Most employers make benefits decisions based on what their broker presents. And most brokers present a narrow slice of what is actually available in the market. The result is that a significant number of employers are renewing the same structure year after year without ever knowing that meaningfully different options exist, some of which would produce better outcomes for their specific workforce and financial situation.
This post is designed to change that. It is a comprehensive, plain-language overview of every major structural option available for employer-sponsored health benefits, what each one involves, who it tends to work best for, and what the key tradeoffs look like. The goal is not to steer every employer toward any particular approach but to make sure every employer can answer honestly whether they have actually seen the full landscape before making a decision.
Think of this as a reference guide you can return to when evaluating your options at renewal time or share with a leadership team that is asking why the plan keeps costing more every year.
Option One: Fully Insured Group Health Plan
The fully insured group health plan is the most familiar structure in employer-sponsored health benefits and still the most common among small and mid-size employers. The employer selects a carrier and a plan design, pays a fixed monthly premium per covered employee and dependent, and the carrier assumes the risk of paying claims regardless of how high they run.
How It Works
The employer contracts directly with an insurance carrier or, more commonly, selects a plan through a licensed broker. Premiums are fixed for the plan year and do not vary based on actual claims experience during that period. The carrier manages all claims administration, network contracting, and plan compliance. The employer’s primary administrative responsibilities are managing enrollment, collecting employee premium contributions, and communicating benefits to employees.
Best Fit
Fully insured plans work best for employers with fewer than 50 covered lives where claims volatility risk is high, employers with known high-cost claimants where stop-loss pricing would be prohibitive, employers with very tight cash flow who need complete premium predictability, and employers who want a low-administrative-burden arrangement.
Key Tradeoffs
The employer pays for risk transfer through a premium load that includes carrier profit margin, administrative costs, and risk charges. In favorable claims years, the surplus belongs to the carrier. The employer has limited visibility into claims data and limited ability to influence what is driving renewal increases. State benefit mandates add required coverage categories that may not reflect the workforce’s actual needs.
Option Two: Level-Funded Health Plan
Level-funded plans occupy the middle ground between fully insured and self-funded. The employer pays a fixed monthly amount similar to a fully insured premium, but that payment is split into three components: expected claims, stop-loss insurance, and administration. At the end of the plan year, if actual claims are lower than the funded amount, the employer receives a refund of the unused claims reserve.
How It Works
The carrier or third-party administrator sets a monthly level payment based on actuarial projections of the group’s expected claims. Stop-loss insurance caps the plan’s exposure if claims exceed projections. If the plan year ends favorably, the employer recovers a portion of what they paid into the claims fund. Most level-funded products provide access to the employer’s claims data throughout the year, giving more visibility than a traditional fully insured arrangement.
Best Fit
Level-funded plans work well for employers in the 25 to 150 employee range who want the cost predictability of a fixed monthly payment with the potential upside of favorable claims performance, employers who want more data visibility than a fully insured plan provides without the full administrative complexity of a self-funded arrangement, and employers who are not yet ready to fully self-fund but want to move in that direction.
Key Tradeoffs
Level-funded plans are more complex than fully insured plans and require a basic understanding of claims fund mechanics and stop-loss structure. The refund potential is real but not guaranteed and varies significantly based on plan year claims experience. Some level-funded products have less flexibility in plan design than a fully custom self-funded arrangement.
Option Three: Self-Funded Health Plan
In a self-funded arrangement the employer assumes direct financial responsibility for paying employee health claims rather than transferring that risk to a carrier in exchange for a fixed premium. The employer contracts separately with a third-party administrator for claims processing, a stop-loss carrier for catastrophic claim protection, and a network provider for access to discounted provider rates.
How It Works
The employer pays claims as they are incurred rather than a fixed premium. Stop-loss insurance protects against large individual claims through specific stop-loss coverage and against aggregate claims that exceed expectations through aggregate stop-loss coverage. The employer owns the claims data and has direct visibility into what is driving costs. Plan design flexibility is significantly greater than under fully insured or level-funded arrangements, and the plan is generally exempt from state benefit mandates under ERISA federal preemption.
Best Fit
Self-funding is most appropriate for employers with 75 or more covered lives where the claims pool is large enough to produce reasonably predictable experience, employers with favorable claims history and a healthy workforce profile, employers with sufficient cash reserves or credit access to manage month-to-month claims variability, and employers who want maximum transparency, plan design flexibility, and long-term cost management capability.
