Why Small and Mid-Sized Employers Pay the Highest Margins

In this eye-opening episode, healthcare strategist Tom Quigley explains why small and mid-sized employers often pay significantly higher margins than large corporations — and why it doesn’t have to be that way.For decades, business owners have been told that rising healthcare costs are simply unavoidable. But according to Tom, that belief is driven by emotion, outdated purchasing strategies, and commission-based sales models that reward higher premiums — not lower costs.This episode breaks down the structural realities behind healthcare pricing and shows business owners how to level the playing field.Many business owners assume large corporations pay more for healthcare because they offer richer benefits.The truth?Large corporations are using tax laws and structural plan designs that smaller businesses can legally use as well — but typically don’t.The biggest gap is knowledge and implementation.Large companies:Use Section 105 tax law structuresSelf-fund more efficientlyDesign plans strategicallySmall businesses:Remain fully insuredAccept renewal increases without transparencyRely on commission-based brokersThe result? Higher margins and inflated premiums for smaller employers.Tom explains that Fortune 500 companies use Section 105 medical expense reimbursement plans to structure benefits more efficiently.Small and mid-sized employers can use the exact same tax code — but most are either:Not using it at allUsing inefficient structures like ICHRAsOr relying on traditional fully insured modelsSection 105 allows employers to:Lower premium costsReimburse employees tax-freeProvide better benefits at a lower net expenseIt’s not a loophole. It’s federal tax law.Traditional fully insured plans with major carriers:Set rates at the state levelPool small businesses togetherProvide minimal claims transparencyOffer limited strategic flexibilityMid-sized employers lose pricing power because:They don’t receive meaningful dataRenewal increases are based on opaque loss ratiosStop-loss retention math is often misrepresentedTom explains how catastrophic claims (like premature birth cases) are often used to justify rate increases — even though reinsurance and retention limits already cap exposure.One of the most critical issues discussed is lack of claims transparency.Insurance carriers:Control the dataDon’t provide full reportingUse gross claim numbers without adjusting for stop-loss retentionDon’t disclose pharmacy rebates and backend profit marginsExample:A $1 million claim with a $100,000 retention should not be used as a full $1 million loss in renewal calculations.Yet it often is.This creates artificially inflated loss ratios that justify premium increases.Another margin driver:Commissions and volume bonuses.Brokers often earn:Per-head commissionsPercentage-of-premium commissionsVolume-based bonusesOverrides tied to premium growthThere is no financial incentive to reduce premiums.The system rewards higher costs.No.Small groups are pooled within their own market segments under state insurance regulations.However, small employers are:Subject to premium taxesLimited by state insurance department rulesRestricted from using certain structural strategiesWhen employers shift to ERISA-based Section 105 structures, oversight shifts to federal Department of Labor rules — bypassing many state-imposed inefficiencies.Tom outlines a simple strategic framework:Step 1:Request the lowest-cost, highest-deductible plan from your current carrier — same network.Step 2:Implement a Medical Expense Reimbursement Plan (Section 105) to cover deductibles and gaps tax-free.Step 3:Allow employees to voluntarily shift to:Spousal coverageMedicareMedicaidACA-compliant individual plans (with or without subsidies)Military or parent coverageEmployer contributes a defined amount toward these alternatives.Visit ClaimLinx.com and schedule a consultation with Tom and his team.