- Small businesses can expand their benefits offerings and offload HR administration tasks by working with a PEO.
- PEOs are an excellent resource for businesses that want to start offering benefits to their employees.
- Providing health insurance to employees through a PEO helps small businesses offer higher-quality, more cost-effective health insurance options.
- This article is for small business owners seeking to learn more about offering their employees health insurance through a PEO.
Offering health insurance to your employees can improve employee retention, help your business attract more applicants, and keep your workforce healthier and happier. However, finding and administering health insurance benefits can be costly and time-consuming for small businesses.
A professional employer organization (PEO) is an excellent resource for businesses that want to save time and money on health insurance and other HR functions. We'll explore what's involved with providing health insurance to your employees and how PEOs can help.
How much does offering health insurance cost employers?
The cost of providing health insurance can vary widely. Employers typically get better rates when they have more employees to insure. This means that Fortune 500 companies will typically have access to lower rates, more plan options, and better coverage for employees, while small businesses can end up paying hundreds of dollars per employee for limited offerings.
The Kaiser Family Foundation reported in its Employer Health Benefits Survey that the average cost for employer-sponsored health premiums in 2021 was $7,739 for individuals and $22,221 for families. The way this premium is split between employers and employees varies. Employers typically cover most of the premium for employees and around half of the premium for dependents.
The cost of providing healthcare can add up, particularly if you are a smaller business unable to access the most competitive rates.
How does a PEO impact health insurance costs?
Partnering with a PEO is an excellent option for small businesses looking to reduce costs while providing better health insurance to their employees.
A PEO shares employer responsibilities with a business. It acts as the employer of record and provides payroll, human resources, benefits and administrative support. However, the business retains managerial responsibilities and makes all hiring, promotion and firing decisions. Using a PEO is a way to offload some of the paperwork and responsibilities while still maintaining control over your workforce.
PEOs can often offer small businesses better benefits and rates. The PEO negotiates on behalf of all of the employees and clients it serves, so it can access offerings and rates typically reserved for very large companies.
How PEOs help deal with crucial health insurance factors
While a business can research and obtain health insurance for its employees, getting insurance on your own can be tedious. You'll need to research your options and build a relationship with an insurance broker or provider. Working with PEO can be an easier path, providing an organization with insight, detailed knowledge and better pricing.
Here are a few crucial factors to consider when obtaining health insurance for your business and how PEOs can help.
Regulatory requirements
You need to consider some critical federal and state regulations when implementing health insurance for your employees.
- Affordable Care Act: The ACA provides specific guidelines on what must be included in employer-sponsored health coverage and who is eligible. Employers must adhere to specific reporting options under the ACA.
- Consolidated Omnibus Budget Reconciliation Act: COBRA is a federal law that provides employees and their families the opportunity to extend their health insurance benefits for a limited period if they lose their coverage. The most common example of this is when an employee leaves a company. Employers with 20 or more full-time employees are generally required to extend coverage continuation in specific instances. Under COBRA, employers and plans must provide employees notice if they're eligible for coverage continuation.
- Employee Retirement Income Security Act: ERISA is a federal law that governs self-funded health and retirement plans. Under ERISA, employers must provide employees with plan features and funding details. ERISA also sets standards for participation, vesting, grievance procedures and more.
You could manage these requirements and benefits administration tasks on your own, but if you use a PEO, you pass on those responsibilities to experienced professionals with detailed knowledge of regulations and state requirements.
Health plan options
It's critical to understand the different types of health insurance and plan options available so you can provide employees with what they need.
Common health insurance plan options include health maintenance organizations (HMOs), preferred provider organizations (PPOs) and high-deductible health plans (HDHPs).
Cost, flexibility, provider and health savings account (HSA) options vary. Here's a breakdown of how they compare:
| HMO | PPO | HDHP | |
|---|---|---|---|
| Cost | Somewhat high costs; different premiums, copays and deductibles depending on plan (bronze, silver or platinum) | Higher costs; different premiums, copays and deductibles depending on plan (bronze, silver or platinum) | Lower monthly premiums, but high deductibles |
| Flexibility | Restrictive | Flexible | Flexible |
| Providers covered | In-network care only, sometimes limited to particular hospital systems (possible exceptions for emergency care) | Large number of in-network providers; access to out-of-network care at higher rates | Large number of in-network providers; access to out-of-network care at higher rates |
| HSA eligibility | No | No | Yes, those enrolled in HDHP plan also eligible to enroll in HSA where pretax dollars can be designated for health expenses |
Employees' plan preferences will depend on their needs.
