In the complex world of health insurance, small businesses often find themselves navigating a maze of options. One critical decision is choosing between a professional employer organization (PEO) and a small business health insurance broker.
While both avenues offer unique benefits, a closer examination reveals that PEOs may hold the key to more comprehensive and cost-effective solutions for health coverage.
In this article, we look into the nuances of what sets PEOs apart from the traditional small business health insurance broker, offering insights that could transform how small businesses approach their health insurance needs.
Small Business Health Insurance Broker vs PEO
On the front side, both a PEO and group health insurance broker guide you through the process of selecting health insurance plans and enrolling your employees. But their similarities end after enrollment is completed.
Here's a deeper look into the pros and cons of each:
Small Business Health Insurance Broker
Pros
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Expert plan navigation
Understands the available plans, carriers and legal requirements and use their knowledge of the health care market to evaluate which options are a good fit for your organization.
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Aligned representation
Works with insurance companies on your behalf and represents your business's best interests, not the insurers'.
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Strategic cost analysis
Identifying and evaluating health insurance options and the associated costs.
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Tailored plan selection
Recommending the ones that best meet your company’s and your employees’ needs and budget.
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Benefits education support
Providing assistance in educating your employees about the plan designs and associated costs available to them.
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Enrollment assistance
Signing them up for the ones they choose.
Cons
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Post-enrollment handoff
The small business health insurance broker takes a back seat after enrollment, placing the burden of administering health benefits squarely back on the small company’s shoulders.
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Ongoing premium commissions
Continues to benefit financially every time the business and its employees pay a monthly premium even though they no longer do any work for the business or its employees. That’s because brokers work on commission, meaning insurance carriers pay them a portion of the premium a company and its workers pay each month.
As long as a small business has a plan a health insurance broker helped secure, the broker gets paid even though no services are provided beyond the initial setup.
PEO
Pros
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Expert plan navigation
Understands the available plans, carriers and legal requirements and use their knowledge of the health care market to evaluate which options are a good fit for your organization.
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Aligned representation
Works with insurance companies on your behalf and represents your business's best interests, not the insurers'.
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Strategic cost analysis
Identifies and evaluates health insurance options and the associated costs.
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Tailored plan selection
Recommends the health insurance plans that best meet your company’s and your employees’ needs and budget.
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Benefits education support
Provides assistance in educating your employees about the plan designs and associated costs available to them.
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Enrollment assistance
Signs employees up for the ones they choose
Additionally, unlike a small business health insurance broker, PEOs provide these benefits:
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Elite benefits
Access to affordable, Fortune 500-level employee benefits.
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Long term partnership
There with you, your company and its employees for the duration.
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Comprehensive HR support
Provides every client with a dedicated HR benefits consultant who navigates health insurance minefields, ensures your company is always legally compliant, and manages all of the paperwork.
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Administrative relief
Relieves you of every headache related to ongoing plan administration.
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Value-driven pricing
Paid through an administration fee, often based on a percentage of a client’s total payroll or a flat fee per employee. The fee is not tied specifically to clients’ insurance premiums, as small business health insurance brokers' fees are. With the fee, employers typically receive a full suite of expert services, including comprehensive human resources, payroll administration, workplace safety consulting, risk management support and compliance, in addition to optional employee benefits and total benefits administration.
Cons
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Perceived lack of control myth
While some may perceive a potential 'lack of control' due to not having an in-house HR person when partnering with a PEO, this is actually an opportunity to expand your team's capabilities.
By choosing a local PEO, your small business gains access to a suite of dedicated professionals - including an HR consultant, payroll administrator and safety consultant.
This arrangement is akin to having an in-house team, but with the added advantage of specialized expertise and support. Each of these professionals works closely with your business, effectively acting as an extension of your team, but without the overhead and complexity of direct employment.
This way, you maintain strategic control while leveraging expert resources, ensuring that your HR functions are handled with the utmost proficiency and care.
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Security misconceptions
Some businesses may have reservations about sharing sensitive payroll and benefits information with an external company, like a PEO. However, this concern is mitigated when partnering with the right PEO, which typically has robust security measures in place.
These organizations often employ advanced redundancy systems and emergency backup plans, offering a level of data protection and security that far exceeds what most small businesses can feasibly implement on their own.
By entrusting this information to a reputable PEO, you're not just outsourcing HR tasks; you're also upgrading to a more secure, sophisticated system for managing your sensitive data, ensuring peace of mind and enhanced data integrity for your business.
RELATED: Top 3 Security Measures that Ensure Your Payroll Partner Treats Your Data Like It’s Theirs >>
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Unfounded change resistance concerns
Introducing a new system, like partnering with a PEO, might initially meet some resistance from employees who are accustomed to the old ways. However, this hesitation often turns to appreciation once they realize the direct benefits.
