As a small business owner, you may be wondering how group size may affect the cost of your group health plan. With small business health insurance, you may be surprised to learn that group size (meaning the number of people who enroll in a group plan) can make a significant difference in the price of health coverage.

The answer is that, in many cases, having a bigger group size can make your group health insurance plan cheaper. Continue reading to learn how this works in small business health insurance.

What is the difference between small groups vs. large groups for health insurance?

The most important difference between a small group and a large group health insurance plan is that it could impact how much money you have to pay for health insurance. In general, small businesses pay more money than large businesses for the same type of health insurance; however, this is not universal. Therefore, when possible, you may want to apply for large group health insurance plans.

Even though it can vary based on location, any company that has fewer than 50 people will usually qualify as a small group. These premiums are usually set by the health insurance company, and small businesses do not have a lot of leeway to bargain for lower insurance premiums. 

In contrast, a larger business may have a broker or a representative who can negotiate with the health insurance company to get a lower premium. This means that they might be able to save money on the cost of health insurance.

What is classified as a large group in health insurance?

Even though it can vary slightly depending on where you are located, a company that has more than 50 people who require health insurance is generally going to be classified as a large group. 

There are some situations where your company may need to have more than 100 employees to be classified as a large group, but the requirements for large group health insurance are usually fairly standardized. If you have questions about the requirements for a large group, you may want to research your specific state’s laws or reach out to a consultant who can help provide more clarity.

Can a large group plan help lower costs for business owners?

When it comes to small group vs. large group health insurance, a larger group plan can help you reduce your cost as a business owner. If you have more employees who need health insurance, you are a bigger asset to the health insurance company. Therefore, they might be willing to give you a significant discount on a bulk rate for all of your insurance plans. 

They might provide you with a group of plans from which your employees can choose, and then they will give you a much cheaper rate for those plans when compared to an individual or a small business. If you want to secure the lowest rate possible, you may want to have a representative who can negotiate with the insurance company on your behalf. That way, you know that you do not pay any more money than you have to.

You can also use tools like eHealth to compare prices of insurance plans.

Can a bigger group size really make small business health insurance cheaper?

According to a recent eHealth study, group size can have a notable impact on the cost of monthly premiums:

• In 2018, the average monthly premium for small business groups with 5 or less employees was $419 per covered person.
• The average monthly premium for small business groups with 6 to 29 employees was $364 per covered person, or 13 percent less than the smaller group.

Yes, a larger group size may mean less costly and more affordable small business health insurance. But why is this the case? It turns out that one of the key theories of insurance can help explain this effect.

The risk pool advantage explains why a larger group size can mean a cheaper group plan

The U.S. Small Business Administration (SBA) has provided an overview of how a larger risk pool from a bigger group size can end up resulting in lower premiums.

• A core theory of health insurance, the risk pool advantage, essentially means that when more people are enrolled in a group plan, the risks are spread out more evenly across all members of the plan.
• Since the enrollees in the group plan pay premiums to maintain their coverage, the insurance company has more funds and resources available to draw from when one of the group plan members needs medical care.
• As a consequence, the high cost of any one person who needs care is balanced out by the larger pool of group plan members who have already contributed and paid into the insurance plan.

Overall, if a small employer has a significant number of full-time employees, then the company may benefit from their larger group size when enrolling in small business health insurance.

Risk pools and group size also explain why group plans may be cheaper than individual plans

The risk pool advantage that comes from a larger group size can also shed light on how small business health insurance plans have lower average costs per person compared to individual health insurance plans.

According to an eHealth study:

• In 2018, the average premium per person through a small business health insurance plan was 7 percent lower than the average premium for an individual plan ($409 vs. $440).
• The average individual deductible for small business health insurance plans was 31 percent ($1,438) lower than the average deductible for individual coverage ($3,140 vs. $4,578).

Although you should understand that each health insurance plan has its own terms and limitations as specified in official plan documents, you may find it useful to know that a small business health insurance plan may frequently be a less expensive option than an individual health insurance plan.

How does group health insurance vary based on the state? 

Group health insurance can vary based on state. It is not unusual for the premiums that someone pays for health insurance to differ depending on where they are located due to cost of living, insurance providers, and other factors.

Depending on the state, the definition of a large group can change as well. If you have 75 employees who need health insurance, there are some states where you might be considered a large group. Then, there are other states where you might be considered a small group. When in doubt, you may need to do more research or have a licensed insurance agent assist you.

How to determine which group plan works for your business

There are a lot of factors to consider if you are trying to decide which group plan works for your business. You need to think about your budget, the employees who work for your company, and the different types of coverage available from the health insurance company. You might also be interested in learning more about the open enrollment period and how small employer HRAs could help you save money on the cost of health insurance.

This is not something that you need to tackle on your own. If you are looking for ways to save money on the cost of your health insurance, eHealth is here to help you. Do not hesitate to reach out to us with any questions or concerns you might have

Group size can make an important difference in group plan costs

When considering small business health insurance, you want to make sure that you are aware of the major factors that influence the cost of health coverage. Knowing the significance of group size as it relates to group plan costs can help you in making the decision of whether to offer a group plan that may benefit both your employees and yourself as the business owner.

eHealth can help you quickly and easily find free small business health insurance quotes. To learn more about your group plan options, visit eHealth.com or speak with one of our licensed insurance brokers.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.