Small group vs. large group health insurance in Michigan.
The line sits at 50 employees. Cross it, in either direction, and the rules that set your price, your required coverage and your funding choices all change. Here is what actually differs, in plain terms.
Fifty employees separates small group from large group.
Federal law defines both, and Michigan uses the standard definition.
Under federal law, a small employer is one that averaged 1 to 50 employees on business days in the prior calendar year, and a large employer is one that averaged 51 or more. A state may choose to treat employers of up to 100 as small, but Michigan applies the 50-employee definition. Employees are counted on a full-time-equivalent basis, so part-time hours count toward the total.
One wrinkle trips up employers at exactly the line. An employer with 50 full-time-equivalent employees is still a small group for insurance purposes, yet it is also an applicable large employer under the employer shared responsibility rules. Those are two different tests with two different consequences, and an employer can be on one side of each.
Six things that change at the line.
The same employees and the same carrier can price very differently depending on which side of 50 the employer sits.
How The Price Is Set
In the small group market, premiums can vary only by family or individual coverage, rating area, age (no more than 3 to 1) and tobacco use (no more than 1.5 to 1). The group’s own claims cannot be used. In the large group market, carriers may price on the group’s claims experience, so a good year and a bad year both show up at renewal. See the small group rating rules.
What Coverage Must Include
Fully insured small group plans must cover the essential health benefits package. Large group and self-funded plans are not required to cover that full package, although other protections, such as the ban on lifetime dollar limits, still apply to them.
Rebates If The Carrier Overspends
Carriers must spend a minimum share of premium on care and quality improvement or rebate the difference. The threshold is 80 percent in the small group market and 85 percent in the large group market.
Funding Options
Small groups are mostly fully insured, with level-funded plans available to groups the carrier will underwrite. Larger employers more often self-fund with stop-loss protection, because their size makes claims more predictable. Compare the funding models.
The Employer Mandate
Separate from the group market, an employer with 50 or more full-time-equivalent employees must offer affordable coverage that meets a minimum standard to its full-time employees, or may owe a penalty. Check where your headcount puts you.
Enrollment And Contribution Rules
Small group carriers can require a minimum share of eligible employees to enroll and a minimum employer contribution, and may limit when a group can start if those are not met. Larger groups usually get more flexibility, since carriers care less about any one person’s decision.
What changes when you grow past 50, or shrink below it.
The change is rarely abrupt, but it is worth planning for before the renewal arrives.
Growing Past 50
The next renewal can move from pricing on age, area and tobacco to pricing that reflects your own claims. A healthy group may do better, and a group with a few large claims may not. The employer mandate may also begin to apply, and new reporting comes with it.
Shrinking Below 50
After a layoff or a sale, a group can fall back into the small group market, with its rating rules and required benefits. The change may help or hurt, depending on how the group’s claims compare with the pooled rates. See what a smaller group does to a renewal.
Sitting Right At 50
Headcount that moves above and below the line from year to year can change the rules from one renewal to the next. Tracking the average, not a single day’s count, keeps the surprise out of it.
Neither side is better. They reward different groups.
The right question is how your group compares with the pool it is priced against.
Small group pricing is predictable and cannot punish a group for a bad claims year, but it also cannot reward a group for a good one. Large group pricing can do both. A healthy, stable group above the line may pay less than the pooled small group rate, and a group with high claims may pay more.
That is why the answer is a comparison on your own numbers, not a rule of thumb. How group size and claims history shape the funding choice, or send us your renewal and we will tell you where your group sits.
What employers ask about small group and large group.
Ten plain answers about where the line is and what it changes.
What counts as a small group in Michigan?
An employer that averaged 1 to 50 employees on business days in the prior calendar year, counted on a full-time-equivalent basis, and that has at least one employee on the first day of the plan year.
How many employees make a large group?
51 or more, using the same counting method. A state may treat employers of up to 100 as small, but Michigan applies the 50-employee definition.
Is small group or large group health insurance cheaper?
Neither is always cheaper. Small group rates come from a pool and cannot reflect your own claims, so a healthy small group can pay more than its claims justify. A large group is priced on its own experience, so it can pay less with good claims and more with poor ones.
Do large group plans have to cover essential health benefits?
No. Fully insured small group plans must cover the essential health benefits package, but large group and self-funded plans are not required to cover the full package. Some protections, such as the ban on lifetime dollar limits, apply to both.
Does my claims history affect a small group rate?
Not directly. A small group premium can vary only by family or individual coverage, rating area, age and tobacco use, so your claims history is not a rating factor. Your employees’ ages and where they live are.
What happens if my business grows past 50 employees?
You become a large employer for insurance purposes at your next renewal, so pricing can start to reflect your own claims, and the employer shared responsibility rules may apply to you. Plan for it a renewal early.
Can a small group self-fund?
Yes, with stop-loss protection, and level-funded plans are a middle path. Carriers underwrite these on the group’s health, so a group with higher expected claims may see less favorable terms or no offer.
Do I have to offer health insurance at 50 employees?
Federal law requires an employer with 50 or more full-time-equivalent employees to offer affordable coverage that meets a minimum standard to its full-time employees, or it may owe a penalty. Below 50 there is no federal requirement.
Can a very small business offer group coverage?
Yes. Group coverage can start with a single W-2 employee in addition to the owner, and some carriers allow it with no employer contribution, so a very small business can still give its team access to a group plan.
How do I know which side of the line I am on?
Average your full-time-equivalent headcount over the prior calendar year, not a single day. If it is close to 50, a quick review with us will confirm it before it changes your renewal.
Ready? Upload your renewal, or talk it through with someone first. No cost, no obligation.
General information about group health insurance, not legal or tax advice. Questions about your own plan belong with your plan documents, and we will help you read them.
Related guides.
Small Group Health Insurance in Michigan
How small group coverage works for Michigan employers. Read the Guide
Michigan Small Group Guide
A fuller guide to buying and renewing small group coverage. Read the Guide
Company Size 2 To 50
How CFH works with employers in the small group range. See the Page
Company Size 51 To 249
How CFH works with employers just above the line. See the Page
Why Group Health Insurance Feels Broken
What employers can change when the plan frustrates everyone. Read the Guide
Avoiding Plan Confusion
The four terms behind most employee surprises. Read the Guide
Where the Rules Come From.
The laws named on this page link to the statute they come from. This is general information, not legal or tax advice, and rules change, so check the current text.
Small And Large Employer Definitions (42 U.S.C. 18024)
Defines a small employer as averaging 1 to 50 employees and a large employer as averaging 51 or more, with a state option to treat up to 100 as small. Read the Text
Premium Rating Rules (42 U.S.C. 300gg)
Limits individual and small group premium variation to coverage type, rating area, age (3 to 1) and tobacco use (1.5 to 1). Read the Text
Essential Health Benefits (42 U.S.C. 18022)
Sets the essential health benefits package required of individual and small group plans. Read the Text
Medical Loss Ratio Rebates (42 U.S.C. 300gg-18)
Sets the 85 percent large group and 80 percent small group minimum loss ratios and the rebate rule. Read the Text
Employer Shared Responsibility (26 U.S.C. 4980H)
Requires applicable large employers, generally those with 50 or more full-time employees including full-time equivalents, to offer affordable coverage or potentially owe a penalty. Read the Text
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents, two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
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