If your company has between 25 and 100 employees, there is a good chance you are paying more for your health plan than almost any other employer in the market — and getting less in return. Not because your people are unhealthy. Not because you chose the wrong carrier. Because of where you fall on the employer size spectrum.
You are too large to qualify for ACA marketplace subsidies, which are designed for individuals and very small employers. But you are not large enough to command the negotiating power of a 500-person company that can walk into a carrier renewal meeting with three competitive quotes and a credible threat to self-fund. You are caught in the middle — paying small-group rates, absorbing community-rated risk pools, and renewing year after year without a real alternative on the table. This is not an accident. It is a structural feature of how employer-sponsored health coverage is priced in the United States, and it quietly costs mid-market employers tens of thousands of dollars every year.
This article names that phenomenon, explains exactly why it happens, and walks through the four main funding strategies that companies like yours can use to get out of it. We will also show you the actual math on what a 40-person company saved by making one structural change — a 21% reduction in monthly costs without touching benefits quality.
There is a specific, identifiable reason why companies in the 25-to-100 employee range pay disproportionately high rates for employer-sponsored health coverage. We call it the Mid-Market Premium Squeeze — the structural pricing disadvantage that leaves employers in this size band paying per-employee rates closer to a 10-person company than a 200-person one, while carrying none of the cost protections that either end of the market enjoys.
Here is how it works. In most states, employers with under 50 employees (and in some states, under 100) purchase coverage under small-group rating rules. Under these rules, carriers use community rating — a pricing methodology that pools your employees with every other small employer in your geographic market. Your rates are set by the collective health experience of that pool, not by the actual claims your workforce generates. If the carrier's small-group book in your region had an expensive year — say, a wave of high-cost claims across dozens of unrelated companies — your renewal goes up, regardless of whether your own employees visited a doctor twice or twenty times.
This is fundamentally different from how large employers are rated. A company with 500 employees typically receives experience-rated pricing — meaning their actual claims history is the primary driver of their renewal. If they manage their workforce health well, they see lower rates. If they have a bad year, they pay for it. But they control the variable. Mid-market employers in the small-group band do not have that control. They pay for everybody else's bad year too.
Now layer in the second problem: lack of negotiating leverage. A 500-employee company shopping for coverage generates real competition among carriers. Underwriters compete for that block of business. Brokers bring multiple alternatives to the table. The employer has genuine market power. A 40-employee company has almost none. Carriers know that small groups rarely shop aggressively, rarely have the HR infrastructure to manage a mid-year transition, and often renew out of inertia. The renewal offer reflects that reality.
The third problem is the subsidy gap. ACA marketplace plans offer premium tax credits and cost-sharing reductions for individuals and very small employers, but these phase out quickly for employer-sponsored plans at larger group sizes. Once you cross certain thresholds, the subsidies disappear — but the small-group rate structure remains. You lose the safety net without gaining the leverage.
The result is a pricing environment where a 40-employee professional services firm might pay $450 to $650 per employee per month for a mid-tier plan, while a 300-employee company in the same industry and zip code pays $350 to $500 per employee per month for comparable or better coverage.¹ That gap — $100 to $150 per employee per month — multiplied across 40 employees over 12 months, is $48,000 to $72,000 in unnecessary spending every year. For most small businesses, that is a full-time hire.
Let us make this concrete. According to the Kaiser Family Foundation's 2025 Employer Health Benefits Survey, the average annual cost of employer-sponsored family coverage is $26,993, and the average employer contribution is approximately 74% of that — roughly $20,000 per enrolled family per year.² For single coverage, the average annual cost is $9,325, with employers covering about 84%, or $7,833 per year.²
A 40-person company with a typical enrollment mix might look like this:
But here is the detail that makes the Mid-Market Premium Squeeze visible. That same enrollment profile at a 200-person company in an experience-rated or self-funded arrangement would likely cost $370,000 to $420,000 per year — a difference of $65,000 to $115,000 annually, simply because of funding structure and group size.³ The 40-person employer pays more per head for the same network, the same deductibles, the same care — because of where they fall on the size spectrum.
Now consider the real-world example at the heart of this article. An employer with 40 employees was paying $18,000 per month on a fully insured Anthem plan — a standard arrangement for a company of that size. After a benefits review identified PEO eligibility and conducted a side-by-side analysis, the company switched to a PEO arrangement. Their new monthly cost: $14,200. Same core coverage. Improved ancillary benefits. A monthly savings of $3,800, or $45,600 per year — a 21% reduction achieved without reducing the quality of coverage employees receive.
The difference was not the carrier. It was not better negotiating. It was a structural shift in how the employer accessed the market.
If the savings are this real, why are so many 25-to-100 employee companies still on fully insured plans they have never questioned?
