Strength in Numbers Professional Employer Organizations (PEOs)are one option to lower health care costs.
by Eric Kesselring
Brace yourself. For the fifth consecutive year, national health care costs are expected to increase by at least 12 percent, creating the longest sustained period of double-digit increases in the health care industry, according to a recent Towers Perrin survey.
The increase for Missouri and Kansas companies may be even slightly higher, based on trends in surrounding markets. That news is hard to swallow for any size company, but it’s particularly harsh for companies with 50 or fewer employees.
Mike Chael of Kansas City Tent & Awning recently said his company has traditionally paid 50 percent of health insurance premiums for its 18 employees, but that has become increasingly difficult over the past five years. Last year, however, was the worst. The company faced a 40 percent increase, and Chael worried that if his company did not cover the increase, some employees might leave for jobs offering better benefits.
Sound familiar? The problem is that businesses can only absorb cost increases for so long. BusinessWeek reports that just 65 percent of companies with three to 199 employees offered health coverage this year. That’s down from 71 percent in 1999. Still, barring the unlikely passage of an as-of-now non-existent business health care program by the federal government, small businesses do have an alternative to cutting benefits or going out of business.
One Solution Professional employer organizations (PEOs), one of the fastest growing service industries in the past 15 years, have the ability to pool employees from a wide range of businesses, usually with 15 to 150 employees. The result creates an economy of scale that can be leveraged into negotiating affordable health care and benefits packages on par with Fortune 500 companies.
PEOs partner with small businesses to relieve the burdens of administrative tasks, including health care, so the owners can spend time on the activities that inspired them to start the business in the first place.
How PEOs Work Here’s how a PEO works: A company’s employees are co-employed by both the small business and the PEO, allowing the business owner to maintain full control of hiring, firing, promotions and other employee decisions, but also providing backup counsel and assistance in disciplinary actions, legal matters and similar situations. PEOs can relieve small business owners of the burden of reviewing and managing a health care plan.
That’s the option Mike Chael chose. Kansas City Tent & Awning joined a PEO in 2002. By pooling his employees with thousands of others from Kansas and Missouri companies, Chael reduced the 40 percent health insurance cost increase to 8 percent. What to Look For Could a PEO be your alternative to rising health care costs? Below are some common indications of when a company might consider partnering with a PEO:
You are cutting employee benefits. Many businesses, unable to absorb the cost increases, are forced to cut employee benefits, lowering the standard of care to which their employees are accustomed.
Your employees are shouldering more of the cost. Instead of compromising health care benefits to lower costs, some businesses are turning to employees to help carry the load.
Your company falls under that 50-employee threshold and employs a high percentage of baby boomers. Then you know it’s nearly impossible to get a price quote from insurers to cover your employees. Even for larger companies, most insurers are moving away from blended pricing and toward more expensive age-rated pricing. The bulk of the U.S. workforce is made up of baby boomers, who range in age from 39 to 57. The average age of employees covered by health care plans is 41, up from 38-years-old just three years ago. Older employees use more health care, which increases costs by 4 percent a year, according to BusinessWeek.
If you’re a small business owner who didn’t start your company to review and manage health care plans, it may be worth your time to learn more about what a PEO can do for you. Eric Kesselring is Business Development Director at Midwest Staff Solutions, a professional employer organization. He can be reached at (913) 383-2999 or .
