Health Plan Funding After Leaving a PEO: Which Option Is Right for You?

The Problem: Your PEO Gives You No Data

If you're inside a PEO right now, there's a near-certainty your medical plan is fully insured. Roughly 99% of PEO master health plans are fully insured arrangements, typically with Aetna, UnitedHealthcare, or Anthem/BCBS depending on your region and which PEO you're with. You pay your bundled invoice, your employees see the doctor, and you never see a claims report.

That's the core problem. Without claims data, you can't evaluate whether a different funding strategy would save you money. You have no idea what your group's actual utilization looks like, whether you have a healthy population or a high-claims one, or whether you'd qualify for alternatives that could save 15% to 40% compared to a traditional fully insured plan.

When you leave a PEO, one of the first and most important decisions you'll make is how to fund your health plan going forward. There are four primary options, each with different risk profiles, cost structures, and levels of control. Here's what you need to know about each one.

Option 1: Fully Insured

Lowest Risk

This is what you're used to inside the PEO, just without the PEO markup. You pay a fixed monthly premium to an insurance carrier. The carrier assumes all financial risk for your employees' claims. Whether your group has a great year or a terrible one, your premium stays the same until renewal.

The difference from the PEO is that you choose the carrier, the plan design, and the network. You're no longer locked into whatever the PEO negotiated for their entire client base. You can get competitive quotes from multiple carriers and select the combination of cost, network, and benefits that fits your workforce.

How it works

You pay a per-employee premium each month. The carrier handles claims processing, network management, and compliance. At renewal (typically annual), the carrier reviews your group's claims experience and adjusts your rate. Small groups (under 50 employees) are community rated, meaning rates are based on the broader risk pool in your area. Mid-size and large groups get experience-rated renewals that reflect your specific claims history.

Best for: Companies with fewer than 50 employees, groups that prioritize budget predictability above all else, or companies in their first year out of the PEO that want to establish a claims baseline before exploring alternatives.

Option 2: Level-Funded

Balanced Risk

Level-funded plans have exploded in popularity. According to the Kaiser Family Foundation, 42% of small firms now offer level-funded plans, up from just 7% in 2019. This is the option that often makes the most sense for companies leaving a PEO, particularly in the 40 to 150 employee range.

Think of it as self-funding with a safety net. You pay a fixed monthly amount (hence "level"), which covers three things: a claims fund based on your group's projected usage, stop-loss insurance that protects you if claims exceed projections, and administrative fees. If your actual claims come in lower than projected, you get a refund. If claims go higher, the stop-loss coverage absorbs the excess.

How it works

A third-party administrator (TPA) or carrier actuarially projects your group's expected claims based on your census data (age, gender, zip codes, dependents). They set a monthly funding level that covers those projected claims plus admin fees and stop-loss premiums. You pay that fixed amount each month. At year-end, if the claims fund has money left over, you receive a refund. If claims exceed the fund, stop-loss kicks in.

Critically, level-funded plans give you access to your claims data. After a year of level-funding, you have a clear picture of your group's utilization, which gives you leverage at renewal and opens the door to self-funding down the road.

Best for: Companies with 40 to 200 employees, groups with a reasonably healthy population, companies that want cost savings and data transparency without taking on full claims risk. This is the most common recommendation for companies leaving a PEO for the first time.

Option 3: Self-Funded (Self-Insured)

Higher Risk, Higher Reward

Self-funded plans are the dominant model for large employers. According to the Kaiser Family Foundation's 2025 Employer Health Benefits Survey, roughly 65% of covered workers nationwide are enrolled in self-funded plans, including 83% at large firms. The model is proven. It's also not for everyone.

In a self-funded arrangement, your company pays employee health claims directly out of its own funds. You're not paying a carrier to assume risk. You are the risk-bearer. That means when your employees have a low-claims year, you keep the savings. When they have a bad year, you absorb the cost. Most self-funded employers purchase stop-loss insurance (both specific and aggregate) to cap their exposure on catastrophic claims and total annual spend.

