Exceeding 100 Employees Reduces Healthcare Costs

Small Group vs Large Group Insurance

High growth companies, especially those in the tech startup world, often race past the large group health insurance milestone without much fanfare. It’s understandable. Until you hit 50 or 100 employees (see table; the number varies by state), you don’t have any negotiating power when it comes to healthcare insurance rates.

Providing employee healthcare insurance has simply been a “cost of doing business” line item. Granted, it’s likely your largest line item after employee salary, but it hasn’t been one you could control or influence.

What’s more, at the small group size, it’s unlikely you have an HR person. Even if you do, that person is probably focused on recruiting talent, not tracking benefits milestones. Companies hit the large group insurance criteria without understanding the financial relevance of the inflection point.

On average, this is the trigger for realizing 15-20% savings on your second or third largest line item. Typically, health insurance expense is a close rival to salary.

So, what changes at the magic large group employer number?

For small groups, the rates are the rates

For a small company, there’s no negotiating price. The rates are age-banded (fixed based on age groups). Whether your insurance broker is good or bad, it makes little difference. Small group health insurance is a flat model—the cost is always the same for the same plans.

Alternately, if you leverage a professional employer organization (PEO) for employee management, you gain many of the advantages of a large group employer. But you’re paying an added per-employee-per-month (PEPM) cost to access it. And the cost of convenience breaks down when you hit 100 employees and become a large group in your own right.

A PEO has no incentive to point out your new, large group status. The PEO would prefer to keep your business. But, you can do better now. (See Have you outgrown your PEO?)

For large groups, rates are negotiable

The jump into large group changes everything—and mostly for the good. The rates are competitive and no longer age-banded. As long as your broker is keeping you on track, this shouldn’t be a surprise.

Because your rates are now competitive, it’s time to be strategic about your company’s group health plan design. This is an opportunity to significantly cut your healthcare costs while improving benefits for your employees.

As a large employer, you’ve moved beyond the straightforward requirement to provide insurance. To continue to attract and retain talent, you’ll need to ensure your benefits package is comparable to other large employers.

The interesting thing is you can achieve improvements to your benefits package, while still significantly reducing expenses. However, you need a broker who can negotiate down prices for you, relentlessly, year after year—not just in year one, when the carriers are competing for your business and offering discounts.

Large Group Employer Definition

“Large group” is defined at the state level. If your state isn’t listed, then Large Group is defined as greater than 50 employees.

StateLarge Group Employer Definition
California> 100
Colorado> 100
New York> 100
Vermont> 100
All other states> 50

As employers in CA, CO, NY, and VT approach 100 employees, Lumity co-founder and CEO Tariq Hilaly provides an overview of what to consider in this 2-minute video:

Two possible speed bumps

While the transition to a large group plan delivers the opportunity to reduce premiums for you and out-of-pocket expenses for your employees, there are two caveats to consider:

  • The age-banded rates in the small group favor millennials.
    • Even as your company’s premium goes down, young employees’ premiums usually go up.
    • As you transition, it’s important to keep this in mind and design your plan to offset out of pocket costs for all your employees.
  • A year of unusually high employee claims will deem you high risk
    • After a year of high claims, you can expect a “bad renewal” rate from the carrier.
    • In year two and subsequent years, it’s useful to bring claims data to the negotiating table to ensure you’re getting a fair renewal.
    • A high volume of claims can be a “false” indicator of risk. For example, multiple babies might be born in a given year, but statistically, it’s unlikely the same employees will have babies the next year.
    • Unfortunately, the bad news of a 10-20% renewal increase usually arrives when it’s too late for you to do anything about it.

Leverage a modern, data-driven solution for better benefits

Exceeding 100 employees should be a trigger to review your group health plan. Because the insurance ecosystem is excruciatingly complicated and lacks cost transparency, Lumity built its business on shining a light into the black hole. Our mission is to advocate for you—and your employees.

We can quickly benchmark your situation. If you’re on track, that’s good news. You gain validation. But, if you’re paying too much for your plan, or it isn’t optimized to reduce out-of-pocket costs for your employees, we’ve got your back.