Advanced Large Group Health Insurance Strategies (50 Employees and Up)
How Large Employers Can Save Up to 50% Per Employee on Group Health, With No ACA Shared Responsibility Penalty
By Wiley Long III, President – HSA for America
Reviewed by Lou Spatafore
Fact checked by Misty Berryman – Updated 10/10/2024
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Cut Employee Group Health Insurance Costs in Half
The average annual cost of employee group health insurance has reached a staggering $25,572.
According to the 2024 KFF Employer Health Benefits Survey.
This program can enable you to cut those costs in half – while avoiding costly shared responsibility penalties under the Affordable Care Act. An employer with 200 employees may save over $1 million per year.
Specifically, employers using this strategy allow their employees to choose either one of two options:
Option One
A health sharing plan combined with a minimum essential coverage plan (MEC).
Option Two
A level-funded value plan.
Option 1: Health Sharing + MEC Combination
Most of your employees will probably want to go with the MEC + health sharing plan combo.
Catastrophic Protection
Wellness & Preventative Care
Visit Any Doctor of Choosing
Health sharing is an innovative, affordable non-insurance solution that provides excellent protection against large and even catastrophic health care needs –– at a fraction of the cost of a full-fledged, traditional group health insurance policy.
Also, this health sharing plan allows the member to go to any doctor they choose – with no restrictive networks. This empowers your workers with much more freedom and flexibility, and potentially a vastly superior healthcare experience in the event they need care.
This powerful health sharing concept is combined with what we call in the industry Minimum Essential Coverage (MEC) plan –– a stripped down health insurance policy designed to meet the Affordable Care Act’s requirements for basic and preventative care coverage.
The MEC focuses on basic wellness services and preventative care. It also enables employers to sidestep the shared responsibility penalties.
“We were hesitant at first to move our company’s health care plan away from the larger corporations, but have found the transition to be rewarding for our employees and less expensive for us as a company. In fact, our savings were so significant that our firm offered to cover our employee’s first major incident as an added benefit to our staff.”
Preston Jenson, Managing Partner, Panda Accounting
How MECs + Health Sharing Plans Combine to Provide a Full Spectrum of Medical Care
Studies show that too many people skip checkups, medical appointments, screenings, and preventative care because of cost.
The MEC is designed to solve that problem simply and affordably: MEC members can receive these services with little or no out-of-pocket costs whatsoever. However, by itself, the MEC plan doesn’t cover other important things like hospital visits, surgeries, specialist care, or imaging services like X-rays or MRIs.
In this concept, the health sharing plan picks up where the MEC leaves off:
The health sharing plan helps the member share major medical, specialist care, emergency care, chronic disease management, and catastrophic care among thousands of other health share plan members.
This spreads the risk, and makes access to even catastrophic medical care affordable to your workers and your families.
And because health sharing plans are not structured as traditional health insurance policies, health sharing plans can provide this protection at a fraction of the cost of a traditional group health insurance plan.
Meanwhile, the MEC is there to pick up routine wellness and preventative care. So your workers won’t feel the need to skip these important services because they can’t afford the out-of-pocket costs – leading to higher-cost problems down the road.
“We are very impressed with the level of coverage that they provide and appreciate their consistent efforts and success in making these plans better each year. Our employees are covered for all preventive and emergency needs, and they have access to a wide network of doctors and hospitals.”
Christine Gott, Director of HR, GVA Property Management
Option 2: Level-Funded Plans
A streamlined level-funded plan is a basic, low-cost health insurance plan that still meets the minimum essential benefits requirements under the Affordable Care Act.
What’s a Level-Funded Plan?
A level-funded health plan is a group insurance option that blends characteristics of fully insured plans with self-insured plans, commonly used by applicable large employers (ALEs).
With a level-funded plan, the employer pays a fixed monthly payment to cover estimated claims, administrative costs, and stop-loss insurance. If claims are lower than anticipated, the employer may receive a refund at the end of the year. If claims are higher, stop-loss insurance steps in to cover the overage, limiting your risk.
Benefits of Level-Funded Plans
Budget Stability
Employers enjoy consistent, predictable monthly payments, making it easier to plan for healthcare costs compared to self-funded plans, where expenses can vary.
Cost Savings Opportunity
If actual claims fall below the anticipated amount, the employer may receive a portion of the unspent funds, offering potential savings.
Protection Against High Claims
The inclusion of stop-loss insurance limits the employer’s financial risk by covering claims that exceed a specified threshold.
