Professional employer organization (PEO) health plans solve the challenges faced by small businesses, allowing them to benefit from economies of scale. Companies can offer PEO medical insurance, often at lower rates than going through a broker, and reduce time spent on administration and compliance issues.
Indeed, PEOs provide technology systems and human resources (HR) support to ensure seamless employer and employee processes. With increasing costs, PEO insurance could balance the scale. Learn how partnering with a PEO organization affects costs, the benefits beyond price savings, and top considerations for choosing a provider.
How much does offering health insurance cost employers?
Costs have increased for small businesses, including prices for nearly all health insurance options. Indeed, 94% of National Federation of Independent Business (NFIB) Small Business Health Insurance survey respondents said they “find it challenging to some degree for their business to manage the cost of offering employer-sponsored health insurance.”
Kaiser Family Foundation (KFF) surveyed small firms with three to 199 workers to organizations with over 5,000. It found that the average health insurance cost for employer-sponsored premiums in 2023 was “$8,435 for single coverage and $23,968 for family coverage.” However, this figure increases to $8,722 for single coverage at small businesses.
JPMorganChase found that the median health insurance payroll burden among firms with less than $600,000 in annual revenues was almost 12% and mentioned that other data sources show that companies “with fewer than 10 employees paid the highest premiums.”
Employer contribution rates vary. In 2023, the average employee paid $1,401 for single coverage and $6,575 for family coverage. Workers at small companies typically pay a higher percentage for family coverage (38% vs. 25%), and a quarter of them are enrolled in a healthcare plan requiring a family contribution of $12,000 or more.
Rising insurance costs are only one reason that businesses consider PEO health insurance. The administration side is complex. Finding competitive packages, negotiating prices, and handling enrollment are just the beginning. Then, there are compliance and reporting requirements, including benefits termination and coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).
[Read more: Small Business Health Insurance Abbreviations and Acronyms]
How does a PEO affect health insurance costs?
PEO health insurance rates typically cost less than open market plans, and small businesses save money on administrative expenses. The combination reduces medical insurance fees for employers and employees.
Large PEOs offer competitive group health insurance benefits through multi-employer or master policy plans. These merge several companies into one policy, lowering premiums through economies of scale or risk pooling. More employees mean an insurance company takes less risk because, in any given year, about 5% of people account for half of all healthcare spending.
A small PEO may offer single-employer policies, similar to a broker. However, PEOs provide HR software and support, offering additional cost savings for managing employee benefits. The technology systems include employee self-service tools, enrollment services, and reporting features.
Are PEO health plans future-proof?
While economies, regulations, and technologies shift constantly, the health insurance burden remains relatively stable. In the unlikely case that U.S. citizens no longer require employer-sponsored medical benefits, businesses could choose not to renew their contract with the professional employer organization.
On the other hand, 98% of small employers who responded to NFIB’s survey said they were “concerned that the cost of providing health insurance to their employees will become unsustainable in the next five to 10 years.” PwC’s Health Research Institute projected higher medical costs to treat patients in 2025 due to “inflationary pressure, prescription drug spending, and behavioral health utilization.”
The American Academy of Actuaries explored similar topics in its Drivers of 2025 Health Insurance Premium Changes. It noted that “inflation’s impact on premiums appears to be within historical norms.” Meanwhile, prescription drug spending was “adding to premium growth.” KFF expects employer labor and inflation costs “to moderate over the next two years, although premiums may not reflect these underlying changes right away.”
[Read more: 3 Facts About Using PEOs for Your Business]
Since PEOs offer far more than health insurance, it’s essential to understand your needs and thoroughly vet vendors when choosing a PEO.
Benefits of partnering with a PEO for health insurance
Finding, hiring, and retaining top-notch team members gets tougher every year. The U.S. Chamber of Commerce reported on a poll showing that 96% of Americans believe it’s important that a job offers health insurance. Indeed, “By nearly a two-to-one margin, respondents said they would not accept a job that does not offer health insurance.”
However, the benefits of a PEO extend beyond offering health insurance to employees. HR technology, payroll processing, and value-added features are all PEO advantages.
The best PEO health insurance providers help companies:
- Lower health plan premiums: Reputable PEOs have buying power and relationships with multiple insurance carriers, giving small businesses access to affordable medical insurance plans with comprehensive coverage.
- Reduce overhead costs: PEO benefits administration decreases internal paperwork and unifies information in a central tech platform. By outsourcing HR tasks, your HR staff can focus on high-impact initiatives.
- Improve employee experiences: Mobile apps, dedicated support, and enrollment tools help workers compare PEO health plans and rates, see prescription and provider coverage options, and add family members.
- Diverse benefit options: Most PEO providers offer a range of insurance and benefits plans, including cyber liability coverage, retirement packages, mental wellness perks, and reimbursement accounts.
- Mitigate risks: PEOs track state and federal healthcare regulations, so even if you hire staff in a non-resident state, your PEO can provide guidance on local laws.
How to choose the right PEO for health insurance
Partnering with a PEO means entering into a co-employment relationship. While this aspect doesn’t affect your control over daily operations, it could have tax implications. Since PEOs offer far more than health insurance, it’s essential to understand your needs and thoroughly vet vendors when choosing a PEO.
Consider the following factors when looking for PEO medical insurance:
- PEO pricing model: Costs vary based on services and support offered, with providers charging businesses per employee or as a percentage of their monthly payroll.
- Legal and compliance support: PEOs may offer documentation and HR experts. But, staff knowledge varies, so confirm access and capabilities.
- PEO insurance coverage areas: Look at your employees’ locations to determine whether you need nationwide or regional insurance coverage.
- Types of PEO employee benefits: Decide if you will offer benefits besides health insurance and consider the range of plans, co-pays, and deductibles.
- Onboarding and offboarding options: How much hands-on support does your HR team need to establish the system, and what’s your PEO exit plan.
[Read more: How PEO Services Reduce Employee Turnover]
Compare PEO service providers
PEO solutions have different benefit options and support services. One might be built for growing businesses with all-in-one software and compliance assistance for recruiting employees nationally. At the same time, another could be the perfect mash-up of affordability and accessibility for an established workforce of 10.
The top PEO companies offering health benefits include:
- Rippling PEO: Rippling PEO health insurance includes Aetna, Humana, and Blue Cross Blue Shield plans. It’s easy to transition between PEO and standard services.
- TriNet PEO: Employers can choose from many plans and major carriers, such as MetLife, UnitedHealth Group, Kaiser Permanente, and Aetna.
- Engage PEO: This provider has a vast range of benefits options from national insurance carriers and provides PEO benefits administration services.
- ADP TotalSource: With the buying power of 732,000 employees, ADP PEO health insurance provides affordable rates and dedicated support.
- Justworks: This technology-focused solution supports businesses with two or more employees. It offers open-market and large-group plans.
- Insperity: This accredited service provides group health coverage through national medical insurance carriers. Its interactive support tools help employees compare solutions.
- Paychex PEO: This provider's tailored HR packages and custom Paychex PEO health insurance plans make it a favorite among fast-growing businesses.
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