Private Brokerage versus Professional Employer Organization (PEO)

When it comes to choosing your companies health benefits—choose your consultant wisely.

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Employee benefits are one of the largest cost’s employers in the United States encounter.  Deciding which benefit options will serve your business best now and in the future isn’t the smallest decision.

From carriers to contributions to plans choices — there’s a lot to consider.  Depending on whether you work with a PEO, private brokerage or go direct to the insurance carrier — that decision is guided by their advice. 

 

Which solution will you leverage for your employee benefit needs?

The first step is knowing all your options. As a small to mid-sized business owner, there are three main options:

  1. Going direct to an insurance carrier
  2. Hiring a Professional Employer Organization (PEO)
  3. Working with a private brokerage

The decision ultimately depends on your organizational structure. Maybe cost is your only concern, or perhaps a more personal experience is what you’re looking for. Whatever your priority is when it comes to choosing your company's health benefits, there are pros and cons of each option.

1. Going direct to an insurance carrier

An insurance carrier like UnitedHealthcare and Blue Cross Blue Shield controls the underwriting, claims and pricing of the insurance polices they offer. 

If you currently go direct to an insurance carrier for your employee benefits, you probably never worked with a private brokerage before.

For employers with less than 50 employees, group health insurance costs the same no matter where you shop.  Why?  Because the rates are based on your age, geographic location and other qualifying conditions under the Affordable Care Act a.k.a Obamacare.

One condition is when you purchase your benefits with an insurance carrier — you’re on your own when it comes to managing employee benefits for your business.

That means services typically performed by a brokerage are completely in your hands.  These services include: 

  • Communicating with the insurance carrier on your behalf
  • Providing post-sale support throughout the year
  • Adding or removing employees from your plan
  • Assisting with open enrollment
  • Employee maintenance including an explanation of benefits to your new hires
  • Compliance support

Not to mention when you go direct to a specific carrier, you are subject to that carrier’s plan offering. A broker will typically shop benefit options from multiple carriers and help you narrow down plans to find the best fit for your company.

Another interesting fact: there’s no service fee for going through a broker. Working with a broker means having a personal assistant for your employee benefits (without paying a penny extra).

Insurance carriers simply can’t provide the one on one assistance that brokers do. That’s why carriers appoint thousands of brokers to sell their products at no additional cost to you. So if the cost is the same, and brokers will do the work for you, why not get the added support? 

2. Hiring a Professional Employer Organization (PEO)

Professional Employer Organizations (PEOs) can charge anywhere from 3% to 15% of your employees Gross Payroll in exchange for their services. The cost of a PEO may seem like a solution for your business today—but it’s not a long-term solution. Depending on the size of your company this fee could add up quickly.

When you decide to hire a PEO, you enter a “co-employment” relationship between your company and the PEO itself.

What does co-employment mean?

When you enter a co-employement relationship with a PEO, the PEO literally hires your employees along with the employees of other companies like yours to form one large group. This is beneficial for small groups looking to utilize large group benefits that would otherwise not be available to companies of that size. basically one company (the PEO) owns all these separate companies.

The more employees you have, the less you’ll end up paying for benefits like workers compensation and retirement plans. But when it comes to health insurance a lower price tag may only apply during your first year with the PEO. When your employees are hired by a PEO along with other small businesses’ employees, you enter a contractual agreement stating that the PEO: 

  • Reserves a right of direction and control of the employees with respect to certain matters
  • Shares or allocates employment responsibilities with the client in a matter consistent with the client maintaining its responsibility for its product or service
  • Remits wages and withholdings of the client’s workers
  • Issues Form W-2s for the compensation paid under its Employer Identification Number
  • Reports, collects and deposits employment taxes with local, state and federal authorities

So when your employees complete their annual tax return, the name of your company will not appear on their W2. For example, if Insperity was your PEO, Insperity would be the employer name on your employees W2. 

Day to day activities are still your control such as who gets hired and who gets fired. But overall PEOs come with their fair share of limitations, such as a lack of transparency.

With a PEO, your benefits payroll and taxes are bundled, so the breakdown and transparency of what you are paying is hard to come by.

Your broker can provide you an exact cost breakdown of your benefits, from employer contributions to individual employee payments.

And because so many of these services are bundled, it’s not easy to leave your PEO. Think about your internet provider at home. You have an all-in-one solution that bundles internet, cable and maybe even your phone. It takes a lot of time to unbundle. When you leave your PEO, you have to find a replacement for your payroll administration, Human Resource services and taxes.

Health insurance plans available through a PEO are based on the number of employees the PEO you choose is employing. PEOs often work with a single carrier and offer two to four different plan options.

3. Working with a private brokerage

A good broker will shop the market each year to find the best plans for your business.

A PEO will not shop for coverage outside of what they offer because their main goal is to drive membership for their PEO plan.

In addition, your PEO may not be able to answer specific benefit related questions. PEOs typically provide online support only for you and your employees. When working with a broker you get a designated account representative to answer your questions and your employees questions.

Brokers Educate

Most brokers will host in person enrollment meetings to better educate your employees. Lack of employee education on healthcare options can lead to a lower utilization of benefits. And after you’ve spent your money to make these benefits available, you want to make sure your employees are using them.  

Brokers save you money on premiums by teaching your employees to visit quick care facilities instead of going to the ER and to take advantage of the benefits that are built into their health plans like annual physical exams and mental health service. Don’t assume they know!

Your employees may be better off physically and financially with their group benefit versus shopping in the individual market. By educating them, you’re increasing their appreciation too.

Keeping up with Compliance

A big part of owning a business is knowing the rules and regulations that apply to you and following them.  With the rules constantly changing, it’s hard to keep track of what rules are still being enforced.  You’ve probably avoided compliance in the past because you simply don’t have time to sort through boring legal documents. But this could be an expensive mistake.    

In fact, the consequences for not complying can end up costing your business thousands of dollars.

For example: One provision under the ERISA law requires employers to provide a Summary Plan Description also known as plan SPDs to participants (your employees) within 30 days of their request. If you fail to do so you could be issued a fine of $110/day.

Most private brokerages should be able to help you with these issues (or consider switching to a new one if he/she is not able to help). It’s not worth the risk. 

Service Service Service

Brokers work with you, around your schedule to come up with the best benefits solution for your business. At IXSolutions we believe every business, no matter the size or yearly revenue, should have access to affordable health and ancillary insurance benefits.

We handle your employee benefits administration process, offer more choices and save you money. How? Through our service focused culture and one stop shop employee benefits platform.

With our platform, your employees can enroll into a health insurance plan with the click of a button, so you can go back to doing what you do best — managing your business. 

Summary of our services:

  • All-in-one employee benefits platform 
  • Hassle-free HR & benefits administration 
  • Assigned support team available year-round
  • Affordable health insurance options 
  • Dental, vision, life, disability & temporary health
  • Online enrollment for every plan
  • HSAs, HRAs and FSAs

 

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