Six Things You Should Know About Getting Benefits and Insurance Through a PEO
The PEO group plan: it’s one of the biggest drawing cards for small businesses. Insurance and benefits can get very expensive, very quickly when you have a small team. But with a co-employment agreement, your employees are bundled with employees of all the PEO’s other clients, which theoretically qualifies you for better rates normally available only to big businesses.
The question is: Does it really work?
Will partnering with a PEO really give you better insurance rates and benefits?
Yes and no.
The good news is that most PEOs do offer group plans that usually work out in your favor. Big business benefits at a reasonable cost: check.
But there’s a big caveat that many small businesses aren’t aware of, and it boils down to this:
Not all PEOs approach insurance and benefits the same way.
Partnering with a PEO doesn't automatically make you eligible for the group plan, and there may be hoops you have to jump through before you qualify. That's why it's so important that you talk through all the details with the PEO and ask plenty of questions before you sign on the dotted line.
Before you choose a PEO partner, here are six things you should know about insurance and benefits:
- You are not automatically eligible for the PEO group plan.
This comes as a surprise to many small business owners. Working with a PEO doesn’t necessarily mean you can sign up for their group plan because PEOs are not insurance companies. That means they can decline to offer you coverage if you don’t meet their requirements. - The number of employees you have may affect the type of insurance you can get.
A PEO may require a minimum number of employees to sign up for the group plan before they will accept you. The specific number varies, and not all PEOs have a minimum, but it still pays to ask about participation requirements before you choose a PEO. - The number of claims you have filed may affect your eligibility.
If your workforce is mostly young and healthy with few medical claims – good for you! You probably won’t have any issues with eligibility on the basis of claims. However, if many of your employees have chronic medical conditions or if they collectively have filed a high number of claims, you may be required to jump through a few more hoops. For example, you may have to fill out lengthy medical questionnaires or meet minimum requirements before they will accept you into the plan, especially if you have very few employees. - The PEO group plan isn’t always the best rate for you.
Yes, it’s true that PEOs can usually get better rates due to economy of scale. But usually doesn’t mean always. If your workforce is generally healthy and you haven’t filed very many claims, you may be able to get comparable rates on your own. If that’s the case, you’ll probably also have more flexibility in your coverage. Most PEOs will allow you to opt out of the insurance plan if you prefer to purchase coverage on your own, and individual employees may also be able to opt out if they can find better coverage or rates elsewhere.
- Ancillary benefits are usually non-negotiable.
Do you want to offer your employees vision, dental, or other ancillary insurance? Make sure the PEO offers these, because not all of them do. Even if you can get coverage, you won’t have much wiggle room for negotiation. That means you’ll either need to find a PEO that offers the coverage you need at a rate you’re comfortable with or consider a PEO with insurance brokerage services instead. - Not all PEOs offer a group plan.
Some PEOs offer insurance brokerage services in place of a group plan, and others offer both options. Finding coverage through a broker can be a great solution if you do not qualify for the PEO’s group plan, and it can also help you keep costs down. Keep in mind however, that even if you find coverage using the PEO’s brokerage services, you are still responsible for that plan.
Bottom Line: Yes, you can usually get better insurance rates and coverage through a PEO, as long as you ask plenty of questions on the front end. Make sure you understand exactly what the PEO’s plan entails and compare rates and coverage options with other PEOs and with what you can get on your own. When the numbers work out in your favor, you’ll enjoy the associated perks of handing off benefits administration to the PEO and providing your employees with quality, affordable coverage.
Do you have more questions about how PEOs operate and how to find the best one for your small business? Check out our PEO Buyer's Guide for answers to all your questions!