Key Tradeoffs
Self-funding requires more active engagement from the employer and a benefits advisor with genuine expertise in plan administration and stop-loss structure. Month-to-month claims variability requires financial preparation. Employers who are not prepared to engage actively with their plan data will not capture the full value of the arrangement.
Option Four: Professional Employer Organization
A Professional Employer Organization, commonly called a PEO, is a company that enters into a co-employment relationship with the client employer. The PEO becomes the employer of record for the client’s employees for purposes of payroll, benefits, HR administration, and workers compensation. Employees gain access to benefits, including health insurance, through the PEO’s master plan rather than through a plan the client employer sponsors directly.
How It Works
The client employer contracts with the PEO, which handles payroll processing, tax filing, HR compliance, and benefits administration. Because the PEO pools employees from many client companies into a single large group, it can often access better benefits pricing and a broader range of coverage options than a small employer could obtain independently. The client pays a per-employee fee to the PEO that covers these services in addition to the benefits premium.
Best Fit
PEOs work well for very small employers with fewer than 25 employees who cannot access competitive group health insurance on their own, employers who want to outsource HR and payroll administration alongside benefits, startups and rapidly growing companies that need a turnkey HR infrastructure, and employers who value having a single vendor relationship for a broad range of administrative functions.
Key Tradeoffs
PEO arrangements reduce the employer’s control over plan design and benefits decisions because those decisions are made at the PEO level for the entire pool. Exit from a PEO can be complex and disruptive, particularly when employees have enrolled in benefits through the PEO’s master plan. The fee structure of PEO arrangements can be difficult to benchmark and the total cost of the relationship is not always transparent. Employers who outgrow the PEO model, typically in the 50 to 100 employee range, often find that transitioning to an independent benefits arrangement produces meaningfully better outcomes.
Option Five: Individual Coverage Health Reimbursement Arrangement
An Individual Coverage Health Reimbursement Arrangement, commonly called an ICHRA, is a defined contribution approach to employer-sponsored health benefits. Instead of selecting a group health plan, the employer sets a monthly allowance amount and employees use that money to purchase their own individual health insurance on the open market.
How It Works
The employer establishes the ICHRA, sets monthly allowance amounts by employee class, and funds the accounts. Employees shop for and purchase their own ACA-compliant individual health plan, pay their premium, and submit documentation for reimbursement up to their allowance amount. Reimbursements are tax-free to employees and tax-deductible for the employer. The employer’s cost is fixed at the allowance amount and does not fluctuate based on claims experience.
Best Fit
ICHRAs work particularly well for employers with distributed or multi-state workforces where a single group plan network performs unevenly across locations, employers with a mix of full-time and part-time employees, employers in industries with high turnover where individual portable coverage reduces administrative friction, and employers whose group plan renewal costs have been consistently outpacing what the budget can support.
Key Tradeoffs
Employees must navigate the individual insurance market independently, which requires education and support to do well. The quality and affordability of individual market plans varies by geography. Employees offered an affordable ICHRA are generally not eligible for ACA Marketplace premium tax credits. Not every workforce profile or geographic market is well-suited to the individual market, and the employer loses the ability to offer a unified group coverage experience.
Option Six: Qualified Small Employer Health Reimbursement Arrangement
A Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, is similar to an ICHRA in concept but designed specifically for employers with fewer than 50 full-time equivalent employees who do not offer a group health plan. Like an ICHRA, the employer funds accounts that employees use to purchase individual coverage and pay qualified medical expenses.
How It Works
The employer sets a maximum annual reimbursement amount, which is capped by the IRS each year. For 2026 the limits are $6,350 for self-only coverage and $12,800 for family coverage. Employees purchase their own individual health plan and submit expenses for reimbursement up to the annual maximum. Reimbursements are tax-free provided the employee has minimum essential coverage.
Best Fit
QSEHRAs are most appropriate for small employers with fewer than 50 full-time equivalent employees who want to provide a defined health benefit contribution without the complexity of sponsoring a group health plan, employers whose workforce is comfortable selecting their own individual market coverage, and employers looking for a simple, low-administrative-burden approach to providing a health benefit.
Key Tradeoffs
The annual contribution limits are lower than what many employers would want to provide for family coverage, and employees with significant health needs may find that the QSEHRA allowance is insufficient to cover meaningful coverage. Like ICHRAs, employees receiving an affordable QSEHRA generally cannot access ACA Marketplace subsidies. The QSEHRA is not available to employers who also offer a group health plan.
Option Seven: Health Reimbursement Arrangement Alongside a Group Plan
Beyond ICHRAs and QSEHRAs, employers can use several types of health reimbursement arrangements alongside a traditional group health plan to supplement coverage, reduce employee out-of-pocket exposure, or provide additional flexibility in how benefits are delivered.
