Employer’s Dilemma: When a fully insured plan no longer works, what’s next for an employer?

For decades, we have faced the same year’s daily routine: paying your premium. Support for renewal rate. Absorb the increase or pass it on to your employees. Can you repeat it?

This is the benefit version of Groundhog Day – amid inflation, economic uncertainty, labor market shifts, and widespread distrust of the healthcare system, this routine is starting to break for an increasing number of businesses in 2025. The model that once promised simplicity and consistency is now under the microscope because companies demand better for themselves and their people.

For these organizations, the problem is not to adjust the current model. This is whether the model is still valid. It may be time to completely rethink structures – towards structures that provide more transparency, flexibility and control for employers and employees. Because the next chapter of employer-sponsored benefits is likely defined by who takes the risk – now it is time for employers to face whether they have the financial ability or are willing to take that responsibility.

Current situation: No control responsibility

After nearly 90 years of adopting employer-sponsored coverage after World War II era wage caps settled, the fully insured model looks big. Operators control operator selection, employers pay premiums, and choose between a limited number of available plans.

The model is often described as “convenient” and “simple” – for some businesses, it may be. But for others, it is worth mentioning: What exactly is the absorption cost that you cannot affect? The simplicity that many employers once appreciate is increasingly offset by limitations and lack of agency, and the growing disconnect between accountability and control.

Why adjustments and tools don’t always move needles

To improve experience within a fully insurance structure – and to compete in a highly competitive labor market – many employers have turned to a variety of points solutions: employee health plans, virtual care providers, nursing navigation platforms, pharmacy benefits, and more.

These tools and programs have their own place – many tools and programs have real value. But for employers, the challenge is not a lack of solutions. This structure often requires them to innovate within the edge of a model that is no longer suitable. Health planning and virtual care are helpful, but they can’t address deeper misalignment: where employers assume the financial weight of the system they are not able to shape.

While large employers can explore alternatives such as self-funding, on-site clinics, or direct primary care, for many organizations, these strategies may not be touched and bring their own complexity and tradeoffs.

For many, a fully insured model may feel like the only option available – even if it is no longer suitable for the labor force or the bottom line.

The burden of a centralized risk pool: Why it’s time to take a broader approach

One of the challenges of the full insurance model is to limit the risks in the individual employer population. When a few high-cost claims (even a huge claim) hit a relatively small group, it sends out a soar in update rates even if the overall utilization is stable. In fact, a report from the U.S. Institute of Health Policy found that less than 2% of admission program members are considered high-cost claims, but they make up more than 30% of employer spending. Employers – as by-products, their employees – often absorb these costs that increase more than planned performance, with little room to minimize or mitigate the impact.

Defined contribution model approaches, particularly through models such as Personal Coverage Health Reimbursement Arrangement (ICHRA). Instead of buying a single collective plan, employers set a fixed budget for each employee and allocate monthly allowances for tax benefits. Employees use this allowance to purchase a personal health plan that suits their unique health conditions and preferences – whether it is a high deduction, HSA-compliant program, comprehensive and extensive network coverage, or access to a specific provider network.

The biggest difference? This model disperses the risk pool. Instead of being associated with an employer’s claim, the employee enters a wider market of individuals where risks are distributed across a wider population and with large-scale adjustments to premiums.

The results are also clear. The latest data from Oscar Health shows that the huge pool of risk in a single market (the life stability of more than 24 million people) not only maintains the cost of health insurance. It actually forces it to lower, with the cost in 2024 about 4% less than employer costs.

ICHRA does not only represent a change in possession of risks; it is a change in the way risk is managed. For many employers, this transformation opens the door to a more stable and sustainable welfare strategy.

Recycling control through defined contribution model

Businesses struggling with uncontrollable costs and employee coverage requirements need not only other solutions, but also structural resets.

For employee expectations that employers have seen rising driving costs and evolving employment, the answer is rarely another benefit complexity. This is the focus on fundamentals: budget predictability, planning flexibility, and investment capabilities on impact. In this case, retraction of control is not about resisting change. It’s about re-establishing ownership in a space that is too difficult to achieve for too long. Therefore, it is precisely for this reason that the definitional contribution model often implemented through ICHRA is attracting. With the help of brokers, more and more employers are introducing models into the interest conversation as a strategic response to the modern market.

Although ICHRA may not fit every business model, this model has several advantages, especially around budget predictability and agility. Organizations can plan their welfare budgets several years in advance, adjust to financial goals or workforce shifts, and move from reactive cost management to intelligent, proactive strategies.

Let go of traditional models

It is understandable why many employers default to a fully insured model. For some, it works. For others, it is familiar, and in complex systems, familiarity brings weight. But increasing familiarity comes at a price – not only measured in US dollars, but also building more adaptable, transparent and consistent welfare strategies in missed opportunities

As employers and their teams’ economics, every dollar they’re asking them to spend becomes more strategic and agile, the more important question becomes: Are we fully insured because we’ve achieved our goals – or is it because that’s what we’ve always done?

This is not a call to ask every employer to abandon the model overnight. Instead, it is an invitation to organize pause, reflect on and evaluate whether the structure still supports the outcome of their efforts.

Transitioning from traditional models is not about giving up on what is familiar to the latest trends. It’s about ensuring that a company’s welfare strategy meets the needs of the workforce and the financial goals of the organization. It’s about exploring models that provide employers and employees with increased transparency, sustainability and choice.

We did not witness the death of a fully insured model. But we are at the beginning of a broader shift: a person who recognizes the need for new frameworks, new dialogues and new levels of control. This shift can mark the beginning of an era of more adaptable, inclusive benefits – an era designed to work better for everyone.

Photo: Bulat Silvia, Getty Images

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