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Updated Jul 10, 2024

Using a PEO to Offer Employee Health Insurance

Looking for a way to provide your employees with health insurance? Learn how a PEO can help.

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Kaylyn McKenna, Business Operations Insider and Senior Analyst
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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 human resources (HR) functions. We’ll explore what’s involved with providing health insurance to your employees and how PEOs can help.

TipTip
Health insurance isn't just a perk. You should be aware of business health insurance requirements when setting up your employee benefits packages.

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 typically will 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 2023 was $8,435 for individuals and $23,968 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, HR, 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 (ACA): 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): 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 generally are 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): 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.

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’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

Yes, but only for certain high-deductible health plans

Yes, but only for certain high-deductible health plans

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.

Key TakeawayKey takeaway
When choosing a PEO, ask about its plan offerings. Consider your employees' preferences and select a PEO that can provide what they need.

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.

What to consider when choosing a 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 Employer Services Assurance Corporation (ESAC), IRS and Certification Institute.

  • ESAC: The ESAC accredits PEOs that meet its gold standard for best practices and financial responsibility. The ESAC accreditation demonstrates a PEO’s financial stability, ethical business conduct and adherence to operational standards and regulatory requirements.
  • IRS: IRS-certified PEOs (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.

FYIDid you know
According to ESAC, only about 5 percent of PEOs have achieved accreditation.

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 percent to 12 percent 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.

Best PEO service providers

There are many PEOs, each with slightly different insurance and benefits options. Read our in-depth PEO reviews to find the best PEO service provider for your needs:

  • Justworks: This PEO solution offers benefits management, HR and payroll through a user-friendly, tech-first platform. With its Plus plan, Justworks delivers extensive employee benefits, including health, dental and vision insurance, along with health savings and flexible spending accounts. This PEO is a great option for small businesses as it provides access to comprehensive benefits that aren’t generally accessible to smaller companies. To learn more about this solution’s plans and benefits services, read our Justworks review.
  • Rippling: Rippling PEO is an ideal solution for growing companies looking to scale across multiple states while managing health benefits and insurance assistance effectively. Rippling’s platform is designed to simplify complex processes, including state tax compliance. This solution also helps ensure your business complies with federal, state and local laws, including tax filing and the ACA. Learn more about how this PEO service provider supports growing businesses in our Rippling PEO review.
  • TriNet: One of the significant advantages of TriNet is its wide range of health benefits and insurance assistance. TriNet partners with major carriers such as Kaiser Permanente, Blue Shield, Aetna and UnitedHealthcare, presenting a diverse selection of premium benefits options. Employees can easily navigate the benefits enrollment process, compare coverage and costs and access support from a dedicated Health Advocate. Explore more of the benefits and support this PEO solution offers in our TriNet PEO review.
  • Paychex: Because of its many customization options, this PEO solution is ideal for fast-scaling startups. Paychex provides customizable plans, extensive benefits, 401(k) retirement plans and health savings accounts. It also offers support from HR and payroll specialists through flexible contract and pricing structures. This platform is user-friendly and accessible via cloud-based systems and mobile apps so both you and your employees can manage insurance, HR and payroll tasks from anywhere. To learn more about Paychex’s flexibility, check out our Paychex PEO review.
  • ADP TotalSource: Known for its dedicated support, ADP TotalSource connects businesses with experts who provide personalized assistance on benefits, payroll and compliance matters. This platform excels in benefits administration, offering high-level options, such as medical, vision and dental insurance at competitive rates. Employees can compare and enroll in plans through ADP’s intuitive platform easily, which updates in real time and integrates seamlessly with more than 300 software tools. Learn more about how ADP can handle your business’s benefits administration in our ADP TotalSource review.
  • Insperity: Insperity provides well-rounded compliance and risk mitigation tools, supported by leading experts. This PEO is ESAC-accredited and IRS-certified to help your business adhere to high compliance standards and best practices in risk management. This PEO solution offers various other services such as payroll, employee benefits, HR administration and training resources. Explore Insperity’s full list of benefits in our Insperity review.

PEOs offer versatile services for your business

While they specialize in health insurance, PEOs can also handle various aspects of employee management and administrative tasks. As you aim to better support your employees and optimize operations, a PEO service provider helps streamline your processes, ensure regulatory compliance and provide expert HR guidance. By partnering with the right PEO, you can focus on growing your business while knowing that your workforce management needs are in capable hands.

Shayna Waltower contributed to this article.

author image
Kaylyn McKenna, Business Operations Insider and Senior Analyst
For more than 10 years, Kaylyn McKenna has studied the ins and outs of the workplace experience. With guidance designed to help both employers and employees, she advises on workplace matters affecting small businesses. This has ranged from providing recommendations on HRO and PEO services to sharing pointers on job interviews and managing increasing workloads. Her expertise has been trusted by JobGet, Business Management Daily and others. McKenna holds a bachelor's degree in business administration. While pursuing her master's in industrial and organizational psychology, she focused on relevant topics like organizational change, high-performance teamwork and customer relations. McKennna has also led webinars on workplace happiness and unconscious bias in the workplace. With her additional interest in e-commerce and finance, McKenna's work has appeared in Forbes, CBS News and Accounting.com.
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