When you made the decision to join a PEO (Professional Employer Organization), your reason could have been:
- You were small and you thought you can save on healthcare cost by leveraging the scale of the PEO
- You were not ready to invest in a full time HR role inside the company
- You were looking for one place to go for all your HR needs including payroll, benefits etc.
For many companies these reasons remain true even after they have been with the PEO for a few years.
For others, the healthcare savings disappear a few years into their relationship with the PEO. These companies receive as much as 30% or more rate increase on their healthcare cost at the time of renewal after they have been with the PEO for a few years. If you fall in that category, what are your options? In this article, we will shed some light on this topic.
Healthcare benefits thru a PEO
A PEO has a “co-employment” arrangement with its employer clients. When a small business joins a PEO, through the co-employment arrangement, the small business is now part of a large business. The PEO can spread the risk over a large number of employees and offer you healthcare benefits at a lower cost as compared to the one available in the open market. The downside is that your benefit choices are limited. You are covered under the master plan of the PEO so you are limited by what the master plan offers.
Why Does Your Healthcare Cost Go Up with a PEO?
If you are a healthy group that is not overusing health care or submitting unreasonably high health claims, you may be wondering why you suddenly received a 30% rate increase at the time of renewal.
Well, the reason is that while your group is healthy, it is possible that some other groups with the PEO might have used the healthcare system extensively resulting in a very large healthcare claim cost. Because you are part of the master plan, some of that high healthcare cost is being passed on to you.
This becomes more challenging because PEOs will typically not share with you details of your healthcare usage so when you get that rate hike at the time of renewal and no detailed information regarding why you received that hike, it can be very frustrating. If this happens to you, your obvious inclination would be to reach out to a benefit specialist and explore your options in the open market.
What are your options?
Your benefits broker will shop your group in the open market. To be able to do that they will need the following information:
This will include details about your employees and their dependents.
This will include information about the plan design, co-pays, deductibles as well as choices made by your employees when selecting their plans. All this will be there in the renewal package you received.
Your benefits broker will use this information to shop your group in the open market with the goal of delivering you a plan as close to what you had with the PEO but at a much cheaper price. You have many options to choose from in the open market. Some of these options are listed below:
Fully Insured Plans
These are your traditional health insurance plans sponsored by the employer. The employer pays monthly premiums to the insurance company. The insurance company pays the health care providers when employees and their dependents use the healthcare system. Depending on the plan, employees and their dependents are required to pay co-pays and deductibles for services that are covered by the plan. If you are looking for the financial security of knowing your out-of-pocket cost for providing healthcare to your employees, this is the kind of plan you should look for.
Level Funded Plans
If you are willing to step out of the financial security of the fully insured plan but are not ready to jump into a self insured plan where you will be responsible for paying healthcare providers, this is a nice middle of-the-road option where you benefit if your group runs healthy but still have a backstop of a “stop-loss” insurance if suddenly you are hit with a big healthcare bill.
With a level-funded plan, an employer pays a health carrier the same monthly amount to cover the estimated cost of expected claims, the premium for stop-loss insurance and the plan administrator cost. Stop-loss coverage is important because it limits an employer’s financial exposure for claims over a certain amount.
At the end of the year, if your group ran healthier than expected, you might get a refund back from the insurance company which is a very pleasant surprise for the employers.
Self Insured Plans
Self Insured Plans are those where, from the financial risk perspective, the employer acts like an insurance company. The employer collects premium from enrollees and takes the responsibility of paying the medical claims for employees and their dependents. This cuts both ways. If your group runs healthy, you keep all the savings. However if you are hit with a high medical claim, you will have to pay that out of your own pocket. Typically larger companies opt for self insured plans because of the increased financial risks involved. The employers typically contract with a TPA (Third Party Administrators) for services like enrollment, claim processing etc.
Based on your overall profile, your benefits broker should be able to come up with a number of options for you including some level funded plans, some fully insured plans and even the self insured option.
Recommended Reading: How to transition out of a PEO and bring your HR, payroll and benefits in-house?
At any point in time if you feel like connecting with us in this respect, our team is there to help. You can use the link below to book a call with us.
Need for a technology platform
Whichever option you choose, you will need a technology platform for benefits enrollment as well to support other HR functions like payroll, PTO management, employee record management etc. You should look into an all-in-one-HRIS platform like UZIO if you decide to leave your PEO.
By working with a benefits broker to choose the right health insurance plan in the open market and using an all-in-one HRIS platform like UZIO, you would save on cost and provide your employees with a much better experience.