Part of the answer is that the traditional benefits broker model does not create strong incentives to surface alternatives. Most brokers serving the small-group market earn commission income as a percentage of premiums paid. When premiums are $500,000 per year and commission rates run 4 to 7%, a broker earns $20,000 to $35,000 annually to service the account — a number that drops if the employer moves to a lower-cost structure. This does not mean individual brokers are acting in bad faith. But it does mean that the advice mid-market employers receive is filtered through a compensation structure that is not always aligned with finding the lowest possible cost.⁴
The second reason is complexity. PEO arrangements, level-funded plans, and Taft-Hartley trusts are not complicated once you understand them — but they require explanation. Most employers encounter them for the first time at renewal when they are already under time pressure and inclined to take the path of least resistance. The status quo renews. The alternatives do not get considered.
The third reason is that alternatives are often not presented at all. A 2024 NAPEO study found that only a fraction of employers in the 25-to-100 employee range have ever received a formal proposal comparing PEO-based coverage to their existing fully insured plan.⁵ They have never seen the number. When you do not see the comparison, you cannot make the decision.
That changes here. Let us walk through the four real alternatives available to companies in this size band.
In a fully insured plan, the carrier assumes 100% of the claims risk. You pay a fixed monthly premium. The carrier pays the claims. At renewal, the carrier adjusts your rate based on broad market trends and, in small-group markets, pooled community experience rather than your specific claims.
The appeal is simplicity. There are no surprises mid-year. Your monthly cost is predictable. But you pay a significant premium for that predictability — typically 20 to 30 percentage points above what the underlying claims actually cost, because the carrier builds in profit margin, state premium taxes, and administrative overhead.² For mid-market employers with relatively healthy workforces, that markup represents a direct subsidy from your employees' good health to the carrier's bottom line. You never get that money back.
Fully insured plans also give you no visibility into your actual claims data. You do not know whether your $500,000 in premiums generated $350,000 or $480,000 in actual claims. That information belongs to the carrier. You renew without knowing whether you overpaid or underpaid — and you have no leverage to find out.
A Professional Employer Organization (PEO) is a co-employment arrangement in which an outside organization becomes the employer of record for HR, payroll, benefits, and compliance purposes, while you retain control of day-to-day operations and business decisions. The PEO aggregates employees from dozens or hundreds of client companies into a single large risk pool, then purchases health coverage at the scale and rates of a much larger employer.
For a 40-employee company, joining a PEO effectively means your employees are rated as part of a 50,000-person group — not a 40-person one. The carrier sees a large, diversified pool with stable aggregate claims history. The rates reflect that reality.
The savings are real and documented. According to NAPEO's 2024 industry research, employers using PEOs see health coverage cost savings of 8 to 16% compared to equivalent fully insured plans, after accounting for all PEO fees.⁵ In some cases — particularly in high-cost small-group states like New York, New Jersey, and Massachusetts — savings run higher. The 40-employee company example at the top of this article (from $18,000 to $14,200 per month) falls within the typical range.
PEOs also bundle HR administration, compliance support, workers' compensation management, and payroll processing. For employers without a dedicated HR director, the value of offloading those functions can exceed the coverage savings. For employers who already have HR infrastructure, PEO arrangements require evaluating the bundled cost holistically — some employers prefer to separate health coverage from HR services, which points toward level-funded or self-funded alternatives instead.
Read more about how PEO health arrangements work: PEO Health Benefits — How It Works.
A level-funded plan is a hybrid between fully insured and self-funded. You pay a fixed monthly amount — hence "level" — that is divided among three components: a claims fund, administrative fees, and a stop-loss premium. The claims fund pays your employees' actual medical expenses. The stop-loss policy protects you if any individual claim exceeds a set threshold (typically $25,000 to $75,000). If your employees' actual claims come in under the projected amount at year-end, the surplus is returned to you — typically 50 to 100% of the difference, depending on the carrier.
Level-funded plans are particularly well-suited to companies with 25 to 75 employees that have relatively stable claims histories and want to move toward cost transparency without taking on the full administrative complexity of traditional self-funding. The monthly cost is predictable. The stop-loss coverage protects against catastrophic claims. And unlike fully insured, you actually see your claims data — which gives you real information to use at renewal.
Cost savings compared to fully insured typically run 5 to 15% for stable groups.³ In a favorable claims year, the surplus return can push total savings higher. In an adverse year, the stop-loss kicks in and your exposure is capped. The risk-reward profile is meaningfully better than staying fully insured, particularly for employers who have not had major claims events in the prior two years.
For a deeper look at how level-funded plans work for small employers: What Small Business Health Coverage Actually Costs.
Taft-Hartley plans, also called multiemployer plans or union trust funds, are jointly administered health and welfare funds established under collective bargaining agreements. Multiple employers in the same industry contribute a fixed hourly rate per employee into a trust, which then provides comprehensive health benefits to all covered workers across those employers.
