What the Facts Say About Using a PEO for Group Health Benefits

The cost of healthcare in America continues to rise. For SMBs, keeping up with these costs is becoming a more serious problem as time rolls on and premiums continue to increase. On top of this, healthcare is no longer seen as just an added benefit to workers – it’s a critical factor that job-seekers prioritize above everything except salary.

However, providing a high-quality health insurance package is not an unbearable obstacle for small businesses. You only need to pick the right plan and, ideally, the right PEO partner.

PEOs like BBSI are the perfect solution for any small business owner who knows they need to provide top-notch healthcare but aren’t sure where to start or if it’s even affordable at all. In today’s guide, we’ll go over the facts about how PEOs can make group health benefits more affordable for your small business.

Fact: PEOs Can Reduce Group Health Benefits Premiums for SMBs

As mentioned in the opener, health insurance costs continue to skyrocket. The fact that most people now get their health insurance through employers means that small businesses are bearing a disproportionate burden in this ever-inflating market.

According to a recent study, businesses with less than $600,000 in annual revenue face a median health insurance payroll burden of nearly 12%, much higher than larger businesses that experience only a 7% burden. That imbalance stems from several factors, including the fact that small businesses simply have smaller risk pools because of their smaller workforce.

The challenge is even more pronounced for businesses with fewer than 10 employees. Data shows that these companies pay the highest premiums, regardless of revenue size. In comparison, larger companies can use their size to negotiate better rates, pushing the cost per employee down.

PEOs exist to address problems like these for small businesses and help them level the playing field against their larger competitors.

How PEOs Level the Playing Field

PEOs solve these compounding problems for small businesses in one simple way: by having the ability to better negotiate with insurance providers.

Instead of a small business paying high premiums due to limited negotiating power, a PEO brings a large number of individuals into a single group plan. This results in lower costs for each participating business because the risk is spread across a larger pool of employees, which lowers the overall risk to the insurer.

The result? Lower premiums, better benefits, and more auxiliary benefits for small businesses. This allows small businesses to focus on their core operations while offering competitive group health benefits to their employees.

Fact: Without a PEO, SMB Employees Pay More for Health Coverage

In addition to the high health insurance burden that small businesses face, their employees are often left paying more for their coverage compared to employees at larger companies.

A 2023 study found that small business workers paid an average of $6,575 for family coverage, with some employees shouldering costs as high as $12,000.

As we mentioned earlier, discrepancies like these stem from the fact that small companies typically have less bargaining power and fewer resources compared to large companies. This often forces them to pass a significant share of the premiums onto their workforce, leading to dissatisfaction and higher turnover.

This becomes an increasingly difficult challenge for small businesses trying to maintain competitiveness.

How PEOs Lower Group Health Benefits Costs for Employees

A PEO can step in to mitigate this issue for your small business by providing small businesses access to group health insurance plans that offer more competitive rates. Here’s how:

• Reduced Premiums for Employees: Just like pooled risk lowers premiums for the business, it reduces the cost to your workers.
• Better Benefit Options: Employees gain access to more comprehensive health plans that may include broader coverage and additional benefits like dental or vision care, all while keeping costs manageable.
• Less Administrative Burden: PEOs handle benefits administration, making it easier for you to manage health plans, which, in turn, improves the overall employee experience.

The end result is lower costs for your workers, even better benefits, and the elimination of the administrative busywork associated with group health benefits.

Fact: PEOs Provide a Strong Return on Investment

Gaining access to better group health benefits is an obvious benefit to partnering with a PEO, but it doesn’t mean anything if you aren’t seeing a return on your investment. That’s why it’s important for small businesses to understand that, on average, businesses partnering with PEOs see a 27.2% ROI. This ROI is derived not only from reduced health insurance costs but also from savings in areas like workers' compensation and unemployment insurance.

For every $1,000 spent on PEO services, businesses save $272 across various HR functions. This includes the significant cost reductions achieved through multi-employer health insurance policies, which lower the cost of health benefits by spreading risk. It also includes administrative savings, as PEOs handle everything from payroll processing to compliance management.

Breakdown of ROI Benefits:

Here are all the ways a PEO will more than make up for the cost of your initial investment:

• Health Insurance Savings: PEOs lower health insurance premiums for small businesses, which is the largest direct cost savings.
• Lower Workers’ Compensation Costs: PEOs often bundle workers’ compensation insurance into their service offerings, giving businesses access to lower rates.
• Compliance and HR Services: PEOs manage complex compliance and regulatory issues, reducing the risk of fines or legal troubles while also saving businesses the cost of hiring full-time HR staff.

In the long run, these savings contribute to a stronger bottom line. Investment in a PEO is a strategic decision for small businesses aiming to optimize their financial performance while offering competitive benefits to their employees.

Choose a PEO with Localized Experience: BBSI

The rising cost of group health benefits isn’t likely to slow down anytime soon. But that won’t stop your current and future workforce from prioritizing health insurance. If you’re a small business owner who sees the writing on the wall, you’ll be looking for ways to control these costs without sacrificing the strength of your benefits package.

Luckily, the facts paint a clear picture: PEOs like BBSI can not only lower your group health benefits premiums but actually improve your level of benefits and the cost to your workers. Beyond that, we can assist with many other services, including your workers' compensation insurance, payroll, taxes, compliance advice, and more.

Interested in learning more about how BBSI can lower your costs? Contact a local representative today.