as healthcare costs continue to rise year after year. Insurance companies typically set premiums based on pooled risk, leaving employers, in many cases, no option to negotiate to keep costs low.
Higher premiums and overall healthcare costs were caused by several factors, including1:
Instead of a traditional fully-insured policy, many large employers offer a self-insured group plan to get more transparency into their spending. With a self-funded plan, the employer pays for claims directly rather than paying premiums to a carrier, often paired with stop-loss insurance to cover high claims and keep financial risk low.
However, while self-funding does offer greater flexibility and access to claims data, it doesn’t necessarily lower costs. Speciality medications and treatment for chronic medical conditions — such as cancer, diabetes, and cardiovascular disease — are leading to long-term, high claims. Even with stop-loss coverage, large claims can put your budget at financial risk. Stop-loss policies may even “laser” certain high-cost employees from coverage, leaving employers with more risk.
“If you were to chart health plan costs over the past several years, the result wouldn’t be a steady climb—it would look like a tidal wave,” Ben Whitehead, Territory Sales Lead at Remodel Health, said. “But when you’re facing a tsunami, the solution isn’t grabbing a better surfboard or trying to ride it out. It’s getting out of the water entirely.”
The solution isn’t to try another group health or stop-loss insurer. Instead, benefits consultants and large employers can explore alternative funding strategies.
With increased requests for medication and utilization of complex medical services, large employers need alternative funding strategies that provide more protection and certainty. In the sections below, we’ll walk you through four alternatives that can improve cost control, reduce the risk of high claims, and increase transparency into your overall healthcare spend.
Captive health insurance allows multiple business owners, typically of a similar industry or company size, to come together and act as their own insurer, creating a shared employee risk pool. Each employer in the captive pays a set monthly contribution into a collective fund for expected claims across the whole group, administrative costs, and individual and aggregate stop-loss coverage to protect against catastrophic claims. Because multiple employers share the risk, no one company has to take on the full financial responsibility for a high-cost claim.
Here are some key features of captive health insurance and how it can work as a funding strategy:
While there are some upsides, captives have potential downsides. Employers who are considering a captive arrangement must be comfortable paying claims that don’t just come from their own employees, but also others in the group. Also, captive health insurance doesn’t eliminate exposure to common cost drivers, such as GLP-1 drugs or chronic disease management, so employers in the captive must still put strategies in place to keep claims low.
Level-funded plans are a combination of fully-insured and self-insured policies. Employers pay a fixed monthly amount to a third-party insurance company to cover projected medical claims, administrative fees, and stop-loss coverage. The stop-loss policy protects against both individual high-cost claims and any total claims that exceed a set limit.
At the end of the plan year, the employer may receive a refund or credit if actual claims are lower than estimated. If claims are higher than projected at the beginning of the plan year, your renewal rates may be higher for the following year.
Here are some key features of level-funded health plans and how they can work as a funding strategy:
Even though level-funded plans provide predictability, you’ll still have to work with a traditional insurance carrier or TPA. This means the factors that impact fully-insured plans can still affect your overall costs. Transparency is also limited compared to other alternative options, like defined contribution strategies, which can make it harder to gain the insight you need to make effective change.
Reference-based pricing (RBP) is a funding strategy where employers set a maximum, fixed reimbursement amount for specific medical services based on a percentage of Medicare pricing, instead of using traditional pre-negotiated rates. For example, employers with an RBP plan may choose to reimburse hospitals at 140% of Medicare rates. When an employee submits a claim, the plan pays up to that set amount, regardless of what the provider actually charges.
Here are some key features of RBP and how it can work as a funding strategy:
But there are some major downsides to reference-based pricing for employees.
Employees may face balance billing if providers charge more than the plan’s reimbursement level, which can create confusion or dissatisfaction. And, while RBP works well if an employee needs a medication that has a generic, cheaper alternative, it doesn’t work as well for specialty drugs. The high cost can make it harder to find a reference price. So employees who need certain specialty medications may be left paying for them out of pocket.
“Every broker the Remodel Health team talks to is exploring a wide range of alternative funding strategies for their clients, not because they want to, but because they have to,” Whitehead said. “Reference-based pricing, level-funded plans, and captives have all surged in popularity. That trend makes sense. Employers and advisors are under intense pressure to respond to relentless cost increases in traditional fully insured and self-funded plans. Everyone is searching for a path forward.”
But if benefits consultants and large employers really want to break free from the traditional coverage model, this next option will do just that.
An individual coverage health reimbursement arrangement (ICHRA) is an employer-funded health benefit for companies of any size. This benefit uses a defined contribution strategy, meaning employers choose a set tax-free monthly contribution amount to offer their employees. Then, employees buy their own qualifying individual health plan according to their health needs, family, and budget, and use your contribution to help pay their monthly premiums. For large employers, the ICHRA is a flexible and predictable benefit that isn’t subject to annual claims volatility.
Here are some key features of the ICHRA and how it can work as a funding strategy:
Transitioning to an ICHRA can be a learning curve at first. But once implemented, it can solve many of the issues caused by rising healthcare costs. Because the ICHRA is a defined contribution benefit, premium spikes and employees seeking specialty medications won’t impact your company’s set benefits budget. And, unlike other options, employees have the flexibility to choose the plans and providers that work for them.
“Most alternative funding strategies still revolve around managing claims more efficiently. They tweak the system, but they don’t escape it,” Whitehead said. “Employers remain exposed to the very risk they’re trying to control. The real opportunity isn’t finding a better way to finance claims. It’s stepping out of the claims game altogether. ICHRA is the only funding model today that fully removes employers from claims risk.”
Having the right partner makes all the difference with ICHRA. Remodel Health is the most trusted ICHRA administrator at scale. As the largest ICHRA vendor, we can support broker consultants and large employers in transitioning from traditional group coverage to ICHRA. With industry-leading technology, the largest in-house team of experts, and white-glove customer service, you’re backed by the team that makes ICHRA work.
Learn more about our hands-on onboarding approach to ICHRA.
Choosing the right funding strategy depends on your organization’s goals, tolerance for financial risk, and employees’ needs. With healthcare costs continuing to rise, it’s vital that you not only consider your short-term needs, but also your long-term priorities.
When determining your health plan funding strategy, ask yourself the following questions:
Rising healthcare costs show no sign of slowing down. Large employers can no longer rely on traditional funding strategies that come with steep renewal rates, inflexibility, and a lack of control over high claims. Considering alternative models can help brokers and employers better manage costs, reduce volatility, and craft a more sustainable benefit for the long haul.
By shifting to a defined contribution model, such as an ICHRA, employers can guarantee cost predictability while giving employees greater choice and flexibility. If you’re considering implementing a personalized ICHRA for your organization, book a call with us to learn how we can help you design and manage your benefit.