These plans are most commonly associated with construction, transportation, maritime, entertainment, and other industries with strong union representation. But they are worth understanding even for non-union employers in those industries, because they represent the most powerful version of pooled buying power available in the market. A multiemployer trust might cover 10,000 to 50,000 workers — giving it the kind of actuarial depth and negotiating leverage that no single mid-market employer can match on its own.
For eligible employers, Taft-Hartley contributions are contractually fixed, which means predictable costs regardless of individual claims experience. Benefits are typically comprehensive — medical, dental, vision, and pension — without the administrative overhead of managing a separate plan. If your industry or workforce makes you eligible for a multiemployer trust, it deserves serious consideration alongside PEO and level-funded alternatives.
Read more about how multiemployer plans work for smaller employers: How Multiemployer Plans Offer Better Coverage.
The table below summarizes how each funding model performs across the dimensions that matter most to mid-market employers. All cost figures reflect industry ranges for a 40-to-100 employee group with average demographics.²³⁵
| Fully Insured | PEO Arrangement | Level-Funded | Taft-Hartley Trust | |
|---|---|---|---|---|
| Per-employee-per-month cost (est.) | $450 to $650 | $355 to $530 | $395 to $580 | Varies by trust and industry; often $300 to $500 for union-eligible groups |
| Renewal predictability | Moderate — community-rated pool can drive 8 to 12% increases regardless of your claims | Strong — PEO's large pool stabilizes trend rates; typical renewals 2 to 5% | Good — stop-loss caps catastrophic risk; favorable claims return surplus | Excellent — fixed hourly contribution rate set by collective agreement |
| Coverage quality | Standard — carrier-designed networks and plan structures | Equal or better — PEO accesses large-group carrier contracts (BCBS PPO, etc.) | Comparable — plan design flexibility; custom deductibles and networks possible | Typically comprehensive — medical, dental, vision, and pension in one package |
| Admin burden on employer | Low — carrier handles everything; broker manages renewal | Very low — PEO handles HR, payroll, compliance, and benefits admin | Moderate — monthly claims reporting; TPA manages administration | Low to moderate — trust handles plan management; employer contributes per hour |
| Claims data visibility | None — carrier does not share claims data with small groups | Partial — some PEOs provide group-level reporting | Full — monthly claims reports show actual utilization | Limited — trust-level data; not individual group |
| Best fit for | Employers under 25 employees; volatile claims history; limited HR bandwidth | 25 to 100 employees wanting all-in-one HR and benefits; high-cost states | 30 to 75 employees; stable claims; want cost control without full self-funding risk | Union-eligible workforce; construction, transportation, hospitality industries |
The Squeeze is not just a one-time pricing problem. It compounds. Here is the mechanism:
In a small-group fully insured market, renewal increases are driven by two variables: your carrier's overall trend rate (how much medical costs rose across their book of business) and a community-rated adjustment that reflects claim experience across your entire rating region. In New York, for example, the Department of Financial Services approved a weighted average small-group rate increase of approximately 13% for 2026.⁶ That is the number every small-group employer in the state faces, regardless of whether their own employees were healthy or not.
Now apply the compounding math. If a 40-person company was paying $18,000 per month in 2023 and received 9% increases in 2024 and 2025, they are now paying roughly $21,400 per month — $3,400 more per month than two years ago, with no change in coverage quality and no connection to their actual health experience. Over a three-year period, that compounding effect adds up to $60,000 to $90,000 in cumulative overpayment for a company at this size.²
The employer who switched to a PEO arrangement and dropped from $18,000 to $14,200 per month did not just save $45,600 in year one. They reset their baseline. Future renewals start from the lower number. If the PEO renews at 3% annually versus a fully insured renewal at 9%, the three-year cumulative gap between staying and switching widens every year. That is the structural advantage of breaking out of the small-group community-rated pool.
If you are coming up on a renewal in the next 60 to 180 days, these are the steps worth taking before signing anything.
Most fully insured carriers serving small groups will not share this data voluntarily. If your broker cannot provide a claims-to-premium ratio, that is itself informative. Employers who can see their actual claims can make informed decisions about whether level-funded or self-funded structures make sense for their specific workforce. The inability to answer this question is the clearest sign you are in the wrong structure.
A side-by-side PEO comparison should include the full bundled cost — health coverage, HR services, payroll processing, compliance, and workers' compensation — compared against what you are currently paying for each of those components separately. Many employers who do this analysis for the first time discover the PEO is cost-neutral or cheaper on an all-in basis, with better coverage and less administrative burden.