Customization
Level-funded plans offer flexibility, allowing employers to tailor benefits to suit the specific needs of their workforce.
ACA Tax Benefits
Since these plans are considered self-funded, employers may avoid certain taxes and fees associated with fully insured plans under the Affordable Care Act (ACA).
Access to Claims Data
Employers often receive detailed reports on how claims are being used, helping them make more informed decisions about plan design and wellness initiatives.
Level-funded plans strike a balance between cost control, risk mitigation, and flexibility, making them an appealing option for ALEs looking to better manage their healthcare expenses.
The level-funded plan picks up the minimum 60 percent of medical costs after the deductible, which means it satisfies ACA employer mandates and avoids penalties. And it does so at a much lower cost compared to traditional, legacy full-fledged group health insurance products.
As long as you offer a level-funded plan that covers at least 60% of costs after the deductible, and that provides significant coverage for hospital and physician services to all your full time employees, you won’t have to pay shared responsibility penalties.
And you can reduce your costs substantially compared to a traditional, full-fledged health group insurance plan.
Tax considerations: Premiums are tax-deductible to the company, and not taxable to the employee – just like traditional group health insurance plans.
So which plan is best?
The answer to this question is different for each covered individual and household.
But here is the general rule:
- Most employees without serious pre-existing conditions will choose the Health Sharing + MEC combo option because of its much lower costs.
- Those with pre-existing conditions will usually choose the level-funded plan which covers more major medical services as well as prescription drugs.
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Shared Responsibility Penalties
Larger employers with 50 or more full-time employees or the equivalent (applicable large employers, or ALEs) are potentially subject to two shared responsibility penalties under the Affordable Care Act:
The Part A Penalty
If you don’t offer at least minimum essential coverage to 95% of your full-time employees, you’ll face the ACA’s “A” penalty—up to $2,970 per employee per year (in 2024).
The Part B Penalty
If the coverage you offer doesn’t meet the ACA’s minimum value rules, or isn’t affordable, you’ll face the ACA’s “B” penalty—up to $4,460 per employee who receives a subsidy through the ACA Exchanges.
However, with this strategy, by offering all your qualified workers a choice between a qualified level-funded plan and a MEC + health sharing combination, your company will not be subject to Part A or Part B shared responsibility penalties at all.
As an applicable large employer, you have options that can save a substantial amount of money, while still giving your employees the access to affordable, quality healthcare they need and deserve.
Learn More: How Much Can Health Sharing Save Compared to Traditional Health Insurance?
“Our experience has been exceptional… The benefits are affordable, comprehensive, and offer excellent coverage. The team is responsive and a pleasure to work with.”
Heather Gray, Chief Operating Officer, Hendersonville-Mill Springs Family Dental
How Health Sharing Helps Pay for Large and Catastrophic Costs
Health sharing plans are innovative, non-insurance, non-profit programs that allow employees to share medical expenses with a community of like-minded individuals.
Lower Costs
Health sharing plans typically have much lower monthly contributions than traditional insurance. Monthly costs are typically around half the cost of a traditional legacy group health policy.
Shared medical expenses spreads the risk around thousands of fellow members and lowers the burden on any one individual.
Member Responsibility Amount
Once a member meets their “member responsibility amount” (similar to a deductible), the community shares the remaining eligible medical costs. This helps employees avoid high additional out-of-pocket expenses, such as copays and coinsurance, that traditional plans often impose.
Limitations
Health sharing plans don’t cover every medical expense, and they often exclude coverage for prescription drugs and mental health care.
They also typically impose a waiting period before they will share costs for pre-existing conditions. This is why many people with significant pre-existing conditions that may need ongoing care will choose the level-funded option over the MEC + Health Sharing option.
SPECIAL OFFER FOR GROUP SIZES OF 50+
Pre-existing condition waiting periods waived – Our health share plan partners and will share up to $25,000 per member for pre-existing conditions
Why Are Healthshare Plans So Inexpensive Compared to Health Insurance?
Unlike traditional health insurance plans subject to ACA requirements, health sharing members don’t have to bear the cost for other peoples’ pre-existing conditions.
Membership is restricted to people who don’t abuse drugs or alcohol, for example.
And health sharing programs aren’t required to pay for things that most members don’t want or need, such as gender reassignment surgery or costly drug addiction rehab for adults.
The result is a much better risk pool, enabling much lower overall costs for members compared to health insurance products.