How it works

You hire a TPA to process claims and administer the plan. You contract with a network (often a PPO through a carrier like Aetna, Cigna, or UHC). You select a pharmacy benefit manager (PBM). You purchase stop-loss insurance to set a ceiling on individual claims (specific stop-loss) and total plan costs (aggregate stop-loss). Monthly costs fluctuate based on actual claims, though many employers set aside a fixed monthly budget and true up quarterly.

You get complete transparency: every claim, every dollar, every utilization pattern. That data allows you to identify cost drivers, negotiate better terms at renewal, implement targeted wellness or disease management programs, and make informed decisions about plan design changes.

Best for: Companies with 150+ employees that have the financial stability to handle claims variability, groups with established claims data (often after one or more years of level-funding), and organizations that want maximum control over their benefits spend. Some well-managed groups as small as 75-100 employees self-fund successfully with the right stop-loss structure.

Option 4: Captive

Shared Risk, Long-Term Play

Captives are the newest option gaining traction in the employer benefits space. A WTW survey in 2025 found that over 40% of employers are either using or considering captive arrangements for their employee benefits. For companies leaving a PEO, a captive likely isn't your first move, but it could be your best long-term strategy.

An employee benefits captive is essentially a group of like-minded employers forming their own insurance company. Instead of buying stop-loss coverage from a traditional carrier, the captive members pool a layer of their claims risk together. Each member retains their own stop-loss policy for catastrophic individual claims but cedes a middle layer of risk to the captive they collectively own. If the captive performs well (meaning total claims across all members come in lower than projected), the member employers share in the underwriting profits.

How it works

You self-fund your plan and maintain your own TPA, network, and PBM. Your stop-loss is structured in layers: you retain the first layer of risk (individual specific deductible), the captive absorbs the middle layer, and a traditional reinsurer covers catastrophic claims above the captive's retention. Your monthly costs include your claims funding, administrative fees, and your captive contribution. At year-end, if the captive's collective claims experience is favorable, profits are distributed back to members.

Captives typically require a multi-year commitment (usually three years minimum) and have qualifying criteria around claims history, financial stability, and willingness to implement cost-containment strategies. Members are usually grouped with similar-risk companies, sometimes within the same industry.

Best for: Companies with 100+ employees that have been self-funded (or level-funded) for at least one to two years, have demonstrated good claims experience, and want long-term cost stability. Captives are often the "Year 3" move for companies that leave a PEO, go level-funded in Year 1, and build claims data before entering a captive arrangement.

How We Determine the Right Fit (Without Claims Data)

Here's the challenge every company faces when leaving a PEO: you have no claims data. PEOs don't share it. You can't walk into a level-funded or self-funded arrangement and hand the underwriter three years of claims reports, because those reports don't exist.

This is where most brokers default to fully insured quotes, because that's the path of least resistance. No data? No problem, here's a fully insured rate. But that approach leaves money on the table for a lot of groups.

This isn't theoretical. We run this analysis for every company leaving a PEO. The output is a clear, numbers-driven comparison that shows you exactly what each funding option would cost for your specific group. If the numbers say fully insured is the best fit, we'll tell you that. But in our experience, most groups with 40 or more employees have a less expensive alternative available to them, and they just need someone to show them the math.

The Typical Path After Leaving a PEO

Most companies don't jump straight to the most aggressive funding strategy. The progression usually looks like this:

Year 1: Level-funded. You get predictable costs, stop-loss protection, and most importantly, you start generating claims data for the first time. This is the year you learn what your group's actual utilization looks like.

Year 2: Level-funded or self-funded. With a full year of claims data, you can make a more informed decision. Groups with favorable experience often move to self-funded. Groups that want to stay conservative renew level-funded with better terms because they now have data to negotiate with.

Year 3+: Self-funded or captive. By now you have two years of claims history, a clear understanding of your risk profile, and the data to qualify for captive programs if your experience warrants it.

This progression isn't mandatory. Some groups go directly to fully insured and stay there. Others jump to self-funded in Year 1 if the census modeling strongly supports it. The point is that leaving a PEO opens up options that simply don't exist inside the PEO model, and the right strategy depends on your specific numbers.