An Integrated HRA sits alongside a group health plan and reimburses employees for deductibles, copays, and other qualified out-of-pocket expenses the plan requires them to pay. The employer funds the HRA and sets the terms for what expenses are eligible and how much can be reimbursed. This approach allows employers to maintain a higher-deductible plan with lower premium cost while using HRA funds to offset the employee’s cost-sharing burden, effectively creating a more generous benefit experience at a lower total cost than a low-deductible plan would produce.
An Excepted Benefit HRA, which we covered in an earlier post on 2027 benefit limits, allows employers to reimburse employees for certain excepted benefits such as dental and vision expenses at a maximum of $2,250 per year for 2027. This type of HRA can be offered to employees regardless of whether they are enrolled in the group health plan, making it a flexible tool for providing additional coverage support.
Option Eight: Group Captive or Association Health Plan
Group captives and association health plans are structures that allow multiple employers to pool their health plan risk together, achieving the scale advantages of a large group while maintaining more control than a fully insured arrangement provides.
Group Captive
A captive is a formalized risk-sharing arrangement in which multiple employers, typically in the same industry or geographic region, agree to pool a portion of their health plan risk. Each participating employer retains some individual risk through a self-funded layer, shares group-level risk through the captive structure, and transfers catastrophic risk through stop-loss insurance purchased at the captive level. The captive model allows smaller employers to access the underwriting advantages of a larger group while maintaining plan design flexibility and data visibility.
Captives work best for employers in the 25 to 200 employee range who have favorable claims experience, a genuine interest in active plan management, and a willingness to commit to the multi-year participation that makes captive economics work. The underwriting process for captive admission is rigorous and employers with adverse claims history may not qualify.
Association Health Plans
Association health plans allow employers in the same industry, trade, or profession to join together to purchase health coverage as a single large group. The theory is that a larger pool produces better pricing and broader plan options than each employer could access individually. In practice the quality and stability of association health plans varies considerably and employers considering this option should evaluate the specific association, its financial backing, and its track record carefully before committing.
Option Nine: Direct Primary Care Plus Wraparound Coverage
Direct Primary Care, or DPC, is a membership-based model in which employees pay a monthly fee directly to a primary care physician or clinic in exchange for unlimited access to primary care services with no copays, no claims filing, and typically same-day or next-day appointment availability. Employers can sponsor DPC membership as a standalone benefit or pair it with a high-deductible wraparound plan that covers services outside the primary care scope.
The DPC-plus-wraparound model can produce meaningful cost savings for employers whose workforce generates significant primary care utilization, because primary care costs are moved outside the claims system entirely and the employer can purchase a leaner wraparound plan focused on catastrophic and specialty coverage. It also tends to improve employee satisfaction with primary care access because DPC physicians have smaller patient panels and more time for each patient.
DPC arrangements work best for employers with a workforce that is concentrated geographically near participating DPC clinics, leadership that is willing to communicate the model clearly to employees, and a long enough time horizon to realize the downstream savings that better primary care access tends to produce over time.
How to Know Whether You Have Actually Seen All Your Options
After reading through this landscape, here are the questions worth asking to determine whether your current benefits approach reflects a genuinely informed decision or simply the path of least resistance.
- Has your benefits advisor ever presented you with a side-by-side comparison of fully insured, level-funded, and self-funded options based on your specific claims history and workforce profile?
- Have you ever had a conversation about whether an ICHRA might work better than a group plan given your workforce’s geographic distribution and employment mix?
- If you are in a PEO, have you evaluated what transitioning to an independent benefits arrangement would look like and whether the PEO fees are still justified given your size?
- Has anyone reviewed whether a DPC arrangement or captive model might be appropriate given your workforce profile and location?
- Has your pharmacy benefit ever been evaluated independently of your medical plan, and do you know who your PBM is and how they are compensated?
- Has your advisor ever explained why a specific option was ruled out for your situation, or have they simply presented what they are most comfortable selling?
If the honest answer to most of these questions is no, then the most important next step is not evaluating one more fully insured renewal. It is finding an advisor who can give you a genuinely complete picture of what is available and help you make a deliberate, informed choice.
At Cypress Benefit Solutions, presenting the full landscape of options and helping employers make the right choice for their specific situation is the foundation of how we work. We do not have a predetermined answer and we do not default to what is easiest to administer. If you have never had this conversation in full, we would welcome the opportunity to have it with you. Reach out anytime.
