Small Group vs Large Group Health Insurance

The line between small group and large group health insurance matters more than most employers realize. Where your client falls determines everything from how their rates are calculated to what benefits they must offer.

The 50-Employee Threshold

Under the Affordable Care Act (ACA), the magic number is 50 full-time equivalent employees (FTEs). This threshold determines:

• Whether the employer mandate applies
• Which rating rules govern their premiums
• What plan design requirements they face
• Their options for self-funding

Important: Some states define small group as up to 100 employees. Check your state's specific rules.

How Group Size is Calculated

Counting employees isn't as straightforward as it sounds. The ACA uses full-time equivalent (FTE) calculations:

• Full-time = 30+ hours per week (counted as 1.0)
• Part-time hours are aggregated and divided by 30
• Seasonal workers have special rules
• Calculate monthly and average across the year

Rating Rules: The Key Difference

Small Group: Community Rating

Small group rates can only vary based on:

• Age: Maximum 3:1 ratio (oldest to youngest)
• Geographic location: Rating areas set by state
• Tobacco use: Maximum 1.5:1 ratio
• Family size: Based on tier structure

Critically, claims history cannot affect small group rates. A group with high claims pays the same as a healthy group (adjusted for the factors above).

Large Group: Experience Rating

Large group rates can be based on:

• Actual claims experience
• Industry classification
• Group demographics
• Plan design choices

This means healthy large groups can negotiate better rates, while groups with high claims may see significant increases.

Plan Design Requirements

Small Group Requirements

• Must cover all 10 Essential Health Benefits
• Must offer plans in metal tiers (Bronze, Silver, Gold, Platinum)
• Guaranteed issue (cannot deny coverage)
• No pre-existing condition exclusions
• Dependent coverage to age 26

Large Group Flexibility

• Not required to follow metal tiers
• More flexibility in plan design
• Can offer custom networks
• More self-funding options
• Greater negotiating leverage

The Employer Mandate

Only Applicable Large Employers (ALEs)—those with 50+ FTEs—face the employer mandate:

• Must offer coverage to 95% of full-time employees
• Coverage must be "affordable" (under 9.02% of income for 2025)
• Coverage must provide "minimum value" (60% actuarial value)
• Penalty A: ~$2,970/employee if no offer
• Penalty B: ~$4,460/employee receiving subsidized exchange coverage

Small groups have no mandate to offer coverage—it's purely voluntary.

Self-Funding Considerations

Both small and large groups can self-fund, but the dynamics differ:

Small Group Self-Funding

• Level-funded options increasingly popular
• Stop-loss critical due to less claims spread
• May avoid state mandates (ERISA preemption)
• More volatile year-to-year costs

Large Group Self-Funding

• Traditional self-funding more viable
• Better claims predictability
• More stop-loss options
• Greater potential savings

Comparison Table

Groups Near the Threshold

Companies hovering around 50 employees need careful planning:

• Growing toward 50: Consider timing of hires and how it affects your classification for the plan year
• Shrinking below 50: May lose large group rating advantages but gain small group protections
• Right at 50: Document FTE calculations carefully; audits happen

Key Takeaways

• The 50-FTE threshold triggers the employer mandate and different rating rules
• Small groups benefit from community rating (claims don't affect rates)
• Large groups have more flexibility but also more compliance obligations
• Self-funding is possible for both but works differently
• State laws may set different thresholds—know your jurisdiction