PEO health insurance, and how it compares with a company-sponsored plan

Ares Benefit Group is a benefits firm, not a PEO. We compare PEO-arranged coverage with a company-sponsored group plan, a level-funded plan, or a defined contribution arrangement, and we help you implement the structure you choose.

What it is

The Internal Revenue Code defines a certified professional employer organization (CPEO) in § 7705. Certification is a voluntary IRS program. In a CPEO contract, the CPEO generally takes on specified federal employment-tax responsibilities for worksite employees, and Form 8973 is filed to notify the IRS when the contract starts and ends. The IRS publishes a public list of CPEOs.

IRS certification addresses employment-tax responsibility. It is not, by itself, an approval of a health plan, a guarantee that a given medical product is available, or a finding about ERISA or state insurance law. A PEO may also be uncertified and still offer payroll and benefits services; the tax and plan consequences differ, and they should be reviewed with your tax advisor.

When a PEO offers health coverage, the PEO may sponsor the plan, or it may arrange coverage under some other structure. Worksite employees of more than one customer may participate in the same plan. Those facts matter: they affect who the plan sponsor is, what happens if you leave the PEO, and whether the arrangement is also a multiple employer welfare arrangement (MEWA) or is otherwise subject to state insurance regulation.

Who it fits

PEO-arranged coverage can be a fit when the company wants payroll, tax withholding, and benefits bundled under one service contract, and when the PEO's actual plan — not the brochure — is a plan you are prepared to use. A company-sponsored small-group or large-group plan is often a fit when you want the company to be the plan sponsor and to keep the plan if you change payroll vendors. An ICHRA or a QSEHRA is often a fit when a defined contribution is the cleaner structure.

How it works for employers

If you already use a PEO, or are considering one, we will ask for the service contract, the health-plan documents, a clear statement of who the plan sponsor and administrator are, eligibility and waiting-period rules, what happens at termination of the PEO contract, and any MEWA or state-law disclosures. We will then compare that coverage with a plan you could sponsor directly, including SHOP where it applies, and with a defined-contribution alternative.

Leaving a PEO mid-year can affect both payroll and coverage. Continuation rights, including COBRA or a state continuation statute, depend on who sponsored the plan and on whether federal or state rules applied. Those questions should be answered in the contract and the plan documents before you adopt the arrangement — and again before you leave it.

On the comparison itself, we will put the same facts side by side: who the plan sponsor and administrator are, the network and plan type, deductibles and employee contributions, waiting periods, eligibility, how mid-year hires are handled, what notices employees receive, and what happens to coverage at year-end and at the end of the PEO contract. A company-sponsored small-group or SHOP policy, a level-funded plan, and an ICHRA or QSEHRA will be written up the same way, so the decision is about structure and documents, not about a brochure label.

How it compares

A PEO-arranged plan, a company-sponsored group policy, and a defined-contribution HRA are three different ways to get employees covered. Each is a legitimate fit for some employers. We will not describe PEO coverage as cheaper, as automatically "large group," or as a way around the market rules that apply to your company. Those claims have to be tested against the actual plan and the applicable law.

A side-by-side of PEO benefits and a plan you sponsor is on PEO vs a group health plan, including Justworks, TriNet, Insperity, and ADP TotalSource.