The Employer’s Dilemma: When the Fully Insured Plan No Longer Works, What’s Next for Employers?

For decades, we’ve faced the same yearly routine: Pay your premiums. Brace for renewal rates. Absorb the increases or pass them on to your employees. Can you repeat?

It’s the benefits version of Groundhog Day — and in 2025, amid lingering inflation, economic uncertainty, shifting labor markets, and general distrust of the healthcare system, that routine is starting to break down for a growing number of businesses. The model that once promised simplicity and consistency is now under the microscope as companies demand better for themselves and their people.

For those organizations, the question isn’t whether to tweak the current model. It’s whether the model still works at all. It may be time to rethink the structure entirely — toward one that offers more transparency, flexibility, and control for both employers and employees. Because the next chapter in employer-sponsored benefits might very well be defined by who is carrying the risk — and it’s time for employers to face whether they’re financially able or willing to shoulder that responsibility.

The status quo: responsibility without control

Nearly 90 years after adoption of employer-sponsored coverage surged following a World War II-era wage cap workaround, the fully insured model looks largely the same. Carriers control the carrier selection, employers pay the premiums, and employees choose between a limited number of available plans. 

The model is often described as “convenient” and “simple” — and, for some businesses, it may be. But for others, it’s worth asking: What, exactly, is convenient about absorbing costs you can’t influence? The simplicity many employers once appreciated is becoming increasingly offset by limitations and a lack of agency — and the growing disconnect between accountability and control.

Why tweaks and tools don’t always move the needle

To improve the experience within the fully insured structure — and compete in a competitive labor market — many employers have turned to a variety of point solutions: employee wellness programs, virtual care providers, care navigation platforms, pharmacy benefits, and more. 

These tools and programs have their place — and many offer real value. But for employers, the challenge isn’t a lack of solutions. It’s a structure that, too often, asks them to innovate within the margins of a model that simply no longer fits. Wellness programs and virtual care are helpful, but they don’t solve for the deeper misalignment: one where employers carry the financial weight of a system they’re not empowered to shape.

And while larger employers can explore alternatives like self funding, onsite clinics, or direct primary care, these strategies can be out of reach for many organizations and come with their own complexities and trade-offs. 

For many, the fully insured model may feel like the only available option — even when it’s no longer the right fit for the workforce or the bottom line.

The burden of the concentrated risk pool: Why it’s time for a broader approach

One of the less-discussed challenges of the fully insured model is the limiting of risk within a single employer’s population. When a handful of high-cost claims – or even one tremendous one–hit a relatively small group, it can send renewal rates soaring, even if overall utilization is stable. In fact, an American Health Policy Institute report found that fewer than 2% of enrolled plan members are considered high-cost claimants, yet they make up over 30% of employer spending. Employers — and as a byproduct, their employees — are often left absorbing these cost increases that are tied more to chance than to plan performance, with little room to minimize or mitigate the impact.

The defined contribution model approach — particularly through models like the individual coverage health reimbursement arrangement (ICHRA) — offers an alternative. Instead of purchasing a single group plan, employers set a fixed budget and allocate a tax-advantaged monthly allowance for each employee. Employees use that allowance to buy individual health plans that fit their unique health profile and preferences — whether that’s a high-deductible, HSA-eligible plan, comprehensive broad-network coverage, or access to a specific provider network.

The biggest differentiator? The model decentralizes the risk pool. Rather than being tied to one employer’s claims, employees enter the broader individual market — where risk is spread across a wider population and premiums adjust at scale. 

The results are clear, too. Recent data from Oscar Health shows that the individual market’s vast risk pool — stabilized across over 24 million lives — has not only maintained the cost of health insurance. It’s actually forcing it down, with 2024 costs trending about 4% lower than employer costs.

ICHRA represents more than a change in who holds the risk; it’s a change in how risk is managed. For many employers, that shift opens the door to a more stable and sustainable benefits strategy.

Reclaiming control with the defined contribution model

Businesses struggling beneath the weight of unmanageable costs and employee coverage demands require more than just another workaround — they need a structural reset.

For employers navigating rising costs and evolving employee expectations, the answer is rarely another level of benefits complexity. It’s a focus on the fundamentals: budget predictability, plan flexibility, and the ability to align investment with impact. In that context, reclaiming control isn’t about resisting change; it’s about reasserting ownership in a space where that’s been far too difficult to achieve for far too long. And it’s for this reason that the defined contribution model — often implemented through an ICHRA — is gaining traction. Aided by their brokers, more employers are introducing the model into benefits conversations as a strategic response to the modern market.

While an ICHRA may not fit every business model, the model offers several advantages, particularly around budget predictability and agility. Organizations can plan their benefits budgets years in advance, adjust based on financial goals or workforce shifts, and move from reactive cost management to a smart, proactive strategy. 

Letting go of the legacy model

It’s understandable why many employers default to the fully insured model. For some, it works. For others, it’s familiar, and in a complex system, familiarity carries weight. But increasingly, that familiarity comes at a cost — measured not only in dollars, but in missed opportunities to build a more adaptive, transparent, and aligned benefits strategy

As employers and their teams navigate an economy that requires them to be more strategic and agile with every dollar they spend, the more important question becomes: Are we staying with the fully insured because it meets our goals — or because it’s what we’ve always done?

This isn’t a call for every employer to abandon the model overnight. Instead, it’s an invitation for organizations to pause, reflect, and assess whether the structure still supports the outcomes they’re striving for.

Transitioning away from the legacy model isn’t about abandoning what’s familiar for the sake of the latest trend. It’s about ensuring the company’s benefits strategy aligns with the workforce’s needs and the organization’s financial goals. It’s about exploring models that offer enhanced transparency, sustainability, and choice — for employers and employees. 

We’re not witnessing the death of the fully insured model. But we are at the beginning of a broader shift: one that recognizes the need for new frameworks, new conversations, and new levels of control. And that shift could mark the beginning of a more adaptable, inclusive benefits era — one designed to work better for everyone.

Photo: Bulat Silvia, Getty Images

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