For most small employers, the fully insured group health plan is the default. It is familiar, predictable, and easy to administer, which is exactly why so many employers renew into it year after year without a second look. What many of those employers do not realize is that the pool they are renewing into has been changing underneath them, and that the change matters for what they are likely to be charged in 2027.
This post explains what the data shows, why a shrinking fully insured pool can push premiums higher, and what employers should do about it before their next renewal. The goal is not to steer every employer toward a different funding arrangement. It is to make sure the decision to stay, or to move, is a deliberate one.
What the Data Shows
A Peterson-KFF Health System Tracker analysis published in August found that the number of people covered by fully insured small group plans fell from about 17 million in 2013 to about 10 million in 2024. Over that same period, small business coverage rates held steady. That combination suggests the employers leaving the fully insured market largely did not stop offering coverage. They moved to level-funded and self-funded arrangements instead.
The same analysis reviewed proposed 2027 rates from 295 small group insurers across all 50 states and the District of Columbia and found a median proposed premium increase of 14 percent. Insurers pointed to rising medical prices and utilization, new high-cost specialty drugs, increased GLP-1 use, and increased use of behavioral health services. They also cited something less visible in the headlines, which is declining enrollment and a worsening risk pool, in part because small employers are shifting to level-funded plans.
Why a Shrinking Pool Matters
How the Pool Sets Your Price
A fully insured small group plan is priced largely on the claims experience of the entire pool of groups a carrier covers, not just your own. Under the Affordable Care Act, the factors a carrier can use to price small group coverage are limited, and a group’s own claims history is not one of them. That is part of what makes the fully insured market so predictable and so accessible to employers of any health profile.
What Happens When Healthier Groups Leave
Level-funded plans work differently. They are underwritten based on the health of the specific group, which means groups with favorable claims profiles are often able to qualify for pricing that looks better than their fully insured alternative. When enough healthy groups make that move, the average claims cost of the groups remaining in the fully insured pool rises. Carriers respond by raising rates, which makes the fully insured option look even less attractive to the next healthy group considering a move. Economists call this adverse selection, and KFF has warned that continued growth in level-funded options has the potential to further erode the fully insured small group risk pool.
Who Gets Left Behind
The employers with the least flexibility in this dynamic are those with sicker employees. KFF noted that these groups may not qualify for a level-funded arrangement, or may be priced out of one, which leaves them in a fully insured pool that may become more expensive over time with fewer healthy groups sharing the cost. For these employers, the question is not whether the market is changing. It is how to manage the cost of staying in it.
What This Does and Does Not Mean for Your Group
None of this means every employer should leave the fully insured market. Level-funded plans carry their own tradeoffs. Renewals are based on the group’s own claims experience, so a favorable year can produce a refund and a strong renewal, while a high-cost year can produce a much harder one. The refund potential is real but not guaranteed, and a group that leaves the fully insured pool during a healthy stretch can face a difficult renewal after a single bad year.
It also does not mean the fully insured plan is the wrong choice. For groups with sicker employees, limited cash flow flexibility, or little appetite for variability, a fully insured plan may remain the right fit. The point is that the decision should be made with a clear view of how the market is moving, rather than by default.
The KFF analysis focuses on the small group market. Larger groups are typically rated differently, with more weight placed on their own claims experience, but the same underlying cost pressures, including specialty drugs and GLP-1 use, apply across the board.
What to Do Before Your 2027 Renewal
A few practical steps can make the difference between accepting a renewal and making a decision about it.
- Ask your advisor for the carrier’s proposed rate and the trend assumption behind it, not just the final number.
- Request your group’s claims and utilization data so you understand where your own cost is coming from.
- Ask whether a level-funded quote has been prepared for your group, and what underwriting information it would be based on.
- For any level-funded option, ask how renewals are calculated after a high-cost claim year before you commit.
- Compare plan designs and contribution strategies, not just premiums, so you can see the full cost to the company and to employees.
- Confirm that your advisor is comfortable presenting both fully insured and alternative funding options, and can explain why one fits your group better than the other.
At Cypress Benefit Solutions, we believe an employer should understand how the market is moving before deciding how to respond to it. Whether your group is best served by staying fully insured, moving to a level-funded plan, or exploring another structure, we would welcome the opportunity to walk through the numbers with you ahead of your 2027 renewal.