With a PEO, employees gain the advantage of being able to directly contact HR consultants, payroll administrators and safety professionals for personalized assistance. Additionally, the access to a user-friendly online portal for managing their payroll and benefits information enhances their experience.
This direct access and improved technology not only make processes more efficient for employees but also for their bosses. The result is a more streamlined, supportive and engaging work environment that both staff and management come to value and prefer over traditional methods.
How a PEO Outshines a Small Business Health Insurance Broker: A Deep Dive
For most businesses in Kansas and Missouri, especially smaller ones that could never afford highly competitive plans on their own or with a small business health insurance broker, it’s more advantageous to work with a PEO for employee health benefits for several important reasons.
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Affordable, Fortune 500-level coverage
Through a model called co-employment, which small business health insurance brokers cannot provide, PEOs include their small and mid-sized clients’ workers in a single, employee group. Co-employment is essentially just a contractual agreement that allocates certain employer responsibilities – like benefits administration – to a PEO. The PEO’s client – the small or mid-sized business – maintains direction and control over all business decisions and operations.
The advantage of co-employment, which is unique to PEOs and not available through health insurance brokers for small business, is that it creates a larger group and more buying power with insurance carriers than a small business could get on its own – or that an insurance broker would have working on behalf of an individual small business.
RELATED: Should Your Small Business Offer Health Insurance? >>
Carriers view smaller companies and their smaller employee groups as higher risk. They price their premiums higher to cover that small group risk.
But when a company partners with a PEO, it can become part of the thousands of employees that make up the PEO’s large group. That’s how a PEO can offer more desirable, yet affordable, health care options – options to which brokers do not have access. It’s simple math – the smaller the group, the higher the risk and the higher the premiums.
Conversely, the larger the group, the more health care amenities available, the higher the discounts and the lower the costs for each small company that participates in the PEO’s plan.
So, unlike a small business health insurance broker, a PEO enables small businesses to leverage group plan pricing and offer their employees the same kinds of high-quality benefits typically only available at larger Fortune 500 corporations – coverage their employees will understand, value and use and which they almost certainly could not afford otherwise.
That helps level the playing field for smaller employers, allowing them to make more competitive job offers that attract and retain highly qualified talent.
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Ongoing, personalized expert support
After enrollment, a small business insurance broker provides very little to no additional services to its customers until it’s time to start the next annual health insurance evaluation process. A PEO, on the other hand, provides extensive, ongoing support and personalized employee benefit plan services. Considering that there’s still a lot to do between annual renewal periods, smaller companies get a lot more for their money with a PEO.
Employee benefit plan administration is a daunting and critical task. The demand for attention is constant. Answering employees’ questions, addressing challenges with claims and other ongoing to-do list items can be an almost-daily requirement. A PEO will handle every one of them quickly and expertly, without a business owner having to worry about anything.
RELATED: Small Businesses, Health Insurance and the PEO Option >>
PEO benefits administration includes:
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- Setting up automatic paycheck deductions for premium payments;
- Collecting and submitting premiums to the insurance provider, always meeting premium payment deadlines and ensuring that correct payments are made;
- Paying claims and other bills;
- Working directly with employees as needed to help resolve claims;
- Handling changes in employees’ status, such as marriage or divorce, a spouse’s death, a child’s birth or a change in residence;
- Determining benefits eligibility for new hires;
- Working with eligible new employees to make sure they understand their benefits options and adding them to their preferred plans;
- Adjusting the amount owed and paid to the insurance provider if an employee leaves the client company; and
- Balancing, reconciling and reviewing employer accounts to ensure accuracy.
A PEO, like Axcet, delivers specialized, personalized expertise that alleviates the heavy administrative burden employee benefits represent, saving client companies countless hours and major inconveniences and headaches. A burden they would still carry had they partnered with a small business health insurance broker.
Small businesses in Missouri and Kansas – and every other state – are obligated to meet federal and state legal requirements for health benefit plans. Mishandled, employers could create disgruntled, disengaged employees and face significant government non-compliance penalties.
These requirements also are revised frequently, which challenges smaller companies to stay aware of, let alone comply with, ever-changing regulations. Under a co-employment agreement with a PEO, however, maintaining compliance becomes the responsibility of the PEO – one more burden off the small to mid-sized business owner’s mind and perpetually growing task list.
RELATED: Avoid Making the Nine Most Common Employee Benefits Mistakes >>
Axcet HR Solutions Can Help
If you’re ready to relieve the stress that comes with providing employee health insurance benefits and stop worrying about annual renewal negotiations, benefits plan administration, legal regulations and other health insurance complexities, schedule your free consultation with Axcet HR Solutions today (and skip the added work that comes with using a health insurance broker).
We are the oldest Kansas City-based PEO, with employee benefits experts who can help you navigate from beginning to end the process of providing benefits your employees will appreciate and use while giving back time you can allocate to focus on growing your business.