However, this is also why health sharing isn’t always a great match for workers who have pre-existing conditions. Some workers will likely have a pre-existing condition likely to need ongoing care or that puts them at a high risk of needing an expensive medical intervention.
That’s why under this concept, you give these employees a choice: A MEC + a health sharing plan combination for those in good health, and an ACA-qualified traditional health insurance plan for those with some medical issues they need to plan for.
“Our experience with them has been outstanding. Not only are they affordable, but their flexibility in offering a variety of plans has been instrumental in meeting the diverse needs of our employees across multiple states. Their hands-on approach, especially during the initial stages of our partnership, was invaluable. They provided comprehensive resources and guided us through every step of the enrollment process, ensuring that we were fully supported.”
Lacee Shapley, Human Resources Manager, Enviro Guard Pest Control
Summary: How to Cut Your Company Benefit Costs by $100,000/year
By offering your employees a choice of a Healthshare plan, or a more expensive level-funded health insurance plan, you will avoid part A and part B penalties, you will be giving your employees a choice between health insurance or less expensive healthsharing, and you are saving your employees and your company a significant amount of money.
Healthshare + MEC Plans
- provide basic coverage focused on preventive services
- very low-cost option for employers
- do not cover major medical services
- do not by themselves protect employers from the ACA’s “B” penalty
- often combined with low-cost health-sharing plans to help with major medical and catastrophic costs
- Most health share plans have a waiting period before they will share costs for pre-existing conditions. However, with our plan, pre-existing conditions are shareable up to $25,000 for groups of 50 or more.
Level-Funded Plans
-
Cover a wider range of healthcare services, including hospital and doctor visits, at 60% of the cost until the plan “stop loss” is hit. This is similar coverage to a Bronze plan on the individual market.
- Can help employers avoid both types of ACA penalties
- Premiums are higher compared to Healthshare + MEC Plans, but lower than traditional group health plans
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Why Most Workers Will Actually Prefer MEC + Health Sharing to Traditional Group HMOs and PPOs
We often find that it’s necessary to invest some effort in some employee education when introducing this concept to ALE work forces.
But when employees fully understand how health sharing works and the costs involved, most employees will find that they’re better off choosing a MEC plus health sharing solution over their old, overpriced traditional group health plans.
Here’s why:
- No Coinsurance or Copays: Once a member meets their responsibility amount, health sharing plans typically cover 100% of eligible expenses. This means employees won’t have to deal with additional copays or coinsurance. This can be especially appealing to younger, healthier workers who don’t anticipate high medical expenses.
- They can choose their own doctors. While HMOs and PPOs that dominate the group market require workers to choose doctors and hospitals on the plan’s list of approved providers for non-emergency care to fully use their benefits, health sharing plans allow members to see any doctor they choose.
- Lower Monthly Costs: Health sharing plans typically have much lower monthly costs compared to traditional insurance. This makes them attractive to healthy workers who want to minimize their healthcare spending.
Health Sharing + MEC Plans vs. Level-Funded Plans at a Glance
| Features | Health Sharing Plan + MEC Combo | Level-Funded Plan |
|---|---|---|
| Definition | Basic coverage that satisfies the ACA’s individual mandate for preventive care | Health plan that covers at least 60% of total healthcare costs and includes substantial medical services |
| ACA Compliance | Meets ACA requirements for offering basic preventive services | Meets ACA employer mandate by offering at least 60% of covered benefits (minimum value) |
| Covered Services | Covers all preventive services like vaccinations, screenings, and wellness visits. Health sharing component shares for large/catastrophic costs. | Covers a broader range of services including hospital stays, physician services, surgeries, and more. Employees responsible for 40% of cost, up to plan out-of-pocket caps. |
| Comprehensive Coverage or Sharing | Yes | Yes |
| ACA Shared Responsibility Penalties | Avoids shared responsibility penalties when offered in conjunction with a qualified 60% level-funded plan | Avoids shared responsibility penalties by offering minimum value and affordable coverage |
| Premium Costs | Much lower monthly costs compared to traditional health insurance and level funded plans. | Higher premiums compared to health sharing + MEC combo, but much lower than traditional comprehensive plan costs |
| Deductibles and Out-of-Pocket Costs | Often no deductibles or very low deductibles, minimal out-of-pocket costs. | Higher deductibles and out-of-pocket costs similar to Bronze plans, but varies by plan design |
| Typical Use Case | Satisfies ACA individual mandate; minimal coverage for low-cost employers | Full employer-sponsored health plan option to avoid penalties and provide adequate coverage |
How Much Can This Strategy Save?
