How can a PEO positively affect your Small Group Health Plan?
The painful effects of the Affordable Care Act (ACA) on Small Business are finally being felt in 2015 / 2016. It has been incredible over the last couple of years watching the historic expansion of the Medicaid system and the creation of Health Insurance Exchanges. Although, with millions of individuals receiving free or subsidized health care, and carriers being forced to accept new risk, the question looms: Who will pay for all of this? The simple answer is that small businesses will by and large be footing the bill. Read on to find out one way that you can combat this effect for your small business.
As defined by the ACA, a small group will be considered any employer that has 2-99 employees who are eligible for health benefits. This is an upward tick from the 50 employee threshold that has guided small health plans for years. The fact is that large groups have historically received lower rates for their health benefits based on a larger, safer risk pool. This will continue into the new era of Affordable Care, but fewer companies will be eligible for large group status with the increased threshold. This leaves the majority of businesses in America eligible for small group status, thereby affected by age banded rates, community rating, and other cost changing factors.
For a greater description of these cost increase factors, please refer to this previous article that we wrote on the topic. For this discussion we would like to focus on the effect and the PEO (Professional Employer Organization) solution as a means to combat cost increases and receive added value for your organization.
In 2015, small group health plans can expect to receive renewal increases in the range of 20% to 80% due to the aforementioned effects of community rating, age banded rates, and the ACA in general. To add more sting to this bite is the fact that plan benefits are changing with the roll out of these new “ACA compliant” small group plans. This will be shocking and daunting for many employers. Bridgeport’s job is to take the sting out of providing employee benefits for our valued clients and prospects.
We have spent years planning for this day, and we are prepared to guide, advise, and represent you in the best way possible in this new era. We feel that every small group should investigate a PEO arrangement. We have spent the last few years vetting and solidifying relationships with reputable PEOs that operate locally as well as nationally. In the same way that we advocate for you with the health insurance carriers, we will be the broker on your PEO arrangement if that is the direction you choose.
This is a huge differentiator in working with Bridgeport, as the majority of brokers have limited knowledge of and access to PEOs. It is our belief that a PEO arrangement may work well for some of our clients. So what is a PEO?
What is a PEO?
NAPEO describes a PEO as follows: “Professional employer organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation. PEO clients focus on their core competencies to maintain and grow their bottom line” (source: NAPEO Website). As often is the case, the textbook definition leaves out many vital details like legal support, Employment Practices Liability Insurance (EPLI) coverage and more. A PEO is actually most often known as a co-employment arrangement.
The PEO partner actually becomes the employer of record with federal and state tax authorities. This does not mean that you lose management control of your employees. It means that you deflect the worst liabilities of being an employer, add a suite of support services to your company’s administrative department, and (for purposes of this discussion) join a much larger risk pool to attain large group insurance products at large group rates.
One of the best residual effects of engaging a PEO is the employee perception of their employer. The PEO service delivery model can serve as an amazing attraction and retention tool for highly valued employees. Employees who are very satisfied with their benefits are more than twice as likely to report being very satisfied with their jobs (source: MetLife’s 12th Annual U.S. Employee Benefit Trends Study).
Different PEOs offer different benefits and services, but in a general sense the concept is simple. You continue to maintain management control of your employee for their core business duties; the PEO handles the bulk of the administrative functions and covers the lion’s share of the liabilities of being an employer. This is actually a dream scenario for most small businesses. How many times have you heard a business owner say, “I got into business to “insert core business function here”, not to focus on sexual harassment training, babysit the time clock, worry about being sued, etc.
The PEO allows a software developer to focus on building new software, and the law firm to focus on representing their clients. This is not a magic pill, and there are costs associated, but let’s examine how those “costs” may actually save you money, attract and retain better employees, or for the purpose of this article, combat the effects of ACA on your employee benefits plan.
By joining a PEO, you join a much larger group of employees (aka risk pool). This allows small employers to have access to better workers comp rates, EPLI coverage, and better health insurance coverage at a lower rate.
Historically, and now more than ever, large group health plans are packed with more robust benefits, and may enjoy lower rates based on a composite rate. Large health plan underwriters analyze claims data for the entire risk population, assign a composite risk factor, and create standardized rates for all the risk categories covered under the plan. This is in direct contrast to small group age-banded rates which can be different for each employee based on age and location. Small groups, for example, may find that their new “ACA compliant” health plan increases their rates by 30% at this year’s renewal with a significant decline in covered services and networks.
By joining a PEO’s large group plan, better benefits and rates may be available to the small group employer. Overall, does this offer a cost savings? Possibly. It is definitely worth investigating.
Savings on health insurance, workers compensation, and other insurance components of a PEO will most likely be realized but do come at a cost. These savings come with the requirement that the employer pay administrative fees to cover the costs of enhanced services like HR support, training, payroll, labor compliance, legal notices, recruiting, timekeeping, etc…
The PEO helps the employer channel costs to build a fortress of protection around an otherwise very vulnerable business. This “same cost” solution can be worth its weight in gold in the event of an employee lawsuit, labor audit, worker’s compensation audit, worker’s compensation claim, labor inspection, on the job accident, etc.
Most employers who have never experienced such dangers of doing business are living under a false sense of security. Any one of the above occurrences without the proper protections in place can result in significant loss of revenue, massive stress, time loss, and in the worst cases can close a business for good. Once a massive loss has occurred, it is often times too late to put these protections in place. After a major loss insurance companies and PEOs alike will often times simply shy away from taking on the account.
For many reasons that are unrelated to health insurance, evaluating a PEO will be a valuable exercise for your business in exposing currently uncovered liabilities. For your health insurance plan, we feel that investigating a PEO is an absolute must in the current climate.
Is a PEO right for you?
This question can only be answered on a case by case basis. Each company has unique needs and circumstances – different modes of operations, different personnel, different types of liability, different administrative systems, and different vendors. All of these factors play a role in the decision whether or not to deploy a PEO solution. For example: A mid size company that has a top tier HR person, a low workers compensation rate, EPLI insurance in place, a trusted and smooth payroll system, etc… may be less of a candidate than a business that focuses mostly on their core competencies, has thinner margins, and less of these resources currently in place.
A PEO simply may be cost prohibitive when all of the services included are analyzed. One of the areas of confusion in dealing with PEO’s is determining what fees are being paid for what services rendered. Most employers would simply never be able to crack this code. This is where a valued broker can clear the smoke and provide clarity. The flat out truth with a PEO relationship is that you are paying for a whole slew of services and coverage. If there is no anticipated usage of these services or coverage, a PEO arrangement may not make sense. Conversely, coverage and services may be in desperate, yet unknown, need. This process may be the foundation for previously unimagined growth and cohesion within the organization.
The outcome is truly an unknown at this point. What we are recommending is simple; partake in the process. The best direction (which may be no change at all) will become clear, and you will gain confidence and knowledge in the process. Bridgeport will proudly stand by you every step of the way.
During this investigative process you may determine there is no need for a full blown PEO solution. You may, however, desire service components of what PEOs have to offer, such as HR support, administrative simplification, or additional compliance services without the cost and transition to an entire PEO solution. The ACA has created a huge push for compliance audits by the Department of Labor and the IRS. There are multiple solutions that can address these needs. In this new era of health care and compliance, creativity and shrewd decision making are more important than ever.
We truly look forward to assisting you in this process. We will be reaching out to you, but feel free to contact us sooner to begin a review. Your Bridgeport team members can be reached at 800.532.5941.