- Continued access to doctors: In some areas, HMOs like Kaiser Permanente are popular, and employees may feel strongly about having continued access to current doctors and care centers.
- Low premiums: Other employees may not need health services as frequently, and prefer an HDHP or bronze PPO to keep premiums low.
- High level of care: Employees who frequently access care to manage ongoing health conditions may prefer a silver or platinum HMO or PPO.
Ideally, you'll be able to offer your employees the best plans for their needs. While this can be challenging for businesses acting alone, PEOs make it easier. PEOs can negotiate rates with different providers and are more likely to have the bandwidth to manage benefits across various plans and provider options.
Top benefits of partnering with a PEO for health insurance
You'll experience two main benefits when partnering with a PEO to handle your organization's health insurance needs.
- Better benefits at lower costs: A PEO's co-employment model helps small businesses access benefits that are usually only available to large corporations. Employees can access health plans at lower negotiated rates than the business could obtain if it bought coverage directly from insurance companies. Employees enjoy better healthcare along with other PEO-negotiated benefits, including wellness programs and retirement plans, along with dental, vision and workers' compensation insurance.
- Lower administrative burden: Small business owners often don't have the time or inclination to take on the added tasks of managing benefits, but they still want to provide their employees with excellent health coverage. PEOs handle the administrative side of providing benefits, processing and dealing with the paperwork. Without these administrative burdens, you can focus on growing and maintaining your business.
How to choose the right PEO for health insurance
If you're interested in partnering with a PEO to offer health insurance to your employees, evaluate your options carefully. Weigh the following factors before choosing a PEO.
Accreditation
Not all PEOs are accredited, but working with an accredited PEO can minimize your risk.
Three agencies provide accreditation or certification for PEOs: the ESAC, IRS and Certification Institute.
- ESAC: The Employer Services Assurance Corporation (ESAC) accredits PEOs that meet its gold standard for best practices and financial responsibility. ESAC accreditation demonstrates a PEO's financial stability, ethical business conduct, and adherence to operational standards and regulatory requirements.
- IRS: IRS-certified PEOs, or CPEOs, can work directly with the IRS when handling small business tax information, streamlining the tax filing process.
- Certification Institute: Risk management is the Certification Institute's focus. To certify, PEOs must have extensive risk management practices in place along with additional qualifications and requirements, and they must pass a review process.
Working with a PEO recognized by one of these three organizations ensures you're choosing a reliable partner and minimizing the risks associated with co-employment arrangements.
Costs and fees
Your PEO should fit your budget as well as your support needs. The cost of working with a PEO varies. PEOs typically use one of two pricing structures: per-employee or percentage basis.
- Per-employee basis: Some PEOs charge a flat monthly fee based on the number of employees. These fees typically range from $40 to $160 per month per employee.
- Percentage basis: PEOs can also charge a percentage of your total monthly payroll. These rates range from 2% to 13% of the company's total monthly payroll.
Many PEOs only use one pricing model, but some let you choose the structure that works best for your business. Inquire about your options while shopping around.
Costs also depend on the services your business needs. Most PEOs offer bundled plans with core HR support services such as benefits, payroll and compliance. PEOs may also offer add-on services or customizable options to better suit the business's unique needs.
Additionally, many PEOs have employee minimums. If you only have a few full-time employees and want to find health insurance for them, check with prospective PEOs to see if they require a certain number of employees.
PEO service providers
There are many PEOs out there, each with slightly different insurance and benefits options. Read our in-depth PEO reviews to find the best fit for your needs:
- Justworks review
- Rippling PEO review
- TriNet PEO review
- ADP TotalSource review
- Paychex PEO Service review
- Oasis review
- Insperity PEO Service review
Look over the costs, accreditations, service offerings and customer support ratings to find the best PEO service provider for your business.