PEO vs. Insurance Broker: Which One Should You Choose for Health Insurance?

How does PEO health insurance work?

When you use a PEO to offer employee health insurance, the PEO sponsors your healthcare plan. PEOs partner with hundreds — sometimes thousands — of employers. With this robust buying power, they can provide higher-quality health insurance for significantly lower premiums than you could access as a small business. While your organization typically has only a few plans to choose from, the lower premiums may save you enough money to make the costs of hiring a PEO well worth it.

PEOs act on a co-employment model, meaning they share specific employment responsibilities with their client businesses. In this arrangement, the PEO handles tasks like benefits administration and managing related taxes. This approach applies to all companies that use the PEO, which allows the PEO to leverage its larger employee pool to negotiate higher-quality coverage at more competitive rates.

Pros of using a PEO for health benefits

PEOs can be an excellent option for helping you offer health insurance benefits to your team. Consider the following upsides: 

• PEOs help you provide higher-quality healthcare options: The PEO co-employment model allows small businesses access to high-quality healthcare plans that insurers typically reserve for larger, less risky companies. 
• PEOs help you access affordable premiums: In addition to higher-quality health plans, the co-employment model can secure more affordable premiums. The insurers perceive less risk, so costs aren’t as high as they would be if they were assessing one small business. 
• PEOs offer additional HR services: PEOs can do much more than provide health insurance. They’ll also run payroll, remit your taxes under their employer identification number and obtain workers’ compensation on your behalf. 
• PEOs can help with legal compliance: PEOs can advise you on HR compliance matters, including those related to insurance, payroll, risk management and tax operations. 
• PEOs are responsible for their errors: If your PEO makes a mistake in ensuring compliance with specific federal and state regulations, it can be held accountable so that your business won’t have to bear the consequences. 

Cons of using a PEO for health benefits

Despite its many advantages, obtaining health insurance for your team through a PEO has a few downsides, including the following:

• PEOs may provide inflexible, limited coverage options: PEO insurance is often limited to few options, which can prove troublesome for small businesses with specific or atypical health insurance needs.
• PEOs incur recurring fees: Every month, you’ll pay your PEO either a percentage of your payroll or a flat fee per employee — in addition to often expensive setup fees that accompany a PEO partnership.
• PEOs act as a co-employer: Some business owners may be wary of a PEO’s co-employment model, fearing a loss of control. While PEOs won’t make business or personnel decisions, they don’t offer the same level of access and control as an internal HR team. 

Best PEO providers for health insurance benefits

If you go the PEO route, it’s important to choose a PEO that can provide the benefits your team needs, such as health insurance and the HR services your operation requires. The following companies are among the best PEO service providers in the industry and are a great place to start your research. 

TriNet

TriNet offers access to health benefits typically reserved only for large corporations. Unlike some PEOs, Trinet’s offerings are extensive and include partnerships with major carriers, including Kaiser Permanente, Blue Shield, Aetna and United Healthcare.  

Additionally, TriNet handles compliance issues, ensuring you abide by all Affordable Care Act (ACA) and COBRA insurance requirements. Its benefits enrollment process is intuitive and includes a handy AI tool that makes it easy for employees to select the right coverage. Employees can easily compare coverage and costs and avoid unnecessary expenses. 

As our detailed TriNet review explains, those enrolled in a TriNet-sponsored medical plan can also opt for access to HealthAdvocate, a team of nurses and billing and claims specialists who can field questions about health concerns or medical billing issues. 

Justworks

The Justworks PEO Plus plan helps employers offer team members quality, large-group health insurance from top national carriers, as well as mental health, wellness and family planning resources. The platform’s robust employee self-service options can help your team compare plans and enroll in their selected benefits online or via the Justworks PEO mobile app.

Justworks clients have access to HR experts and 24/7 customer support via phone, email or chat and can manage their employees’ medical plans easily via an intuitive online platform. Our Justworks review details this provider’s extensive compliance resources, which will help you abide by ACA and Health Insurance Portability and Accountability Act regulations. 

Rippling

Rippling can help you affordably access high-quality health benefits typically reserved for large enterprise companies. Its top-notch tech platform helps business owners automate time-consuming HR tasks, including administering benefits enrollment, saving valuable time. Because each application is part of a unified online platform, benefits selections and changes will automatically sync to payroll.

Rippling handles benefits compliance and can automate tedious compliance tasks, including issuing and managing COBRA insurance for former employees. The platform’s app makes it easy for workers to log in, manage their benefits and access digital insurance cards. 

