One Cure for Your Health Care Headache

Con­sider out­sourc­ing your busi­ness’s in­sur­ance de­ci­sions to a third-party PEO

Inc. (USA) - - MONEY - He­laine Olen is a veteran per­sonal fi­nance jour­nal­ist, the au­thor of Pound Fool­ish: Ex­pos­ing the Dark Sideof the Per­sonal Fi­nance In­dus­try, and the co-au­thor of The In­dexCard: Why Per­sonal Fi­nance Doesn’t Have to BeCom­pli­cated. He­laine Olen

HEALTH IN­SUR­ANCE MAY BE ONE of the hot-but­ton is­sues of 2017, but it’s long been a source of frus­tra­tion for small-busi­ness own­ers. Fig­ur­ing out what you want to pro­vide to em­ploy­ees, what you’re legally re­quired to of­fer, and how much it will cost can be­come your “sin­gle big­gest pain,” as Peter Zdanow­icz, chief op­er­at­ing of­fi­cer at fi­nan­cial startup GoldBean, puts it.

For­tu­nately, there is help at hand, a bit of aid Zdanow­icz and many other busi­ness own­ers have em­braced. It’s called a pro­fes­sional em­ployer or­ga­ni­za­tion, or PEO.

Pro­fes­sional em­ployer or­ga­ni­za­tions are firms that spe­cial­ize in pro­vid­ing hu­man re­sources ser­vices to other busi­nesses. A com­pany agrees to al­low a PEO to process its pay­roll, and, in turn, the PEO be­comes the em­ployer of record for those em­ploy­ees. With thou­sands—some­times hundreds of thou­sands—of “em­ploy­ees,” PEOs are able to of­fer their mem­ber com­pa­nies ev­ery­thing from health in­sur­ance to re­tire­ment ben­e­fits at much bet­ter prices than are usu­ally avail­able to stand­alone smaller firms.

Ac­cord­ing to mar­ket-re­search firm IbisWorld, the PEO in­dus­try grew at an an­nual rate of

8.7 per­cent from 2012 to 2017, thanks in part to its health care of­fer­ings. “PEOs have been gain­ing in pop­u­lar­ity since the ad­vent of the Af­ford­able Care Act,” says Adam Hy­ers, owner of Hy­ers & As­so­ciates, an in­sur­ance bro­ker­age based in Colum­bus, Ohio. In the United States, the law—at least as of presstime—says that any busi­ness with 50 or more full-time-equiv­a­lent work­ers for one year or more must of­fer health in­sur­ance. And about half of busi­nesses that aren’t legally re­quired to give their work­ers the op­tion of sign­ing up for cover­age of­fer it any­way. “It’s a nec­es­sary ben­e­fit to at­tract the team we want,” say Mickey Swortzel, co-founder of Ann Ar­bor, Michi­gan–based New Ea­gle Con­sult­ing, which em­ploys 25 peo­ple.

But it’s dif­fi­cult to of­fer your em­ploy­ees the equiv­a­lent of large- com­pany health ben­e­fits: Since you’re not bring­ing in­sur­ers a ton of busi­ness, they may charge you a lot for the most at­trac­tive op­tions, ef­fec­tively rel­e­gat­ing your com­pany to plans with high de­ductibles or few out-of-net­work op­tions. That can cause prob­lems hir­ing or re­tain­ing tal­ent. When new em­ploy­ees “sign the pa­pers and see a $10,000 de­ductible, they are not happy,” Zdanow­icz says.

Swortzel be­gan us­ing ADP, the in­dus­try’s largest PEO, in 2016. “My em­ploy­ees and their fam­i­lies,” she says, “saved about $5,000 a year” on health in­sur­ance. She also spent less on hu­man re­sources, as the PEO’s ad­min­is­tra­tive costs were less than the cost of hir­ing an HR per­son.

How­ever, keep an eye on those ad­min­is­tra­tive costs. PEOs usu­ally charge com­pa­nies a fee per em­ployee or a per­cent­age of pay­roll; rates vary de­pend­ing on the num­ber of em­ploy­ees and the ser­vices be­ing ren­dered. GoldBean pays its PEO, TriNet, about $83 ev­ery two-week pay­roll pe­riod for each of its five em­ploy­ees, or about $830 per month. “It adds up,” Zdanow­icz says.

So if your com­pany is grow­ing quickly, you may find it makes more sense to han­dle your own health in­sur­ance and HR de­ci­sions. On­line ca­reer coach the Muse, which went from 65 em­ploy­ees to more than 120 in the past year, re­cently hired Shan­non Fitzger­ald as its head of hu­man re­sources. She weaned the Muse off its long­time PEO and went through an in­sur­ance bro­ker­age to of­fer em­ploy­ees sev­eral health plans for 2017. As Fitzger­ald warns, “You reach a point where you end up throw­ing money away at a PEO be­cause of the size of the com­pany.”

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