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.
Transitioning from a fully insured plan to a self-funded or level funded plan can feel daunting, especially for employers used to the simplicity and security of fully insured plans.
After all, fully insured plans offer a hands-off approach and fixed monthly premiums, which can be incredibly appealing for businesses that lack the necessary staff, resources or expertise to handle the complexities of health care administration.
However, a level funded or self-funded plan can be a strategic choice for those looking for greater flexibility in terms of 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, level funded plans look to offset that risk with the potential for a surplus refund* 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 also 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 an employer has 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 surplus refund* — 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 employers with 500 or more employees are much more likely to self-fund, compared to smaller or midsize businesses, according to a 2024 survey.1 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 catastrophic claims.
4. Desire for cost control and transparency
Employers who are interested in gaining more visibility into how their 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.
5. Strategic human resources and benefits leadership
If employers have a strong human resources team on staff, they may want to broach a level funded or self-funded plan. Why? A strategic-minded staff may also be more likely to be proactive in managing health plans and collaborating with third-party administrators (TPAs), brokers, consultants or their insurer on optimizing benefits.
6. Willingness to accept risk and innovation
Level funded or 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, they may be good candidates for these types of plans.
7. Support from advisors
If trusted counsel (think: brokers, consultants or a client’s account team) 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 also access actuarial analyses and benchmarking data to support the decision to switch.
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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