Buying Healthcare: The Options
Business owners have a few options when it comes to buying healthcare. These include using a broker, going directly to the market to shop and buy independently, or to use the services of a PEO to get coverage.
Buy Independently from Carriers
A small business owner can call health insurance carriers directly and request proposals. This is both time consuming as well as frustrating for most business owners who often make a rash decision because they are tired of the process. Most small business owners don’t have the insurance acumen to truly digest the options of group health insurance.
Health Insurance Broker
A health insurance broker will shop for group plans for you. The broker works on commission for the policies placed. The benefit of using a broker is health insurance brokers shop the policy for business owners, saving time and frustration. They are more experienced in the ins and outs of healthcare policies and coverage options. They work on behalf of business owners not the insurance carriers. The group policies are limited to the group size in the small business, thus rates are often still considered high.
Partner with a PEO
Partnering with a PEO often means there is more than one health insurance option available to the entire pool of employees the PEO leases out, not just the one partner small business. The PEO often has pools of employees across state lines, making benefits available and affordable to remote workers as well. With a larger pool of employees, costs are usually driven down.
A small business owner may like the idea of partnering with a PEO but feel overwhelmed with the options there as well. This is where a human resources broker is beneficial. Like the health insurance broker, the human resources broker will discuss the needs of the small business to find the right solutions. A broker understands the various human resources tasks every PEO tackles and the rates, thus is best suited to advise the small business owner about the best option.
Will a PEO Always Be Cheaper?
There are instances where a PEO might not provide the best cost-savings options, especially if the driving force is to save on health insurance premiums. Depending on how a small business workforce is distributed both in geography and age, some small businesses may find the premiums higher through a PEO. This is usually the case where a small business has remote workers in regions where the PEO doesn’t have a large employee pool and the insurance costs are naturally higher.
Every small business owner should evaluate where his largest number of employees are and whether the PEO is able to make health insurance affordable for the majority. It may also be favorable if other benefits such as life insurance and disability insurance are offered in the same plan, giving employees a reason to opt into the program.
Don’t assume that the PEO is always the most cost-effective solution. You should evaluate the numbers and make sure it makes sense for you.
The PEPM fee schedule may seem like standard rates in any presentation made to your company. Brokers will tell you this monthly fee per employee is negotiable at the time of contract signing. There is often a setup fee plus charges for other features. Ask for a fee schedule when signing up to see other potential fees for non-standard work tasks.
Percentage of Payroll (POP)
The Percentage of Payroll (POP) option is the entire payroll that includes wages, state and federal employment taxes, workers’ compensation and employer practice liability insurance. There is also an administrative fee.