Mid-Market Health Plan Funding Reassessment: A Missed Opportunity for Brokers

The Funding Gap in Mid-Market Health Plans

In the mid-market segment, employers often find themselves in a cycle where health benefits are reviewed annually, but the question of whether the funding structure is appropriate rarely surfaces. As companies debate renewal rates, they might shift costs or absorb increases, but the fundamental structure of their plans often goes unchallenged. This presents a substantial opportunity for brokers to provide value by initiating conversations around health plan funding.

Employer Perspectives on Health Plan Funding

Jennifer Schaefer, CEO of JS Benefits Group, highlighted this oversight in a recent post for Forbes Business Council, underscoring that most mid-market employers have not formally evaluated their health plan funding structures. This gap in analysis may not only lead to increased costs but also impacts the overall efficiency of these health benefits.

Current Data Trends

According to the Kaiser Family Foundation’s 2025 Employer Health Benefits Survey, there's a stark contrast in funding structures between large and mid-sized companies. In large enterprises, approximately 80% of covered workers participate in self-funded health plans, while only 27% of workers in firms employing 10 to 199 people are enrolled in such plans. This discrepancy signals a significant lack of engagement by mid-market employers in exploring more flexible and potentially cost-effective health plan options.

Understanding Fully Insured Plans

Fully insured plans offer straightforward cost predictability, with employers paying fixed premiums as carriers shoulder the risk. This model, however, can stifle meaningful discussions about whether a different funding approach might be more beneficial. Since employers receive limited access to essential claims data under fully insured arrangements, the decision-making process can become reactive rather than proactive. Brokers who take the initiative to request and analyze claims data prior to renewal can identify discrepancies or opportunities for cost-saving adjustments, making them invaluable partners in health benefit strategies.

Exploring Level-Funded and Self-Funded Plans

Level-funded plans provide an alternative between fully insured and traditional self-funded plans. In this model, employers pay a set monthly amount and purchase stop-loss insurance to limit their exposure to high-cost claims. If the plan performs well, any remaining funds can be returned at year-end. Recent data indicates that 37% of employees at mid-sized firms are now enrolled in level-funded plans. As the number of employers opting for this structure increases, it starts reshaping the dynamics of the risk pool within the small group market.

Impact of Group Captives

There’s also a growing interest in group captive arrangements where employers combine resources to share risk. These models can accept groups with as few as 50 to 150 employees, but the primary factor considered by captive managers is claims credibility rather than mere headcount. They typically look for a reliable claims history of three to five years, emphasizing the need for leadership commitment to cost management and positive employee health outcomes.

Navigating Current Market Challenges

The pressure to reassess health plan funding comes as insurers prepare to raise rates by a median of 14% for the small group market in 2027, as indicated by KFF’s analysis. This increase, which is steeper than the 11% projected for the previous year, underscores the urgency for brokers and mid-market employers to explore alternative funding structures. Since fully insured enrollment has decreased significantly, from 17 million to 10 million covered workers between 2013 and 2024, mid-market employers face a challenging reality. As healthier groups migrate to level-funded arrangements, those remaining in fully insured plans are likely to encounter higher costs associated with a less favorable risk pool.

Strategic Steps for Benefit Brokers

For brokers, the key to engaging mid-market clients lies in initiating discussions around their funding structures well before renewal periods. Here are three actionable steps to consider:

• Request access to claims data during initial renewal discussions, even with fully insured clients, to facilitate informed conversations.
• Assess each client against a benchmark of stable claims history to ascertain readiness for level-funded or captive solutions before introducing these options.
• Communicate transparently with clients about the deteriorating risk pool in fully insured arrangements, ensuring they understand that stagnant or declining headcount does not equate to a stable risk profile.

Conclusion: The Importance of Investigating Funding Structures

Shifting to a different funding model carries specific trade-offs, including eliminating guaranteed renewals and exposing employers to additional financial risk during high-claims years. A tailored approach that considers workforce demographics, claims histories, and risk tolerance requires proactive analysis that brokers can lead, rather than waiting for clients to identify the need for change. Those brokers who take the initiative to analyze claims data early in the process will be better positioned to earn their clients' trust and drive their recommendations effectively.