In most cases, relatively healthy employees who help share the cost of their own health plans choose Option 1, with a health sharing plan to help with potential catastrophic needs. This option typically saves around 40% to 50% in employee healthcare costs compared to traditional group health plans.
If your employees pay a percentage of their health care costs (cost sharing), they can benefit from the savings, too––a strategy that provides employees a powerful incentive to choose the most cost-effective option.
Some employees who have pre-existing conditions, on the other hand, will likely prefer Option 2, the level-funded plan, which has no restrictions on pre-existing conditions, but still provides substantial coverage of hospital and outpatient costs.
This option typically saves around 20% compared to the cost of a traditional group health insurance indemnity plan.
The more employees that choose Option 1, the more you can expect to save on your employee health benefits compared to traditional group health.
But you should experience substantial savings no matter which option your employees select.
Learn More: How Much Money Can Health Sharing Save?
CASE STUDY: Al’s Widgets Saving $700,000 Per Year
Al’s Widgets, Inc. is an applicable large employer ALE with 115 full-time workers.
The company recently dropped its traditional group health plan, which was costing them $1.5 million per year. This was unsustainable in the current environment.
Instead, Al’s Widgets offered employees a choice:
1.) Sign up for the company’s level-funded plan, or
2.) enroll in a health sharing plan plus a minimum essential coverage (MEC) plan that covers preventative care benefits while avoiding ACA penalties.
In practice, most workers will choose the less expensive MEC + health sharing option, while those with significant pre-existing conditions will go for the level-funded plan option.
Both options save Al’s Widgets significant money compared to the traditional health insurance approach.
In this case, if 30% of the workforce elects the level-funded option, Al’s Widgets would save about 42% compared to their previous health health plan costs per year.
With younger and healthier workforces, and those with well-executed wellness programs, about 20% of workers will elect the level-funded option. In that case, Al’s Widgets would save nearly 50% compared to their previous traditional health insurance plan cost, or roughly $700,000 per year.
Employees also saved money compared to what they were paying for their traditional group health plan. Nearly everyone who didn’t have other coverage from a spouse’s employer elected to join the health sharing plan.
Al’s Widgets split the cost with them, and both sides enjoyed significant savings compared to their out-of-pocket costs for traditional health insurance.
Note: Each Plan Saves Money Compared to Offering a Traditional Group Plan
Not offering health benefits at all saves money, of course. But that strategy costs ALEs in penalties, and costs all employers in recruiting, retention, absenteeism, presenteeism, and lost productivity. This is why nearly all large employers choose to offer a qualifying health benefit.
*Employees don’t actually have to enroll in these plans in order for you to avoid paying shared responsibility payments. You just need to offer them.
Are You An Applicable Large Employer (ALE)?
The shared responsibility penalties only apply to applicable large employers (ALEs). Under the Affordable Care Act, an ALE is defined as an employer with 50 or more full-time employees, including full-time equivalents (FTEs), during the previous calendar year.
A full-time employee is one who works at least 30 hours per week or 130 hours per month.
To calculate FTEs, add the total number of hours worked by part-time employees in a month, and divide by 120. Combine the number of full-time employees and FTEs to determine if you meet the ALE threshold.
If you are an ALE, you are subject to the Employer Shared Responsibility Provisions of the ACA. This means you must offer affordable, minimum essential health coverage to at least 95% of your full-time employees (and their dependents) or potentially face shared responsibility penalties if one or more employees receive a premium tax credit for purchasing coverage through the Health Insurance Marketplace.
“After years of frustration and yearly shopping for our employee major medical insurance plan, our group went with a minimum essential coverage health plan paired with Zion HealthShare for our 2023 plan year. We couldn’t be happier. I am personally passionate about this product because I believe it’s the future of health care. Insurance companies are oftentimes wasteful and make billions of dollars annually on the backs of small businesses like ours. [This strategy] cuts away the expensive bureaucracy that has become characteristic of the modern insurance payer.”
S. Phillips Jones, Sr., CEO, Vein Specialists of the South
The Bottom Line
Offering employees a choice between health insurance plan or a healthshare membership can save them money and increase their take-home pay, while drastically reducing your company’s healthcare costs, and still meeting all ACA requirements.
By shifting to a much lower-cost plan design, you can protect both your business and your employees from the financial burden of traditional insurance.
For a free consultation, analysis, and plan design assistance, request a proposal or contact an HSA for America Personal Benefits Manager today. Let us help you find the best solution for your business and your employees.
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