Level-funded plans are increasingly available for groups as small as 25 employees, depending on the state and the carrier. Eligibility typically requires a stable claims history — no single claimant over $30,000 to $50,000 in the prior year — and minimum participation requirements. If your group is stable, a level-funded quote costs nothing to obtain and gives you a real comparison number to weigh against your renewal.
If you operate in construction, transportation, healthcare, hospitality, or another industry with multiemployer trust activity in your region, your broker should be able to tell you whether your workforce is eligible and what the contribution rates look like. Most employers in these industries have never been shown this option explicitly. It takes one phone call to find out whether it applies to you.
The Health Funding Projector below runs a funding model comparison using your actual employee count, enrollment assumptions, and location. It takes under three minutes and shows you what each funding model would cost your company specifically. Most employers who run it for the first time see the gap and understand, for the first time, why they have been overpaying. The model does not sell anything. It just shows you the numbers.
See What Your Company Would Pay Under Each Funding Model
The Health Funding Projector models your actual costs across 7 different funding strategies — from fully insured to PEO to level-funded to Taft-Hartley. No login. No email. Free.
The core reason is how small-group rating rules work. In most states, employers under 50 employees — and in some states, under 100 — are priced under community rating, which sets premiums based on the pooled claims experience of all small employers in your geographic region, not your own workforce's health. This means a company with healthy, low-utilization employees pays rates that reflect everyone else in the pool, including groups with expensive claims years. Larger employers are typically experience-rated, meaning their own claims drive their pricing. Better workforce health management leads directly to lower rates for them. For small-group employers under community rating, that connection often does not exist.
A Professional Employer Organization (PEO) enters into a co-employment arrangement with your business, making your employees part of a much larger pooled workforce for benefits and HR purposes. Because PEOs aggregate employees from many client companies — sometimes tens of thousands of people — they access large-group carrier contracts and pricing that a 40-person company could never obtain independently. The carrier sees a large, diversified risk pool with stable aggregate claims history, and prices accordingly. The savings pass through to you in the form of lower per-employee monthly costs. PEOs also bundle HR administration, payroll, compliance, and workers' compensation management, which reduces internal overhead for employers who do not have dedicated HR staff.
Level-funded plans work best for companies with 25 to 75 employees that have had stable claims histories — meaning no single large medical event (typically over $30,000 to $50,000 per individual) in the prior year or two. If your workforce is relatively young, healthy, or has low utilization, level-funded plans offer the possibility of returning unused premium at year-end while capping your downside exposure through stop-loss coverage. If your workforce has had unpredictable or volatile claims, a fully insured plan may be a better fit until the history stabilizes. The best way to know is to request a level-funded quote and compare it directly against your renewal number — the math will tell you clearly whether the switch makes sense.
Taft-Hartley plans are multiemployer health and welfare trusts established under collective bargaining agreements, jointly administered by employer and union trustees. They pool contributions from many employers in the same industry, providing comprehensive benefits at rates that reflect the buying power of the entire trust membership. Eligibility generally requires that your workforce is represented by a union participating in the trust, or that your industry has a trust your employees can access under the applicable labor agreement. They are most common in construction, transportation, maritime, healthcare, and entertainment. If you operate in one of these sectors and have a unionized or partially unionized workforce, asking about Taft-Hartley eligibility is a straightforward first step.
You retain full operational control of your business and your people. The co-employment structure means the PEO becomes the employer of record for tax and benefits administration, but day-to-day management of your workforce — hiring decisions, performance management, company culture, compensation structure — remains entirely yours. On benefits specifically, most PEOs offer a menu of plan options that you select from, with flexibility in contribution strategies and plan tiers. You do not design the plan from scratch, but you are not handed a single plan with no choices either. The degree of flexibility varies by PEO, which is one reason why getting competitive proposals from multiple PEOs — rather than a single quote — is worth the time before committing.
Timing varies by structure. PEO transitions typically take 30 to 90 days from signed agreement to effective date, including HR system onboarding, benefits enrollment, and payroll integration. Most transitions are timed to coincide with a benefits renewal date to minimize disruption. Level-funded plan transitions are similar to any standard plan change and usually execute within 30 to 60 days with proper coordination. Neither transition requires employees to change doctors mid-treatment if the new plan includes the same network — which is a common concern that the enrollment process addresses directly. The practical advice: start the analysis 90 to 120 days before your current plan renewal to give yourself time to model alternatives without rushing.
This article is provided for educational purposes and does not constitute financial, legal, or tax advice. Consult your benefits advisor and compliance counsel for guidance specific to your situation.
Sam Newland, CFP® is the founder and president of PEO4YOU and Business Insurance Health. With 13+ years in employee benefits — and a track record as the #1 face-to-face health plan agent nationally — Sam built PEO4YOU on a single principle: employers deserve to see exactly what they're paying for and why. Contact: [email protected] | 857-255-9394 | peo4you.com
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