Imagine receiving a 17% medical renewal increase for the third year in a row.

Your first instinct is probably to compare carriers, review deductibles, and look for a plan with lower premiums.

After repeating that process year after year, many employers begin asking a different question.

Is there a better way to fund our health plan?

For years, many employers had only two realistic choices: purchase a fully insured plan or, if they were large enough, self-fund their health plan.

Today, that conversation has changed. Employers have more funding options than ever before, and each offers a different balance of financial risk, predictability, transparency, and long-term cost management.

The three most common funding approaches are:

• Fully Insured
• Level-Funded
• Self-Funded

While level-funded plans are technically a form of self-funding, they are often evaluated separately because they offer a different balance of predictability, financial risk, and administrative structure.

Each approach offers different advantages, different levels of financial risk, and different opportunities for managing healthcare costs. The goal isn't to find the "best" funding strategy—it's to understand how each works so you can choose the one that best supports your organization.

Fully Insured

Fully insured health plans remain the most common funding arrangement for many employers.

With this approach, the employer pays a fixed monthly premium to the insurance carrier, and the carrier assumes the financial responsibility for paying covered medical claims.

The primary advantage is predictability. Monthly costs are generally fixed throughout the plan year, administration is relatively straightforward, and the financial risk associated with claims remains with the insurance carrier.

For many employers, that's exactly what they're looking for.

The tradeoff is that fully insured plans typically provide less access to claims data and fewer opportunities to actively manage healthcare costs beyond annual renewal negotiations. Employers are largely dependent on the carrier's pricing and cost-management strategies.

For organizations that value budget certainty, administrative simplicity, and a more hands-off approach to managing their health plan, a fully insured arrangement continues to be an excellent option.

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Level-Funded

For many employers, several years of rising healthcare costs have prompted a different question. Rather than asking, "How much is our renewal?" they're asking, "Is there a better way to fund our health plan?"

That's one reason level-funded arrangements have become increasingly popular.

Level-funded plans combine the predictability of fixed monthly payments with many of the advantages of a self-funded health plan. Employers make a consistent monthly payment that typically includes expected claims funding, administrative expenses, and stop-loss insurance designed to protect against unexpectedly large claims.

Depending on the arrangement, employers may also gain greater visibility into claims trends and healthcare spending, providing valuable information to help guide future plan decisions and long-term cost management.

If claims are lower than expected, some level-funded arrangements may allow employers to receive a portion of unused claims funds back at the end of the plan year.

The tradeoff is additional administrative responsibility. Depending on the arrangement, employers may be responsible for certain IRS reporting and other compliance requirements that would typically be handled by the insurance carrier under a fully insured plan. A knowledgeable broker or third-party administrator can help manage these responsibilities.

For many employers, level funding provides a practical middle ground between the stability of a fully insured plan and the flexibility of self-funding.

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Self-Funded

While self-funded plans are still more common among larger employers, they are no longer limited to Fortune 500 companies. Advances in stop-loss protection, claims administration, and cost-management programs have made self-funding a realistic consideration for many organizations that previously assumed it wasn't an option.

Unlike a fully insured plan, a self-funded arrangement gives employers greater visibility into how healthcare dollars are being spent. Most employers don't manage these plans on their own. Instead, they work closely with their broker, a third-party administrator (TPA), stop-loss carrier, and other strategic partners who administer claims, monitor plan performance, and identify opportunities to better manage healthcare costs.

Self-funded plans also require a more active approach throughout the year. Rather than waiting until renewal season, employers typically meet regularly to review claims trends, discuss large claim activity, evaluate cost-containment opportunities, and make strategic adjustments as needed.

Depending on the arrangement, employers may have access to:

• Detailed claims reporting and analytics
• Clinical and large claim review
• Pharmacy management programs
• Prescription rebate opportunities
• Cost-containment strategies
• Care navigation and advocacy programs
• Greater transparency into healthcare spending

These tools give employers more than data—they provide actionable insights that can help improve employee health, identify cost-saving opportunities, and better manage healthcare spending over the long term.

For employers who want greater transparency and are willing to take a more active role in managing their health plan, self-funding offers the greatest level of flexibility and control.

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The Lines Have Started to Blur

One of the biggest misconceptions in today's benefits market is that fully insured, level-funded, and self-funded plans are completely separate worlds. They don't.

Over the past decade, the differences between these funding strategies have become less distinct. Modern level-funded plans incorporate many of the features traditionally associated with self-funding while maintaining predictable monthly payments. At the same time, self-funded plans have evolved to include stronger stop-loss protection, sophisticated claims administration, and cost-management programs that make them far more stable and manageable than many employers realize.

As a result, the conversation has shifted from "How much risk am I taking?" to "Which funding strategy provides the right balance of predictability, flexibility, and long-term cost management for my organization?"

Questions to Ask Before Changing Funding Strategies

Before deciding whether to remain fully insured or explore an alternative funding strategy, consider these questions:

• What are we trying to accomplish?
• Are we looking for lower short-term costs or better long-term cost management?
• How much financial predictability do we need?
• How important is access to claims data?
• Do we have the right partners to support a different funding model?
• What cost-management tools would become available?

The answers will look different for every organization, but asking the right questions is often the first step toward finding a funding strategy that aligns with your long-term goals.

Which Funding Strategy Is Best?

There isn't a single funding strategy that's right for every employer.

Some organizations value the simplicity and predictability of a fully insured plan. Others are looking for opportunities to better manage long-term healthcare costs through additional transparency and cost-containment strategies. Still others find that a level-funded arrangement provides the right balance between stability and flexibility.

The best funding strategy isn't determined solely by company size or this year's renewal increase. It's determined by your organization's goals, your workforce, your financial philosophy, and how actively you want to manage healthcare costs over time.

Looking Beyond Premiums

Choosing how to fund your health plan is about more than comparing renewal rates.

It's about understanding how each funding approach aligns with your organization's priorities—whether that's predictable budgeting, greater financial transparency, access to cost-management tools, or a long-term strategy for controlling healthcare spending.

As funding options continue to evolve, employers have more choices than ever before. Looking beyond premiums and evaluating the overall funding strategy can lead to better financial outcomes, stronger employee benefits, and a more sustainable health plan over the long term.

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At Royal Benefits Group, we help employers evaluate the advantages, tradeoffs, and long-term implications of each funding strategy so they can make informed decisions based on their organization's goals—not simply this year's renewal.

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