PEOs or Fully Insured Plans: Which is Right for Your Business?

by | May 2, 2019 | Employee Benefits

Health insurance benefits are important to employers of all shapes and sizes, and the issues small business owners face can be challenging. So, how can smaller businesses stay competitive when it comes to offering insurance plans? United Agencies can help shed some light on the matter!

If you’re unsure about using a Professional Employer Organization (PEO) versus a Fully Insured Medical Plan, you are not alone. It can be confusing and overwhelming to decide what is right for your business.  So, we thought it might be helpful for you to know the pros and cons of each.

Here’s what small business employers should know about both plans:

PEOs In a Nutshell

PEOs offer services ranging from payroll processing, benefits administration, HR training and support and workplace insurance coverage to both small and medium-sized businesses.

PEO Pros

  • PEOs include employees with all of the PEO’s co-employees to create one larger group/pool of employees. This enables the PEO to provide the employees with access to employee benefits similar to ones they would receive as part of a larger corporation, despite the fact they work for a small business.
  • PEOs offer additional services to small business Employers than just health benefits. PEOs make available compliance support, payroll, human resources services, and workers compensation.
  • PEOs lower the administrative burdens of small businesses which allows them to focus on their core business strategies in lieu of worrying about the minutiae of benefits.

PEO Cons

  • PEOs offer a very limited choice in carriers, meaning that your employees won’t necessarily be presented with the best options for them or their families.
  • PEOs require administrative fees to support their services and are charged per month per employee or percentage of total payroll.
  • PEOs force small businesses to rely on an external team (rather than internal employees) to handle important and sensitive HR processes.

Fully Insured Plans

Fully Insured Plans (FIPs) are employer-sponsored health plans where the premium rates are fixed for at least a year, and are based on the number of employees enrolled in the plan each month and their ages. The company pays the insurance carrier a premium.

FIP Pros

  • Prices are based on ages and/or zip code which allows employers to budget. The rates don’t vary with the health of employees, and you cannot be denied based on the health of your employees (no medical underwriting required.) The insurance provider manages all claims, and the risk is assumed by the insurance company.
  • You can choose your own package and decide on carriers, as opposed to being required to stick to a very limited set offered by a PEO. You can purchase a fully insured plan if you have at least two employees. Some PEOs require you to have a higher minimum number of employees (five employees).
  • There are no administrative fees. You can choose your own payroll company and have internal HR resources.


FIP Cons

  • Premium costs can be higher depending on your geography and age of employees, regardless of the overall health of your employees. (Sometimes claims experience varies depending on the size of the company.)
  • You don’t have the “one-stop shop” of payroll, HR, and compliance that is available with most PEOs.
  • The administrative burdens associated with running a small business fall solely on the business.

The health insurance options available for small business employers are more vast than one might think, and there are a number of factors to consider. Prior to making a decision, it’s Best Practice to be as familiar with all of the details as possible.  And remember, neither choice is necessarily better or worse than the other. It is entirely dependent on each of the specifics of your company and individual situation. Don’t feel you need to rush into making a rash decision without doing the research first. Take your time, shop around, and weigh all of your options.


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