Can a Bigger Group Size Make My Plan Cheaper?

Small Business

Can a Bigger Group Size Make My Plan Cheaper?

Published on May 31, 2019

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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.

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.

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 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.

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