Health Insurance Options for the Small Business Owner

Small businesses run a gauntlet of minor crises every day. Looming changes in health care regulations are just one of the more significant ones and could be catastrophic for the unprepared small business owner. Uncertainties about the final conditions that will apply have left many small businesses searching for affordable health care coverage options other than simply changing providers every year.

Some solutions offered by industry experts include using a defined contribution model, re-examining the Health Maintenance Organization (HMO) solution and considering shifting the entire responsibility to a Professional Employment Organization (
PEO). Each has benefits and drawbacks.

Defined Contribution Plan
With this type of health care plan, small business owners are able to accurately identify, or “define” the amount that they will contribute towards the health care costs of their employees. The employees are then able to choose from a menu of health care options that may or may not exceed the defined amount. All aspects of this type of plan are severely restricted by current health care regulations.

While somewhat beneficial to the small business owner’s bottom line, there is a major drawback in this scenario. If the employer does not negotiate a reasonable choice of affordable menu options, they risk leaving employees in the unenviable position of having no insurance or paying unusually high premiums. The situation is exacerbated by the fact that small businesses can only bring, at most, several dozen employees into the plan and thus have little or no leverage in negotiating terms.

Health Maintenance Organization

Most working people have been undergone the experience of an HMO regulated health insurance plan. Their health care regulations are legendary for their intractability and heartlessness. In short, the insured has given up the ability to choose their doctor in return for a minimal decrease in insurance premiums. HMOs do provide a reasonable level of care but they have been, justifiably, accused of placing their patients’ health behind the need to make a profit.

To be fair, HMOs have attempted to address these issues. Unfortunately, the remedies almost always come with higher premiums although these premiums are usually much less than individualized health plans. The small business owner is forced to balance these issues against the wants and needs of his employees. Then, he is forced to justify his decisions. He often finds himself in a no-win situation.

Professional Employment Organization
By far, the most versatile option for the small business owner is partnering with a PEO. First,
PEOs are focused on conglomerating small businesses for the specific purpose of leveraging the buying power of this entire group to negotiate better, less costly health insurance options. This leverage allows the PEO to obtain the best possible coverage at the most affordable cost.

The versatility of this solution also stretches to include the employees. In many cases, a PEO can offer the business owner’s employees, not only a menu of options from a particular insurance carrier, but also a menu choice of carriers themselves. Employees also recognize the innate fairness of the plan as the employer himself is treated as an employee and is subject to the same rules and health care regulations as his employees.

The business owner also benefits significantly with a PEO administered health plan. The PEO relieves him of monumental amounts of paperwork, fields basic health insurance questions and deals with employee problems and complaints. In short, he is far freer to run his business. PEOs do come at a cost but the prudent business person should recognize the sizable benefits that a PEO can also afford.


About the Author

Carolyn Sokol is a founder of which helps match small businesses with the right PEO company for their unique business needs. Her background is in marketing and communications, employee education and training, development of policies and procedures and the ongoing delivery of outstanding customer service.