6 Questions About Getting Health Insurance Through a PEO

small business insuranceHow do you find the best small business insurance rates? That’s a complex question. Finding affordable rates isn’t always easy for small business owners, because they don’t have the number of employees and associated buying power of larger companies. On average, small businesses pay anywhere from 8% to 18% more than large companies for the same coverage.

That’s where a PEO can help. When you get insurance through a PEO, you are bundled together with thousands of other employees in the PEO’s client base, enabling you to access the lower insurance rates available to much larger companies. That’s great news for small businesses looking to make the most of every dollar, and it’s usually a smart move.

But is it the right move for every business owner? Let’s take a look at what you should know as you compare rates and options.


What You Should Know About Health Insurance Through a PEO

PEOs offer insurance through a master group plan that pools employees from all of the clients together, capitalizing on economy of scale. This enables them to get better insurance rates than a small business might be able to get on their own. However, there are some caveats to that general rule.

Here are 6 questions to ask as you research PEOs and insurance options.

  1. Why do rates differ among PEOs?
    If you get insurance quotes from several different PEOs, you may be surprised to learn that their rates may differ, even if you provide the same information and they use the same carrier. The reason is that rates can differ based on specific details of the PEO’s policy such as geographic location, zip codes, and the demographic makeup of the group. That’s why it’s important to get quotes from at least three different PEOs and compare them to be sure you’re getting the best rates.

  2. Can I always get a better rate through a PEO?
    Participating in the PEO’s group insurance plan can usually offer you the best rates. However, if you have mostly healthy employees and a history of few claims, you may be able to get comparable rates on your own with more flexibility on plan coverages. If you have an older workforce or one with prior claims, the PEO group plan may be the most affordable option provided that you qualify.

  3. Am I guaranteed coverage through the PEO’s group policy?
    There’s a common misunderstanding that working with a PEO guarantees you can get insurance through their group plan. Unfortunately, this is not the case. PEOs are not insurance companies, and therefore they can decline to offer coverage if you do not meet minimum qualifications. Clients that have less than the minimum number of participants or that have too many claims in the previous year may be declined for medical coverage.

    However, a PEO will be able to provide coverage for a majority of small businesses. It’s still worthwhile to research options and get quotes to see whether you can save.

  4. Am I guaranteed what my renewal rate will be next year?
    Although working with a PEO is likely to offer you better rates, renewal rates differ based on the specific makeup of your workforce and related claims. Each individual business must go through a qualifying process that will determine what your rate will be at renewal.

  5. Why does the PEO need so much information up front in order to give me a quote?
    Rates vary based on the information you provide, just as they do with any insurance policy. PEOs must gather detailed information about your workforce, including demographics, size, dependent status of employees, prior claims, and more. This information will be used to qualify you for the PEO’s group policy through the insurance carrier and provide a quote.

  6. What if I don’t qualify for the PEO’s group policy?
    While not common, it is possible that a business won’t qualify for the PEO’s group policy, or that the PEO rate will be higher than what you could get on your own. If this happens, the best thing to do is compare insurance rates independently and carve out the insurance offering from your PEO agreement.

Here’s the bottom line: The vast majority of small businesses will be able to get better rates through a PEO. Still, the rates may differ from vendor to vendor, and in some cases you might still be able to get better rates on your own. If that happens, you can carve out the insurance portion from your PEO services and still enjoy the other benefits of the PEO.

The Ultimate Question: Is a PEO Worth It for Small Businesses?

The answer to this question is an unqualified yes. PEOs offer an abundance of benefits for small businesses, from HR expertise and administrative support to compliance assurance and legal advice about EEOC claims.

Insurance and benefits are a huge benefit of working with a PEO, but they are by no means the only benefit. According to the National Association of PEOs (NAPEO), small businesses that worked with a PEO through the COVID-19 pandemic were 58% less likely to have permanently closed and 32% less likely to have had a negative overall affect as compared with comparable businesses. They did better across all categories of business function, including business operations, changes in employment, and taking advantage of government support programs.

While COVID-19 is behind us, small businesses can still benefit from the assistance and expertise of a PEO. Working with a PEO can help you keep your business stable during uncertain economic conditions like those we’re experiencing right now.

Ready to find your perfect PEO match? We can help! Try our PEO Matching Tool to compare vendors quickly based on your unique requirements.

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