Have your insurance rates risen dramatically recently? As an HR professional, you may be wondering what might cause rates to go up like that. While changes in the market due to health care reform may be partly to blame, one factor employers should definitely be keeping an eye on is their employee pool.
The more people an organization has in its employee pool, the more power they have when it comes to negotiating insurance rates with carriers. As such, employers with a relatively small group of employees typically face much higher rates, simply due to their limited purchasing power. This fact can prove particularly problematic for employers who are subject to the employer mandate provisions of the Affordable Care Act, which requires applicable large employers (those with 50 or more full-time equivalent employees) to provide health care coverage to their full-time employees. Fortunately, there are systems available to employers in this situation that can pool health benefits for the employees of an organization.
One such system is that allows employers to pool their employees in order to achieve greater purchasing power is a co-employment arrangement offered by a professional employer organization (PEO). In the wake of the Affordable Care Act, PEOs have become an attractive for employers of all sizes looking for ways to both comply with the law and avoid higher health care costs.
What is a PEO?
A professional employer organization (PEO) is a firm that offers a service under which a company can outsource human resources and administrative functions like regulatory compliance, payroll administration, employee benefits, risk and safety management, recruitment, training and development, and workers’ compensation. The PEO accomplishes this by through establishing a co-employment relationship with the client, becoming the formal employer or record of the company’s employees for insurance and tax purposes. It’s important to note that the PEO is only the employer of record for limited administrative purposes – employees’ day to day activities are still managed onsite by the client company. Companies who partner with a PEO typically either pay a monthly flat, per-employee fee for services, or are charged a percentage of the payroll processed each month.
Companies who choose to outsource human resources functions to a PEO enjoy a number of perks related to employee benefits:
Lower benefits costs. One of the advantages about working with a PEO is that a company can save big on benefits costs. As a result of this co-employment relationship, the PEO is able to pool all of the employees of all of their clients in order to obtain health insurance and other coverage on their clients’ behalf at a rate the individual companies could never procure on their own.
Less time spent on administrative and HR functions. Many of the functions a PEO can handle, like benefits administration, are very time-intensive processes. When companies choose to outsource these functions, they gain back the time they would have had to spend processing open enrollments, for instance.
Better coverage. And of course, one of the most significant reasons employers choose to work with a PEO is the wide array of available coverage. Medical, dental, vision, life, short- and long-term disability, accidental death and dismemberment, and other ancillary coverage are all available, more often than not at much better rates than any one employer could get on their own.
If you’re looking for a way to avoid rising insurance costs, consider hiring a PEO. Using a PEO can save you the expense of hiring additional staff, allow you to spend more time focusing on your business, and give you access to better employee benefits. Why PEO? Why not?
Learn how G&A Partners, a leader in the PEO industry for more than 20 years, can help you achieve your business goals by calling 1-866-634-6713 or schedule a free business consultation.