Small Group Insurance - Explained

What is Small Group Insurance?

In most states, the term “small group” applies to groups of 2 to 50 employees. And in California, Colorado, New York, and Vermont, it includes groups with up to 100 employees. Businesses that fall into the small group category all have the same coverage options available in the small group market, and the rules in terms of pricing and coverage availability are the same regardless of whether you have two employees or 42.

Often, small group insurance is far more affordable than the equivalent individual policy. This is because the insurance company can negotiate better rates with hospitals, clinicians and other services. There are also legal limits set for premiums – for example premiums for older employees cannot be more than three times those for younger employees.

A question we get a lot from people searching for affordable group health plans is how the Affordable Care Act (Obamacare) has changed group health insurance in California. They want to know:

  • Who classifies as a “small business employer.”
  • What determines the “premium?”
  • How can I compare plans? (cost of doctor visits, in-hospital services, prescriptions).
  • What sort of tax benefits does group medical insurance offer employers and employees?

To answer common questions about the ACA and help demystify group health insurance in general, we’ve created a few easy-to-digest graphics to break things down. You’ll also find a list of resources covering California group medical insurance and tips for selecting the right plan for your employee health benefits.

Running a business is hard enough without navigating the ins and outs of group health insurance. We’re expert benefit advisors with decades of experience and we’re ready to help at no additional charge or fees.

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1. How Insurance Companies Calculate Rates

With the introduction of the ACA in 2014, the rate for small group health insurance is based on the exact age of an employee, as well as the age of each dependent spouse and child.

2. Health Plans Are Rated using "Metallic Levels"

Health insurance is as complicated as it is expensive. To help people understand benefits and compare plans, the federal government uses a process to separate plans into four groups – platinum, gold, silver, and bronze.

Gold pays for services better than silver which is better than bronze. A platinum plan is the best, meaning the insurance company pays the most and the patient pays the least for services. Under the ACA, all plans must cover at least 60 percent of medical expenses. The premium cost is relative to the benefits so Platinum policies will be the most expensive, Bronze plans being the most cost effective.

3. Savings Available by Utilizing Plans that Exclude Pricey Providers & Doctors

Good things to know

The price of medical care varies dramatically between doctors and hospitals. By enrolling in a plan that excludes expensive doctors and medical facilities, employees can obtain comprehensive benefits (e.g., platinum level) at a low cost.

So, when you evaluate a medical insurance plan for your employees, keep in mind that you can offer a “narrow” or “medium” provider network and spend less than if you offer a “full” network.

4. Small Companies Can Share the Cost of Employee Benefits

Group medical insurance is extremely tax favored<>, which is one of the reasons companies offer employee benefits. Unlike wages, employer-sponsored health coverage is not subject to state and federal income taxation – for the employer or the employee.

All California health insurance companies require employers to contribute a minimum of 50 percent of the monthly cost of an employee-only plan. Most insurance companies also allow an employer to contribute as little as $100 per employee per month. The catch is that if an employer pushes too much cost on to the employee, employees won’t sign up and a group plan needs a minimum percent of the employees to be viable.