PEO and Employee Health Insurance

  • Small businesses can work with PEOs to expand their profit offerings and take off human resource administration functions.
  • PEOs are an excellent resource for businesses that want to start paying benefits to their employees.
  • Providing health insurance to employees through a PEO helps small businesses provide higher quality, more cost-effective health insurance options.
  • This article is for small business owners who want to learn more about offering health insurance through a PEO to their employees.

Providing your employees with health insurance can improve employee retention, help your business attract more applicants, and keep your workforce healthy and happy. However, finding and administering health insurance benefits for small businesses can be costly and time-consuming.

A Professional Employer Organization (PEO) is an excellent resource for businesses that want to save time and money on health insurance and other human resources tasks. We'll explore what's involved in providing health insurance to your employees and how PEOs can help.

did you know?did you know? Health insurance is not just a benefit. You should be aware of occupational health insurance requirements when setting up your employee benefits package.

How Much Does Offering Health Insurance Cost to Employers?

The cost of providing health insurance can vary widely. Employers typically receive 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 smaller businesses can pay hundreds of dollars per employee for limited offerings.

The Kaiser Family Foundation reported in its Employer Health Benefits Survey that the average cost of employer-sponsored health premiums in 2021 was $7,739 for individuals and $22,221 for families. The manner in which this premium is split between employers and employees varies. Employers typically cover most of the premiums for employees and about half of the premiums for dependents.

The cost of providing healthcare can add up, especially if you are a small business unable to access the most competitive rates.

How does a PEO affect health insurance costs?

Partnering with a PEO is an excellent option for small businesses that want to reduce costs while providing better health insurance for their employees.

A PEO shares the responsibilities of an employer with those of 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 take off some of the paperwork and responsibilities while maintaining control of your workforce.

PEOs can often offer better benefits and rates to small businesses. The PEO negotiates on behalf of all of its employees and customers, so it can reach offers and rates typically reserved for very large companies.

How PEOs Help Deal with Important Health Insurance Factors

While a business can research and obtain health insurance for its employees, obtaining insurance yourself can be exhausting. You will need to research your options and build a relationship with an insurance broker or provider. Working with a PEO can be an easy path, providing an organization with insight, detailed knowledge, and better pricing.

Here are some important factors to consider when getting health insurance for your business and how PEOs can help.

regulatory requirements

There are some important federal and state regulations you need to consider when applying health insurance to your employees.

  • Affordable Care Act: The ACA provides specific guidelines for what employer-sponsored health coverage must cover 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 with the opportunity to extend their health insurance benefits for a limited period of time 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 continue coverage in specific instances. Under COBRA, employers and plans must give notice to employees if they are eligible to continue coverage.
  • Employee Retirement Income Security Act: ERISA is a federal law that regulates self-funded health and retirement plans. Under ERISA, employers must provide plan features and funding details to employees. ERISA also sets standards for participation, vesting, grievance procedures, etc.

You can manage these requirements and benefit from administration functions on your own, but if you use a PEO, you delegate those responsibilities to experienced professionals who have a detailed knowledge of regulations and state requirements. Is.

did you know?did you know? In addition to handling your health insurance and other employee benefits, PEOs handle payroll processing and payroll tax payments.

health plan options

It is important to understand the different types of health insurance and the plan options available so that 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 how to compare them:

HMO PPO hdhp
cost somewhat high cost; Different premiums, copays and deductibles depending on the plan (Bronze, Silver or Platinum) high cost; Different premiums, copays and deductibles depending on the plan (Bronze, Silver or Platinum) Low monthly premium, but high deductible
FLEXIBILITY restrictive flexible flexible
providers covered In-network care only, sometimes limited to specialized hospital systems (possible exceptions for emergency care) a large number of in-network providers; Access to out-of-network care at higher rates a large number of in-network providers; Access to out-of-network care at higher rates
HSA Eligibility No No Yes, people enrolled in an HDHP plan are also eligible to enroll in an HSA where pretax dollars can be specified for health expenses

Employees' plan preferences will depend on their needs.

  • Continuous access to doctors: In some areas, HMOs such as Kaiser Permanente are popular, and employees may feel strongly about continued access to current doctors and care centers.
  • Low Premium: Other employees may not need health services as often, and prefer HDHPs or Bronze PPOs to keep premiums low.
  • High level of care Employees who use care frequently to manage ongoing health conditions may prefer a Silver or Platinum HMO or PPO.

Ideally, you will be able to offer your employees the best plans for their needs. While this can be challenging for businesses acting alone, PEOs make it easy. PEOs can negotiate rates with different providers and are more likely to have the bandwidth to manage benefits across different plans and provider options.

significant achievementsImportant achievements: When choosing a PEO, ask about its plan offerings. Consider your employees' preferences and choose a PEO who can provide them with what they need.

Top Benefits of Partnering with a PEO for Health Insurance

There are two main benefits you will experience when partnering with a PEO to meet your organization's health insurance needs.

  • Better benefits will be available in less cost: The co-employment model of a PEO helps small businesses access benefits that are typically only available to large corporations. Employees can access health plans at lower negotiated rates if the business can purchase 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.
  • Less administrative burden: Small business owners often don't have the time or inclination to perform the additional tasks of managing benefits, but they still want to provide excellent health coverage to their employees. PEOs handle the administrative side of providing benefits, processing and handling 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 are interested in partnering with a PEO to provide health insurance to your employees, evaluate your options carefully. Weigh the following factors before choosing a PEO.


Not all PEOs are accredited, but working with an accredited PEO can reduce your risk.

Three agencies provide accreditation or certification for PEOs: the ESAC, the IRS, and the Certification Institute.

  • ESAC: Employer Service Assurance Corporation (ESAC) recognizes PEOs who meet its gold standard for best practices and financial responsibility. ESAC accreditation demonstrates a PEO's financial stability, ethical business conduct and adherence to operating 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 Certification is the focus of the Institute. To become certified, PEOs must have comprehensive risk management practices with additional qualifications and requirements, and must go through a review process.

Working with a PEO accredited by any of these three organizations ensures that you are choosing a reliable partner and minimizing the risks associated with co-employment arrangements.

did you know?did you know? According to ESAC, only 9% of PEOs have obtained its accreditation.

cost and fee

Your PEO should be tailored to your budget as well as your support needs. The cost of working with a PEO varies. PEOs typically use one of two pricing structures: a per employee or a percentage basis.

  • Per Employee Basis: Some PEOs charge a flat monthly fee based on the number of employees. These fees generally range from $40 to $160 per month per employee.
  • Percentage Basis: PEOs may 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 use only one pricing model, but some let you choose the structure that works best for your business. Ask about your options when shopping.

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 can also provide add-on services or customizable options to suit the specific needs of the business.

Additionally, many PEOs have minimal staff. If you only have a few full-time employees and want to find health insurance for them, contact a potential PEO to see if they require a certain number of employees.

PEO Service Provider

There are several PEOs out there, each with slightly different insurance and benefit options. Read our in-depth PEO reviews to find the best fit for your needs:

View cost, accreditation, service offered and customer support ratings to find the best PEO service provider for your business.

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