What Happens If I Get a High Benefit Renewal in PEO?
If you are in a Professional Employer Organization (PEO) you likely joined in part or whole because of the PEO’s benefit plans. PEOs are known for giving access to affordable benefits from national carriers like Aetna, Blue Cross Blue Shield, Cigna, and United Healthcare.
PEOs typically have significantly lower yearly benefit renewals for a few reasons, but mostly for their buying power with the carriers. Remember the Law of Large Numbers is always present in any type of insurance, this is no different. The more people on a benefit plan, the less risk, and more leverage for the PEO.
This year you got a bad renewal.
Like everything in life, you will at some point get a shock and have a higher than expected renewal.
You may be asking what’s a great renewal in a PEO, anything under 10% in a PEO or not in one, is excellent. So if you have gotten an elevated renewal, what should you do?
Reach out to your PEO and negotiate with them. Another option is introducing a Health Reimbursement Account (HRA).
Engage with other PEOs and get quotes. Use a PEO Broker like Dinsmore Steele, and have them do the heavy-lifting for you.
Explore the open market for employee benefits. Use a Broker or approach a carrier directly.
Ok, that makes sense, but which should I do?
Well, you have options. I’d likely do all three. Here are the upsides and downsides to each.
Number One - this is a no-brainer, who wants to leave your PEO without at least giving them a chance to counter offer you. Remember PEOs are not happy they had a high renewal, so they will work with you.
Many times companies don’t pick the right plans and offer ones that are not cost-effective or many times are repetitive. One large mistake a lot of companies make is funding 100% of all of the plans and tiers. Don’t get us wrong that is a great strategy for attracting talent, but unless you are an organization that makes money hand over fist, it’s not a long-term strategy.
Almost all employers and our clients share the cost with their employees in a few different ways. Here are a few.
They will pay 100% of the Single Premium of a Base Plan.
They will pay 80% of the Single Premium of a Base Plan.
They will pay 50% of the Single Premium of a Base Plan.
Regardless of your funding strategy, the best way is to offer a base plan and two other options. So maybe you offer an EPO, a PPO/POS, and an HDHP. This gives everyone options, you pick the PEO as the Base Plan and apply your Funding Strategy to the plan. The other plans and rate classes are paid for by your employee.
And the last option is to introduce a High-Deductible Health Plan (HDHP) and offset the deductible with a Health Reimbursement Account (HRA). This way you can offer an excellent benefit plan at a lower cost, and your employees are happy because you are offsetting their deductible.
Number Two - engage with other PEOs or use a PEO Broker. In this case, you should choose one or the other, but never both. If you go to PEOs directly, choose at least three PEOs. If you use a PEO Broker, use only one - amateurs engage multiple brokers.
One thing to keep in mind is that depending on how high your renewal is, most PEOs won’t quote or be competitive if your renewal is above 20%. If the PEO you engage has the same carrier as your current PEO, the carrier will not allow more than 10% savings - it’s known as a Parity Rule.
Number Three - going out to the Open Medical Market is never fun or easy, but it is an option. Engage directly with the carriers or a Broker and see what you can get. The plans are never as rich as the PEO plans, because if you have under 100 employees then you are a small group, and everyone has the same rates.
If you have over 100 employees it could be worth it, but you should engage with a Broker.
I don’t have the time or the energy to do any of these things
Then you should definitely engage with us, we will do it all for you. Schedule a quick chat, and we will explore all of your options.
