Many small business owners don’t understand how their group health premiums are calculated — and that lack of understanding costs them money. Here’s how carriers actually price small group coverage, and what you can do to work the system to your advantage.
Community Rating vs. Experience Rating
For small groups (typically 1–50 employees), most states require carriers to use community rating, meaning premiums are based on the general risk pool in your area — not your specific employees’ health history. This protects small businesses from being priced out if they have sick employees.
Large groups (50+ employees) are typically experience-rated — premiums are influenced by the group’s own claims history.
What Factors Affect Small Group Premiums?
Under community rating, carriers can still adjust for:
- Age: Older employees cost more to cover. Carriers can charge up to 3x more for older employees than younger ones under ACA rules.
- Tobacco use: Some carriers charge a surcharge for tobacco users.
- Geographic area: Healthcare costs vary dramatically by region.
- Plan design: Deductible level, copay structure, and metal tier (Bronze/Silver/Gold/Platinum) all affect price.
- Number of employees: Very small groups (2–5 employees) may have less carrier competition.
Why Shopping Matters
Even for the same plan design in the same area, carriers price risk differently. One carrier might rate your group 15% cheaper than another for identical coverage. The only way to find out is to get competitive quotes — which is exactly what an independent broker does.
Timing Matters Too
Carriers are more competitive when they want your business. Brokers who bring them volume often have access to better rates and underwriting exceptions. This is one of the advantages of working with an established independent broker.
Want to know what your group health plan should actually cost? Get a free quote from Garden State Benefits.