PEOs and Employee Health Coverage

Providing health insurance for your employees can enhance retention rates, attract top talent, and promote a healthier, happier workforce. However, for small businesses, sourcing and managing health insurance benefits can be an expensive and labor-intensive process.

A professional employer organization (PEO) is a valuable partner for businesses. It helps optimize both time and cost in managing health insurance. It also assists with other human resources (HR) responsibilities. In this article, we’ll delve into the intricacies of providing health insurance and how PEOs can facilitate this process.

Health insurance is more than just an employee benefit. It is essential for meeting business health insurance regulations. This is important when creating employee benefits packages.

What is the cost for employers to offer health insurance? 

The expenses associated with providing health insurance can vary significantly. Generally, employers with a larger workforce secure better rates. Consequently, Fortune 500 companies enjoy lower rates. They benefit from broader plan options and enhanced employee coverage. In contrast, small businesses may find themselves paying significantly more per employee for limited plans.

According to the Kaiser Family Foundation’s Employer Health Benefits Survey, the average cost for employer-sponsored health premiums in 2023 was $8,435 for individual coverage. The cost was $23,968 for families. Typically, employers cover a significant portion of their employees’ premiums, while contributing about half for dependents.

For smaller businesses, the expenses of providing healthcare can accumulate, especially if they lack access to competitive insurance rates.

How does a PEO influence health insurance costs? 

Collaborating with a PEO is a smart choice for small businesses. It helps them reduce expenses. It also enhances the health insurance benefits offered to employees.

A PEO forms a co-employment relationship, assuming certain employer responsibilities while providing payroll, HR, benefits, and administrative assistance. Your business continues to hold managerial authority, making all key decisions related to hiring, promotions, and terminations. This partnership helps alleviate administrative burdens while retaining control over your staff.

Additionally, PEOs can often provide smaller businesses with superior benefits and pricing. A PEO negotiates on behalf of all clients. This allows access to health plans and rates generally available only to large corporations.

How PEOs address critical health insurance issues

While businesses can independently research and secure health insurance for employees, handling this process can be cumbersome. A PEO simplifies this journey by bringing valuable insights, extensive knowledge, and improved pricing.

Consider these essential factors when sourcing health insurance and how PEOs can assist:

Regulatory requirements 

When implementing employee health insurance, it’s crucial to consider various federal and state regulations:

• Affordable Care Act (ACA): The ACA outlines requirements for what must be included in employer-sponsored health coverage and who qualifies. Employers must comply with specific reporting obligations under the ACA.
• Consolidated Omnibus Budget Reconciliation Act (COBRA): COBRA offers a way for employees and their families to extend their health insurance benefits. This option is available for a limited time. This extension takes place after losing coverage, commonly when an employee leaves the company. Employers with 20 or more full-time employees are usually required to provide continuation coverage. They need to notify employees who are eligible.
• Employee Retirement Income Security Act (ERISA): ERISA governs self-funded health and retirement plans. It requires employers to provide details about plan features and funding. It also establishes standards for participation, vesting, grievance procedures, and additional requirements.

You could navigate these regulations alone. However, a PEO enables you to delegate these responsibilities. You can trust knowledgeable professionals who specialize in regulatory compliance.

Beyond managing your health insurance and employee benefits, PEOs also oversee payroll processing and tax payments.

Health plan options

It’s vital to recognize the array of health insurance and plan choices available to meet employee needs.

Common plan types include health maintenance organizations (HMOs), preferred provider organizations (PPOs), and high-deductible health plans (HDHPs).

The cost, versatility, provider access, and health savings account (HSA) eligibility differ among these options. Here’s a comparison:

	HMO	PPO	HDHP
Cost	Moderate; varies in premiums, copays, and deductibles by plan (bronze, silver, platinum)	Higher; varies in premiums, copays, and deductibles by plan (bronze, silver, platinum)	Lower monthly premiums with higher deductibles
Flexibility	Restrictive	Flexible	Flexible
Providers covered	In-network care only, sometimes restricted to specific hospital systems (exceptions may apply for emergencies)	Extensive in-network providers, with out-of-network care at higher rates	Extensive in-network providers, with out-of-network care at higher rates
HSA eligibility	Yes, but only for certain high-deductible plans	Yes, but only for certain high-deductible plans	Yes; those enrolled in HDHPs can also set up an HSA to save pre-tax dollars for health expenses

Employee plan selection will depend on individual preferences:

• Access to doctors: Some employees may prioritize continued access to their current healthcare providers. This is especially important in regions where HMOs like Kaiser Permanente are prevalent.
• Lower premiums: Employees who use healthcare infrequently may prefer HDHPs or lower-tier PPOs to reduce premium costs.
• High-quality care: Employees who need frequent care for chronic conditions may opt for silver or platinum HMOs. They might also choose PPOs for enhanced coverage.

Ultimately, the goal should be to provide the best possible plans for your employees’ needs. This can be challenging for standalone businesses. PEOs simplify this process by negotiating with various providers. They handle the intricacies of benefits management.

When selecting a PEO, inquire about their plan options and consider your employees’ preferences to ensure their needs are met.

Top benefits of partnering with a PEO for health insurance

By partnering with a PEO to manage your health insurance, you can expect significant advantages:

• Enhanced benefits at reduced costs: PEOs offer a co-employment model that benefits small businesses. It allows them to access benefits traditionally available only to large enterprises. Employees gain access to more favorable health plans at lower negotiated rates than they would obtain directly from insurers. They also receive additional PEO-negotiated perks, including wellness initiatives, retirement plans, and coverage for dental, vision, and workers’ compensation.
• Decreased administrative workload: Most small business owners lack the capacity or desire to manage the intricacies of benefits administration. They still want to provide quality health coverage. PEOs handle all the administrative duties involved in offering benefits. This allows you to redirect your focus toward expanding and sustaining your business.

