Health insurance renewal rates rarely bring good news for small businesses, and 2027 looks no different. According to KFF, small-group insurers reported “a median proposed premium increase of 14% for next year.” Small employers absorb those hikes with little bargaining power, while also juggling the paperwork and compliance that come with offering benefits. No wonder more business owners are taking a hard look at PEOs as a way to improve employee benefits, manage rising healthcare costs, and reduce administrative burden. Here’s what we’ll cover:
Let’s start with the basics.
A PEO can provide access to employee benefits and business insurance programs through a co-employment relationship. These offerings often include health insurance, workers' compensation, retirement plans, and benefits administration services plus the administrative muscle to run them.
Co-employment is a contract that splits employer responsibilities between you and the PEO. The PEO typically supports things like payroll administration, benefits management, and compliance while you keep running the business: the day-to-day calls, the team dynamics, the culture, and who gets the good parking spot. You’re still the boss; you’ve just got backup.
Here’s where business owners get tripped up. PEO programs aren’t a policy you pull off a shelf. It’s a bundle: the coverage itself, plus the people and systems that manage it. To size up any PEO, you need to look hard at both halves. Let’s start with the coverage.
Most PEOs offer some combination of:
The coverage access a PEO provides matters because health coverage is expensive, and it isn’t getting cheaper anytime soon. According to KFF’s 2025 Employer Health Benefits Survey, “Annual premiums for employer-sponsored family health coverage reached $26,993 this year,” a 6% increase from the year before. While a 15-person shop may not have the bargaining power to bring that number down, a PEO has more muscle.
How PEO insurance coverage is set up varies from PEO to PEO. Some offer access to PEO-sponsored health plans, others set up plans at the individual client level, and some let you keep the plan you already have while you use their other services. Offerings also vary by state, so ask what’s actually available where your employees live and work, not just what’s on the plan brochure.
Coverage is only half the bundle. The other half is the work, and there’s a lot of it. A good PEO typically covers three areas:
This means guidance on choosing plans, managing enrollment, and processing life events like marriages and new babies. It also means managing payroll deductions and reconciling carrier bills. It’s the tedious stuff that quickly eats away at your Tuesday afternoons.
Many PEOs help with benefits compliance, such as Affordable Care Act (ACA) reporting on Forms 1094 and 1095, COBRA administration, and ERISA plan documents. But “compliance support” isn’t a standard package. One PEO may track ACA eligibility across your whole workforce, while another files forms only for employees enrolled in its health plan. Your contract spells out who’s on the hook for what, so read it closely.
Many PEOs offer pay-as-you-go workers’ comp, which calculates premiums on actual, real-time payroll instead of an upfront estimate that’s subject to change annually. Claims management and safety support may be included, too, depending on the provider. Someone has to field employee questions like, “Why was my claim denied?” Ideally, that someone isn’t you.
Now that you know what’s in the bundle, the real question is how to tell the best PEO companies apart.
You’ve got options, and lots of them. According to NAPEO, 502 PEOs were operating at the end of 2025, but they are not interchangeable. Here’s a seven-point scorecard for comparing PEO companies on insurance and benefits. We recommend asking these questions at every sales call.
Finally, check credentials. ESAC accreditation, SOC 1 certification, an independent board, and audited financials each speak to a PEO’s financial stability and business practices. Verify every claim on the issuer’s public lookup rather than taking the sales deck’s word for it.
Before you sign, nail down two things:
1. Exit Terms
Think of exit terms as a prenup. Ask how much notice you’ll need to give to terminate your contract, what happens to employees’ health coverage if you exit mid-year, and how COBRA and 401(k) accounts are handled on the way out.
2. Contract Scope
Get a written breakdown of which employer responsibilities move to the PEO and which stay with you. If it isn’t on paper, you should assume it’s still yours.
Then watch for these red flags:
A PEO that answers all of this clearly, without squirming, is one worth a serious look.
More than a stack of policies, PEO provides the coverage, the people who manage it, and the contract that holds it all together. Knowing what’s on offer, understanding the PEO’s role, and putting every PEO company through the scorecard before you sign that contract is extremely important. And getting it right pays off: NAPEO research finds that businesses using a PEO grow twice as fast and are “50 percent less likely to go out of business.”
BBSI is an ESAC-accredited, SOC-1 certified PEO serving 8,000+ clients nationwide, and every client gets a dedicated, local team. Ready to put us to the test? Contact your local BBSI representative for a benefits gut check. Bring your scorecard questions and see how BBSI answers.
PEO services provide bundle solutions for employee benefits and business coverage, plus the administration that comes with it, which a PEO provides through co-employment. This guide explains what coverage PEOs typically offer and what role they play in managing benefits and compliance. It also gives business owners a seven-point scorecard for comparing PEO companies before they sign.