More small business owners want to provide their employees with health insurance. However, there are a plethora of important choices to make in a limited time frame. When it comes to providing employees with health insurance, being well-informed will greatly simplify the process of choosing what health plans ultimately make the most sense for the company and employees.
Professional employer organizations (PEOs) offer services ranging from payroll processing, benefits administration, HR training and support, and workplace insurance coverage, to both small and medium-sized businesses.
Fully insured medical plans are employer-sponsored health plans where the premium rates are fixed for at least a year (possibly longer) and are based on the number of employees enrolled in the plan each month and their ages. The company pays the insurance carrier a premium.
If you are not entirely sure whether you should use a PEO or consider fully insured plans, it might be helpful to know the pros and cons of each:
The pros of PEOs
- PEOs include employees with all of the PEO’s co-employees to create one larger group/pool of employees; This enables the PEO to provide the employees with access to employee benefits similar to ones they would receive as part of a larger corporation, despite the fact they work for a small business.
- Services offers include more than just health benefits. PEOs make available compliance support, payroll, human resources services, and workers compensation.
- Lower administrative burdens allow small business owners to focus on their core business strategies in lieu of worrying about the minutiae of benefits.
The cons of PEOs
- Very limited choice in carriers, meaning that your employees won’t necessarily be presented with the best options for them or their families.
- Require administrative fees to support their services and are charged per month per employee or percentage of total payroll.
- Force small businesses to rely on an external team (rather than internal employees) to handle important and sensitive HR processes.
The pros of fully insured plans
- The prices are based on ages and/or zip code which allows employers to budget. The rates do not vary with the health of employees, and you cannot be denied based on the health of your employees (no medical underwriting required.) The insurance provider manages all claims, and the risk is assumed by the insurance company.
- You can traditionally choose your own package and decide on carriers, as opposed to being required to stick to a very limited set offered by a PEO. You can purchase a fully-insured plan if you have at least 2 employees. Some PEOs require you to have a higher minimum number of employees (5 Employees).
- There are no administrative fees paid to a PEO. You can choose your own payroll company and have internal HR resources.
The cons of fully insured plans
- With fully insured plans, premium costs can be higher depending on your geography and age of employees, regardless of the overall health of your employees. (Sometimes claims experience varies depending on the size of the company.)
- You don’t have the “one-stop shop” of payroll, HR, and compliance that is available with most PEOs.
- The administrative burdens associated with running a small business fall solely on the business.
The health insurance options available for small business employers are vast, and there are pros and cons to each choice available to you and your employees. Prior to making a decision, it is best practice to be as familiar with all of the details as possible. In the case of PEOs vs. Fully Insured Plans, neither is necessarily better than the other. The best approach to acquiring small business health insurance is entirely dependent on the specifics of your company and your individual employees. If you do your research and don’t rush into making a final decision, you’ll secure coverage for your team that suits all parties concerned. Sally Poblete has been a leader and innovator in the health insurance industry for over 20 years. As a broker and former industry executive herself, she founded Wellthie out of a deep passion for making health insurance more simple and approachable for consumers and small businesses. She had a successful career leading product development at Anthem Blue Cross Blue Shield, one of the nation’s largest health insurance companies.