If you’ve sat through a renewal meeting in the last few years, you already know the drill. Your broker slides a spreadsheet across the table, and there it is: another double-digit premium increase. You ask why. The answer is usually some version of “that’s just what the market’s doing.” You negotiate a little, shave off a few points, and sign the renewal anyway because, really, what choice do you have?
If that sounds familiar, you’re not alone, and you’re not stuck, either. A growing number of employers are discovering that the real problem isn’t their carrier or their broker. It’s the funding model itself. That’s where alternative funding comes in, and it’s quickly becoming one of the most effective ways for small and mid-sized businesses to get off the renewal hamster wheel. Read on to learn more about alternative funding options for your business needs.
What Is Alternative Funding?
In a traditional fully insured plan, you pay a fixed premium to a carrier every month, and the carrier assumes the risk of your employees’ claims. It’s simple and predictable in the short term, but almost entirely opaque. You rarely see your own claims data, you have little say in plan design, and your renewal is largely a black box based on broad market trends rather than your specific workforce.
Alternative funding flips that model. Instead of fully transferring risk to an insurance carrier, employers take on a measured, manageable portion of that risk. And in exchange, gain access to claims data, more flexible plan design, and the potential to keep dollars that would otherwise go straight to a carrier’s bottom line. It’s a category that includes several strategies:
- Level-funded plans combine a fixed monthly payment, like a fully insured plan, with claims-based settlement at year-end. If claims come in under projections, employers get money back. It’s often a stepping stone between fully insured and self-funded — lower risk, but more transparency and savings potential than a traditional plan.
- Self-funded plans go a step further, with the employer paying claims directly through a third-party administrator and purchasing stop-loss insurance to cap exposure on catastrophic claims. This gives employers the most control over plan design, network selection, and pharmacy management.
- Captives let employers pool risk with other similarly sized companies through a shared insurance entity, spreading out the volatility of large claims while still giving each participant access to their own data and a share of any underwriting surplus.
- Reference-based pricing and other hybrid models tie reimbursement to a percentage of Medicare rates or other benchmarks rather than negotiated carrier discounts, often producing meaningful savings on facility and provider costs.
None of these are exotic, fringe ideas anymore. Industry trend reports list the growing use of alternative funding models like level-funded plans and ICHRAs among the key shifts shaping employee benefits this year.
Why More Employers Are Making the Switch
The honest answer is that traditional funding has stopped working for a lot of companies. When premiums are rising fast regardless of how healthy your group is, the fully insured model starts to feel less like protection and more like a tax.
A few specific pressures are pushing the shift:
- Pharmacy costs are eating budgets alive. Specialty drugs, including GLP-1 medications for weight management and diabetes, have become one of the fastest-growing line items in nearly every benefits plan. Alternative funding typically gives employers far more visibility into pharmacy spend and more leverage to negotiate transparent PBM contracts, rather than accepting whatever formulary and rebate structure a carrier hands them.
- Chronic conditions are driving the bulk of spend. Under a fully insured plan, you have almost no way to address that at the population level. Under a self-funded or level-funded arrangement, you can layer in chronic condition management, advanced primary care, or targeted wellness incentives — and actually see whether they’re moving the needle.
- Claims transparency has become a competitive advantage. Employers who can see their own claims data can identify which conditions, providers, or behaviors are driving costs and design a plan around fixing them, instead of guessing. Without that data, as Blackrock Benefits points out in its own healthcare cost management resources, you’re not really running a strategy — you’re just hoping next year’s renewal isn’t as bad as this year’s.
- Predictability matters more for budgeting. Even though employers take on a bit more risk with alternative funding, that risk is typically capped through stop-loss coverage. The trade-off is a more stable, forecastable cost curve over a multi-year horizon, rather than the boom-and-bust cycle of fully insured renewals.
How to Make an Alternative Funding Decision
Alternative funding isn’t automatically the right move for every employer, and any broker worth their commission should tell you that upfront. A company with 12 employees and a young, healthy workforce has very different risk tolerance than a 200-person company with an aging staff and a few ongoing high-cost claimants.
The right structure — level-funded, fully self-funded, captive participation, or some hybrid — depends on group size, claims history, risk appetite, and how much administrative complexity your team can take on.
That’s also why timing matters. Waiting until 60 days before renewal to explore alternative funding rarely works; there’s not enough runway to model the options, negotiate stop-loss terms, or communicate changes to employees. The employers who get the most value out of alternative funding tend to start evaluating their options well before renewal season, treating it as an ongoing strategy rather than a once-a-year scramble.
Alternative funding won’t make healthcare cheap. Nothing will, not with national trends moving the way they are. But it does give employers a genuine seat at the table: visibility into what’s driving costs, flexibility to design around those drivers, and a real shot at keeping savings instead of handing them to a carrier as profit.
If you’ve been white-knuckling your way through renewals for the last few years, it might be time to ask a different question. Not “how do we negotiate a smaller increase,” but “is our funding model even the right one for where our company is today.” For a lot of employers, that single question is the start of getting healthcare costs under control for good.
Get Started with Blackrock Benefits
If you’re looking for genuine insight into your company’s healthcare and benefit expenses, you need an expert partner. Blackrock Benefits has local knowledge and years of experience in employee benefits, and our team can help you find the right solution for your unique needs, whether that’s alternative funding or traditional funding.
Contact us to get started exploring your options.