Our Rippling review highlights the fact that this platform can grow with you. If your company scales to the point that you’re ready to hire a full-time HR employee, you can easily transition off the PEO plan while keeping all employee data in the online platform.

ADP TotalSource

ADP streamlines the benefits administration process by automatically syncing data between its online tech platform and benefits carriers. Employees can quickly compare plans, select benefits and enroll via the ADP online platform or mobile app. As our ADP TotalSource review explains, client businesses can access a dedicated team of HR subject matter experts for personalized support; ADP also provides direct employee support to answer questions during the benefits enrollment process.

How does health insurance with a broker work?

When your business works with an insurance broker to obtain health insurance, you’ll be able to find and access a health insurance plan without entering into a co-employment agreement. An insurance broker is a state-licensed independent insurance professional who can shop for health insurance on your company’s behalf. The broker will recommend specific plans and detail all costs. Enrolling is entirely your decision. 

Insurers pay commissions to brokers. This income structure can affect which plans they offer you. Since brokers don’t earn money until their clients sign contracts with insurers, they have a strong incentive to find you the best plan possible. However, this incentive can also encourage brokers to only offer expensive plans in hopes of earning more money.

Pros of using an insurance broker for health benefits

Some businesses prefer working with an insurance broker to obtain health benefits for the following reasons: 

• Insurance brokers tend to have lower service costs: You won’t pay a broker money to find your insurance plan — insurers pay them. As such, brokers cost less upfront than PEOs. Additionally, brokers don’t charge monthly fees as PEOs do. However, PEO plans tend to be more comprehensive. 
• Insurance brokers can offer a wide variety of plans: An insurance broker will likely provide many more plan options than a PEO if they don’t offer plans from every major insurer, although some do. Brokers can also help you find plans that meet highly specialized health insurance needs.
• Working with a broker is a one-time business transaction: Your broker relationship ends when you enroll in an insurance plan, although you may work with the broker again in the future. In contrast, PEOs represent long-term partnerships. Some business owners prefer the more transactional relationship of a broker arrangement. 

Cons of using an insurance broker for health benefits

Working with a broker for your business’s health insurance needs has a few downsides, including the following: 

• Brokers may present lower-quality insurance options: You might be disappointed with the higher deductibles, copays and out-of-pocket limits attached to broker plans. In contrast, PEOs can access higher-quality plans reserved for entities that insurers consider less risky. 
• Brokers work on a commission structure: Brokers work on a commission structure, which may lead them to present you with higher-priced options to ensure they receive the highest possible payout.
• Broker plans may have higher premiums: Plans you access from a broker will likely have higher premiums due to insurers’ risk considerations.
• Brokers can’t help you access additional HR services: Insurance brokers help you find insurance. Unlike PEOs, they can’t provide additional HR services. Unless you’re planning to handle payroll, taxes and other types of insurance needs independently, an insurance broker might not meet all your needs.
• Brokers don’t handle compliance or risk management issues: As your co-employer, PEOs inherently assume some of the risk involved with your health insurance. In contrast, your broker relationship ends when you enroll in a plan. A broker can’t help — and bears no liability — if you face legal repercussions for noncompliant health insurance practices. 

Should you choose a PEO or insurance broker?

Your business and unique needs will determine whether a PEO or insurance broker is right for you:

• PEOs: PEOs will likely be the best choice for many small businesses because they can provide access to comprehensive plans at affordable costs. While hiring a PEO is an investment, gaining the company’s expertise in payroll, tax and legal compliance issues is often well worth it.  
• Brokers: An insurance broker may be the best option if you have a small team of young, healthy individuals who don’t need coverage for dependents. These team members may only be concerned about lowering costs in the event of a medical emergency, so broker plans may suit them. In this case, a small business will save money by not hiring a PEO, if PEO insurance premiums cost less than broker premiums. Still, if you go this route, you’ll need to find other ways to handle payroll, taxes and compliance.

Finding the health insurance solution for you

Whether you choose a PEO or an insurance broker, offering health insurance to your team is the right thing to do for your employees and your business. According to a PeopleKeep survey, 92 percent of workers said health insurance is the most important benefit they want from the organization they work with. A comprehensive employee benefits package with robust health insurance can help you attract and retain top talent in a competitive landscape. 

Research your options thoroughly to ensure your health insurance plan matches your budget and meets your team’s needs. Opt for the highest-quality option you can afford. If your budget can stretch to accommodate a PEO, you’ll have the added benefit of solutions for payroll, risk management, legal compliance and more.

Max Freedman contributed to this article.