Small companies pay nearly three times more for the exact same coverage, and most never see the bill
Two employers buy the exact same thing, a fully insured medical plan, from the same carriers, arranged by the same kind of broker. One employs about 120 people. The other employs 4,500. When the bill arrives, the small employer hands its broker roughly 6.8 percent of every premium dollar. The large employer pays 2.3 percent. Same product, nearly three times the cut. That difference isn’t a bulk discount, and it isn’t the quirk of one bad contract. It’s a staircase, a clean, monotonic descent in the broker’s take as employers grow, and for small businesses, it functions as a tax.
If you buy group health coverage for a workforce under a few hundred people, there’s a good chance you’re sitting close to that top step, whether or not anyone on your renewal call has ever told you the number.
KMBI reached these numbers by digging through U.S. Department of Labor filings, the Form 5500 and Schedule A reports that every fully insured health plan has to submit each year. The analysis covers 9,359 real employer health plans from 2022 through 2024, each one showing exactly what its broker was paid in commissions and fees. Line those plans up by size, and the pattern holds every time.
The smaller the business, the more of each premium dollar goes to the broker.
Employers with under $500,000 in annual premium, roughly 120 employees, hand over a median 6.8 percent. Employers with $500,000 to $1 million in premium hand over 6.0 percent. From $1 million to $2.5 million, it’s 5.0 percent. Then it keeps sliding. It drops to 3.9 percent, then 3.2, then 2.6, before bottoming out at 2.3 percent for the largest employers, those above $25 million in premium with several thousand employees. Seven size bands, seven declines. Not one of them reverses.
Figure 1. Median broker take as a share of medical premium, by account (premium) size, fully insured plans, 2022 through 2024. The take falls at every step, forming a monotonic staircase from 6.8 percent for the smallest employers to 2.3 percent for the largest. Source: DOL Form 5500 / Schedule A, KMBI Group Benefits dataset.
That percentage scales with the size of the check. Say your plan sits in the small-employer band. On $1 million of medical coverage, you’re sending about $68,000 a year to your broker. At the large-employer rate, that same $1 million would send about $23,000, for identical coverage. Multiply that difference across every employer in this position, and the numbers add up fast.
Employers with under $1 million in premium paid their brokers roughly $120 million over three years, just within the slice of the market these filings capture. Had they paid at the large-group rate instead, that bill would have run about $55 million. The extra $65 million, a little over $20 million a year, is what smaller firms paid for no additional coverage at all.
Three things turn this into a tax rather than a simple price. First, it’s regressive. The smaller you are and the less leverage you have, the more you pay. Second, it’s structural. Broker commissions on fully insured plans run on schedules tied to premium size, so a small account gets quoted standard rates while a large one negotiates them down, or drops commissions entirely for a flat fee, which the biggest buyers increasingly do. Third, it’s nearly invisible. The broker’s cut comes out of the premium itself rather than showing up as a line item, so the employer paying the most is the one least likely to ever see the number.
The staircase almost certainly understates how steep the climb really is. Form 5500 doesn’t require employers with fewer than 100 participants to file at all, so the true small end of the market, the 30-person contractor, the neighborhood restaurant group, barely shows up in the data. The smallest accounts that do appear already pay the most. The ones that don’t appear likely pay even more, off the books. What the chart shows is a floor, not a ceiling.
There’s a fair defense here, and it deserves airtime. Servicing a small account doesn’t cost proportionally less than servicing a large one. A renewal, a compliance filing, an open-enrollment meeting take about the same effort whether the premium behind them is $400,000 or $40 million. Spread that fixed cost over a smaller premium base, and the percentage naturally climbs. Some of the staircase really is just that arithmetic, and honest brokers earn every bit of it. Small employers often need more help, not less. But a near-threefold difference, buried inside the premium where the buyer can’t see it, is bigger than a cost-of-service story can comfortably explain. At some point, a reasonable markup becomes something closer to a toll. The real difference is leverage. Large employers can shop around, compare notes, and walk away. Small ones mostly can’t shop for something they’re never shown in the first place.
That’s where policy has started, tentatively, to catch up. Since the end of 2021, a provision in the Consolidated Appropriations Act has required brokers and consultants on group health plans to disclose what they’re paid, both direct and indirect compensation, to the employer who sponsors the plan. That’s the first-time federal law has tried to make this number visible to the people actually paying it, meaning you. Disclosure isn’t a price cap. Even if you ask for the number, you still won’t have the leverage of a Fortune 500 benefits department. But it does turn an invisible tax into a visible fee, one you can question, compare against a flat-dollar alternative, or take to a different adviser. The large end of the market already made that move, and its 2-to-3 percent rates are partly the reward for buyers who could see the number and push it down.
None of this makes the broker the villain of the small-business benefits story. Brokers are often the only way smaller firms get access to coverage at all, and most earn their keep honestly. But the data is clear about who carries the heavier load. The health dollar of a 120-person company buys measurably less health care and measurably more distribution than the health dollar of a 5,000-person one. The staircase is the shape of that difference, and it points the wrong way for everyone standing on its top step. The question worth carrying into your next renewal is simple: what’s your own number, and is it earning its keep?
Source: U.S. Department of Labor Form 5500 and Schedule A filings, 2022 through 2024, KMBI Group Benefits dataset, 9,359 fully insured medical plans with premium per participant in a plausible medical range ($2,000 to $40,000). Broker take is commissions plus fees as a share of earned premium. Bands show the median plan, and the medians are strictly monotonic. Statistical outliers and negative-value records are excluded. Employers under 100 participants are largely exempt from Form 5500 and under-represented here.