Factors to consider when selecting a PEO for health insurance

If you are considering teaming up with a PEO to provide health insurance for your employees, assess your options carefully. Take the time needed for a proper assessment. Consider the following aspects before making a decision:

Accreditation

Not all PEOs hold accreditation, but selecting an accredited PEO can significantly reduce potential risks.

Three organizations provide accreditation or certification for PEOs: the Employer Services Assurance Corporation (ESAC), the IRS, and the Certification Institute.

• ESAC: The ESAC accredits PEOs that meet its rigorous standards regarding best practices and financial accountability. ESAC accreditation reflects a PEO’s financial health, ethical operations, and compliance with regulatory obligations.
• IRS: IRS-certified PEOs (CPEOs) can directly interact with the IRS. They assist with your small business’s tax matters. This simplifies the tax submission process.
• Certification Institute: The Certification Institute prioritizes risk management. It requires PEOs to have robust risk management procedures. PEOs must also meet other specific qualifications that involve a thorough evaluation.

Partnering with a PEO accredited by one of these organizations ensures your choice is trustworthy, reducing risks associated with co-employment agreements.

According to ESAC, only approximately 5 percent of PEOs have gained accreditation.

Costs and fees

Ensure that your PEO aligns with both your budget and your support needs. PEO service costs can differ. Typically, PEOs charge in one of two ways: on a per-employee basis or as a percentage of payroll:

• Per-employee basis: Some PEOs have a flat monthly charge based on the number of employees, generally ranging from $40 to $160 per month for each employee.
• Percentage basis: Other PEOs charge a percentage based on your total monthly payroll, typically ranging from 2 percent to 12 percent of the total payroll expense.

While most PEOs utilize one pricing model, some allow you to choose the structure that best suits your business’s needs. Investigate your choices while comparing options.

Service costs also vary based on the specific services your business requires. Many PEOs offer bundled packages that include vital HR services like benefits, payroll, and compliance, with opportunities for add-on services or tailored solutions to meet your business’s unique demands.

Additionally, many PEOs have minimum employee requirements. If you’re a small business looking to find health insurance for a limited number of employees, confirm with potential PEOs whether they have specific employee minimums.

Top PEO service providers

Numerous PEOs exist, each presenting varying insurance and benefit options. Check out our in-depth PEO reviews to identify the best service providers for your needs:

• Justworks: This tech-driven PEO solution provides benefit management, HR, and payroll through an easy-to-use platform. Justworks’ Plus plan includes extensive employee benefits such as health, dental, and vision insurance alongside health savings and flexible spending accounts. It is an excellent choice for small businesses, granting access to comprehensive benefits typically unavailable to smaller enterprises. For further details about Justworks’ offerings, read our review.
• Rippling: Known for assisting growing companies with expansion across various states, Rippling’s PEO effectively manages health benefits and insurance. This platform simplifies compliance with state tax regulations and ensures adherence to federal, state, and local laws, including tax filing and the ACA. Discover how Rippling supports developing businesses in our review.
• TriNet: TriNet stands out for its extensive range of health benefits and insurance options. Partnering with leading carriers such as Kaiser Permanente, Blue Shield, Aetna, and UnitedHealthcare, TriNet offers a broad array of premium benefit choices. The enrollment process is seamless for employees, with easy comparison of coverage and costs, plus access to support from dedicated Health Advocates. Find more details about TriNet’s offerings in our review.
• Paychex: With various customization options, Paychex is well-suited for rapidly scaling startups. It provides tailored plans, comprehensive benefits, 401(k) retirement options, and health savings accounts. Paychex offers assistance from HR and payroll specialists via flexible contract and pricing arrangements, accompanied by user-friendly, cloud-based access for both employers and employees. Explore Paychex’s flexibility in our review.
• ADP TotalSource: Renowned for its dedicated support, ADP TotalSource connects businesses with experts who provide personalized assistance on benefits, payroll, and compliance. This platform excels in benefits administration, offering premium plans for medical, vision, and dental insurance at competitive rates. Employees can quickly compare and enroll in plans through ADP’s intuitive, real-time updating platform, integrated with over 300 software tools. Learn more about ADP’s benefits administration capabilities in our review.
• Insperity: Insperity offers well-rounded compliance and risk management support, backed by industry experts. As an ESAC-accredited and IRS-certified PEO, Insperity ensures adherence to high compliance standards and risk management best practices. It also provides a range of services including payroll, employee benefits, HR administration, and training resources. Examine Insperity’s full service offerings in our review.

PEOs provide a range of services for your business

In addition to specializing in health insurance, PEOs can manage varying aspects of employee administration and management tasks. As you strive for improved employee support and operational efficiency, a PEO can help streamline processes, ensure adherence to regulations, and offer expert HR guidance. Partnering with the right PEO allows you to concentrate on growing your business while leaving workforce management to capable professionals.

Offering health insurance to employees enhances retention and attracts talent, but can be costly for small businesses. Professional employer organizations (PEOs) help mitigate these challenges by providing better rates and benefits through shared employer responsibilities. In 2023, average health premiums were $8,435 for individuals and $23,968 for families, making it crucial for small businesses to seek affordable options. PEOs simplify administrative tasks, manage compliance with laws like the ACA and COBRA, and negotiate plans. By partnering with a PEO, small businesses can access the advantages of large employers while alleviating the burden of managing health insurance and HR functions.