Posted on January 16th, 2024

Health insurance open enrollment is right around the corner and for all business owners and HR directors out there, it's time to look at a fresh option.

For years, administrators would review their health insurance renewals with their brokers. With 10, 20, or 25% increases, and with really no other choice, they would either renew as is, increase copays and deductibles, or reduce other benefits in order to manage costs. The traditional way of purchasing insurance was either through a small group or individual plan. Fortunately, there is now another option that has become increasingly popular, and that is purchasing health coverage through a P.E.O. or Professional Employer Organization.

In short, a PEO is an HR company that a business owner retains to outsource his/her HR services. Generally, payroll, worker's compensation, and health insurance are the three essential services that a PEO will need the business owner to outsource. Although payroll is the heart of the PEO, the reason PEOs are attractive is because of the savings in health insurance premiums. Simply put, with thousands of worksite employees, the PEO has greater leverage in negotiating rates with insurance carriers than a small business owner does.

Rates can be as much as 25% less than standard group plans with better coverage. A PEO is not for everyone. The key to determining whether a PEO arrangement is for you will be if the administration or admin fees are so high that the admin fees essentially neutralize any savings from health insurance premiums. We had a recent client with 14 employees that, after admin fees, was able to net a $52,000 savings on the overall package. I will note that receiving a quote from a PEO will not be like your typical small group proposal. Underwriting is required and they'll need 2-3 weeks to produce an accurate quote, so after doing research, if you're considering a PEO, don't wait until December to begin the process; start now.