Alternative Plan Funding is Growing; Claim Economics Still Matter More

𝗠𝗮𝗿𝗸𝗲𝘁 𝗦𝗶𝗴𝗻𝗮𝗹

Alternative health plan funding is rapidly moving into the middle market.

Employee Benefit News reports that more than 40% of employers are now using or evaluating group captive arrangements, with much of that growth concentrated among organizations with fewer than 500 employees. At the same time, ACA marketplace premiums rose 26% in 2026, adding to the broader cost pressure facing employers across the commercial insurance market.

Employers are not exploring alternatives simply out of curiosity. For a growing share of midsize organizations, the economics of conventional fully insured coverage have become increasingly difficult to sustain.

Captives, consortiums, level-funded arrangements, and other alternative structures offer employers new ways to finance healthcare risk and reduce their dependence on traditional carrier models. But the funding mechanism is only part of the equation.

𝗛𝗣𝗫 𝗣𝗲𝗿𝘀𝗽𝗲𝗰𝘁𝗶𝘃𝗲

One of the most important distinctions in employer healthcare is the difference between financing risk and changing risk.

Moving from a fully insured plan into a captive or other alternative funding arrangement changes how claims are financed, how insurance protection is purchased, and how financial risk is distributed. What it does not inherently change is the underlying claim profile.

A $300,000 specialty therapy does not become less expensive simply because an employer moves into a captive. That $300,000 still has to be absorbed somewhere within the financing structure, whether through employer claims, stop-loss premiums, captive participation, or future underwriting adjustments.

This helps explain why some employers transition into alternative funding arrangements expecting a fundamentally different financial trajectory, only to find healthcare costs continuing to rise.

The structure may have changed. The underlying economics did not.

At HPX, we believe the sequence matters. Before deciding how healthcare risk should be financed, employers should first examine how efficiently the health plan is purchasing healthcare itself.

That means looking beneath the insurance structure at the contracted economics governing medical care, pharmacy benefits, specialty medications, and other high-cost services.

Consider a therapy producing $300,000 in annual claims. If alternative sourcing, contracting, or site-of-care strategies can reduce the cost of the same treatment path to $30,000, the employer has not merely changed how the claim is financed. It has changed the risk itself.

A lower-cost claim profile improves the economics of virtually every funding structure available to the employer. Expected claims decline. Stop-loss exposure can improve. Underwriting becomes more favorable. And the employer becomes less dependent on financial engineering to absorb an inefficient healthcare cost structure.

This is why we view employer health plans as having two distinct financial functions: purchasing healthcare and financing healthcare risk. The first determines the economics of the claims entering the plan. The second determines how the remaining risk is transferred and absorbed.

Optimizing them in that order is critical.

𝗪𝗵𝘆 𝗧𝗵𝗶𝘀 𝗠𝗮𝘁𝘁𝗲𝗿𝘀

The growing interest in captives is an important signal that employers are looking beyond the traditional fully insured model. But alternative funding should not become the objective in itself.

Funding structures can create greater transparency, flexibility, and control. They can also improve the way an employer purchases insurance and participates in favorable claims experience. But none of those advantages eliminates the need to address claim severity at its source.

If the underlying healthcare being purchased remains inefficiently priced, that cost will eventually work its way through the financing structure. The employer may experience it differently, but the economic pressure remains.

That is why the most durable opportunity is to improve claim economics first and then use alternative funding to finance the resulting risk more efficiently.

𝗟𝗼𝗼𝗸𝗶𝗻𝗴 𝗔𝗵𝗲𝗮𝗱

The continued growth of captives, consortiums, and other alternative funding arrangements is an encouraging development for the middle market. Employers increasingly have access to financing structures that were historically associated with much larger organizations.

But as adoption expands, the next stage of the conversation should move beyond funding structure alone.

The employers positioned for the strongest long-term outcomes will be those that ask two separate questions: What are we actually paying for healthcare, and how should we finance the risk that remains?

Once the underlying claim economics have been optimized, alternative funding can become a powerful tool for efficiently financing that risk.

Changing the funding mechanism can improve how risk is managed. Changing the cost of the healthcare being funded can change the risk altogether.