Is your business growing? When your team expands, your health insurance options change. The size of an employer’s team determines what kind of plans they can offer, how premiums are calculated, and relevant compliance rules.
Thinking ahead and knowing the difference between small group and large group health insurance can help employers make informed decisions to benefit employees and the company’s bottom line.
Understanding a small group vs. a large group at work
Under the Affordable Care Act (ACA), most states define a small group as businesses with fewer than 50 full-time equivalent employees (FTEs).
A large group is usually defined as a company with 51 or more FTEs.
However, there are four exceptions: in California, Colorado, New York, and Vermont, the large group minimum is 100, so if your business opiates in one of these four states, please keep this in mind.
Why does any of this matter? Health plans available to small groups are structured differently from those available to large group plans. Understanding these details can help employers manage costs.
Small group health insurance: simplicity rules the day
Small group plans are known for accessibility and predictability. They follow ACA rules that standardize coverage and govern pricing.
Key features of small group plans:
Community-rated pricing: This health insurance pricing method means that every business is quoted the same base rate for a given plan, no matter what broker they use.
This base rate can be adjusted up or down based on specific, allowable factors (such as: age, location, tobacco use, dependent coverage).
However, past claims history or individual health status doesn’t impact pricing.
Standardized benefits: All small group plans include the ACA’s 10 Essential Health Benefits: preventive care, maternity, mental health, pediatric services, and more.
Considerations: Small group plans are a meaningful investment for employers looking to attract and retain talent as they grow. However, employers must plan ahead for annual increases in small-group health insurance premiums, which have risen at a faster rate in recent years than in previous decades. Shopping plans and comparing prices during annual renewals can help employers find the best fit for their budgets.
Large group health insurance: flex and customize
Once a business crosses the 50-employee threshold, it enters the large group market. With this comes more flexibility and negotiation power. However, compliance requirements also increase (the first being that health insurance is no longer an optional perk). Businesses with 50+ FTEs must offer “affordable, minimum value” coverage to full-time employees, or face potential penalties.
Key features of large group plans:
Experience-rated pricing: Along with a company’s demographics, industry, and region, insurance premiums are adjusted based on the company’s past claims. A better-than-average claims history can result in more favorable pricing, while higher claims may result in higher premiums.
Ability to self-insure: In this model (also called “self-funding”), the employer pays employee/dependent claims directly. Because the pool of insured persons is restricted to employees and dependents, costs of self-insurance may be more predictable and can lead to significant savings—but it also transfers financial risk to the employer.
Custom plan design: Rather than choosing a standard package from an insurer, large employers can tailor some variables to meet their team’s needs for costs and care. Health plans can be customized by adjusting:
How much employees pay out of pocket for care through deductibles, copays, and coinsurance.
Provider network design— making in-network physicians broad for more choice, or narrow for cost savings— to align with their workforce’s needs.
The cost-sharing of monthly premium amounts to balance affordability for employees with overall budget goals.
Considerations: When employers choose to self-insure, they often hire an insurance carrier or a third-party administrator (TPA) to manage claims, handle customer service, and build provider networks. Stop-loss insurance is often purchased to protect against the risk of catastrophic, high-cost claims.
Large group plans require more administrative work- including IRS and Department of Labor reporting, COBRA management, and HIPAA compliance.
A third option: Professional Employer Organizations
Some employers choose to join a Professional Employer Organization (PEO). Through a co-employment agreement, the PEO pools employees from many companies together, creating a large group. The PEO handles benefit enrollment, claims processing, and ongoing administration.
PEOs are usually more cost effective for small groups, although large groups may use a PEO when they operate in multiple states and need help with more complex compliance considerations.
A PEO is not the best choice for all employers. Some employers dislike losing control over HR processes and employee benefits. Like any vendor relationship, working with a PEO requires trust, reliable support, and a good cultural “fit”.
How to stay compliant
Employers should document that they are playing an active role in ensuring health plan dollars are spent responsibly. Taking the following actions can help meet the requirements of the Consolidated Appropriations Act (CAA), which took effect in 2021 to make health plan spending more transparent and accountable:
Keep records of plan reviews and vendor decisions
Request fee disclosures from brokers and vendors
Review claims and cost data
Confirm that carriers/administrators meet transparency and reporting requirements
Staying ahead with a strategy for growth
Regardless of whether they offer small or large group, employers should revisit their health insurance strategy at least once a year in planning for the future of the company. Considerations may include:
How many full-time equivalent employees are on the team?
If fewer than 50, when will the 50-employee threshold be crossed?
Do employees value lower premiums or more flexible coverage options?
Do resources exist to manage additional compliance work? If not, what support is necessary?
Gusto helps employers ensure efficiency and sustainability by staying on top of health insurance costs, plan options, and administration processes. Learn more about:
Group health insurance options for small and growing businesses.
Benefits administration tools to simplify renewals and ongoing management.
Expert HR support to help navigate compliance and employee needs.
Rising healthcare costs and changing regulations will continue to reshape the benefits landscape. Staying informed—and partnering with a trusted advisor—can help employers balance affordability and compliance with employee well-being.
