One of the primary reasons businesses choose PEOs is access to better health insurance at lower costs. Understanding how PEO benefits work, what to expect, and realistic savings helps you evaluate whether a PEO makes financial sense.
How PEO Group Benefits Work
Traditional Small Business Insurance: When companies with 5-50 employees buy health insurance independently, they’re typically purchasing small group coverage. Rates are based on their specific employee demographics, and options are limited.
PEO Group Insurance: PEOs pool employees from hundreds or thousands of client companies, creating massive groups of 10,000-100,000+ covered lives. This pooling provides leverage with insurance carriers similar to Fortune 500 companies.
The Result:
- Better rates (20-40% savings typical)
- More carrier choices
- Better plan designs
- More stable premiums year-over-year
What Health Insurance Options Do PEOs Offer?
Carriers: Large PEOs typically work with multiple major carriers:
- Blue Cross Blue Shield
- UnitedHealthcare
- Aetna
- Cigna
- Kaiser (in Kaiser regions)
- Regional carriers
Plan Variety: Most PEOs offer 3-5 plan options with varying:
- Deductibles ($500 – $5,000+)
- Co-pays and coinsurance
- Out-of-pocket maximums
- Premium costs
- Provider networks (PPO, HMO, EPO, HDHP)
This variety allows employees to choose coverage matching their needs and budgets.
Realistic Cost Savings
Example: 20-employee company in Texas
Independent Small Group Coverage:
- PPO plan, $2,500 deductible
- Employee-only coverage: $650/month
- Family coverage: $1,850/month
- Average cost per employee: $950/month
- Annual cost: $228,000
Through PEO:
- Similar PPO plan, $2,500 deductible
- Employee-only coverage: $450/month
- Family coverage: $1,300/month
- Average cost per employee: $650/month
- Annual cost: $156,000
- Savings: $72,000 (31%)
These savings are typical, though actual amounts vary by location, industry, and demographics.
Beyond Health Insurance
PEOs also provide access to:
Dental Insurance:
- PPO and HMO options
- Individual and family coverage
- Typical cost: $25-$60 per employee per month
Vision Insurance:
- Annual eye exams
- Glasses/contacts allowances
- Typical cost: $8-$15 per employee per month
Life Insurance:
- Basic coverage (often $25,000-$50,000 included)
- Voluntary supplemental coverage available
- Accidental Death & Dismemberment (AD&D)
Disability Insurance:
- Short-term disability (STD)
- Long-term disability (LTD)
- Salary continuation coverage
- Typical cost: $15-$40 per employee per month
Supplemental Benefits:
- Critical illness insurance
- Accident insurance
- Hospital indemnity
- Cancer insurance
- Legal services
- Pet insurance
- Identity theft protection
Not all PEOs offer identical supplemental options, but variety is common.
401(k) Retirement Plans
Most PEOs provide:
- 401(k) plan administration
- Multiple investment fund options (15-30 funds typical)
- Employer matching capabilities
- Automatic enrollment options
- Roth 401(k) options
- Online participant portals
401(k) Costs:
- Recordkeeping fees: $1,500-$5,000 annually
- Per-participant fees: $20-$60 per employee annually
- Investment expense ratios: 0.10%-1.50% depending on funds
PEO 401(k) plans are typically less expensive than small businesses can obtain independently.
Flexible Spending Accounts (FSAs)
Healthcare FSA:
- Pre-tax contributions up to IRS limits ($3,200 in 2025)
- Use for medical expenses, prescriptions, copays
- Reduces taxable income for employees
Dependent Care FSA:
- Pre-tax contributions up to $5,000
- Use for childcare, daycare, summer camps
- Significant tax savings for families
Commuter Benefits:
- Pre-tax parking and transit passes
- Up to $315/month per benefit (2025 limits)
- Valuable for urban employees
Employee Experience
What Employees See:
Open Enrollment:
- Annual period to select coverage (typically November)
- Online enrollment through PEO platform
- Decision support tools
- Benefits comparison calculators
- Live support from PEO benefits team
Throughout the Year:
- Access to benefits information via portal
- ID cards from insurance carriers
- Customer service for benefits questions
- Life event changes (marriage, birth, etc.)
- Claims support if issues arise
Employees interact with both:
- PEO for enrollment and administrative questions
- Insurance carriers for claims, finding doctors, etc.
Quality Considerations
Not All PEO Benefits Are Equal:
Plan Design Quality: Some PEOs offer bare-bones high-deductible plans only. Others provide comprehensive PPO options with reasonable deductibles and copays.
Carrier Quality: Major national carriers (BCBS, UnitedHealthcare, Aetna) typically offer better networks and customer service than lesser-known carriers.
Network Coverage: Verify networks include quality providers in your employees’ locations. Networks vary significantly by region.
Customer Service: Insurance carrier customer service quality affects employee satisfaction. Research carrier reputations.
Geographic Considerations
Benefits vary by location:
High-Cost Regions: California, New York, Massachusetts, and other high-cost states have expensive insurance regardless of PEO vs independent. However, PEO savings percentages remain similar (20-40%).
Lower-Cost Regions: Texas, Florida, Tennessee, and other lower-cost states have more affordable baseline costs. PEO savings in dollars may be smaller but percentages similar.
Multi-State Challenges: Employees in different states may have different carrier and plan options based on network availability. Good PEOs coordinate this seamlessly.
For Distributed Teams
PEOs handle multi-state benefits by:
- Offering national carriers with broad networks
- Providing multiple plan options accommodating different regions
- Ensuring compliance with state-specific mandates
- Managing varying costs across locations
- Simplifying administration despite geographic complexity
Employer vs Employee Costs
Cost Sharing Decisions:
You decide:
- What percentage of premiums you pay (employer contribution)
- What percentage employees pay
- Whether to offer the same contribution for all plans
- Whether family coverage receives larger employer subsidy
Common Approaches:
- Employer pays 75-100% of employee-only coverage
- Employer pays 50-75% of family coverage
- Employees pay difference through payroll deductions
Strategic Considerations: Better employer contributions attract and retain employees but cost more. Balance competitiveness with budget.
What’s NOT Included
Benefits costs are separate from PEO administrative fees.
You pay:
- Actual insurance premiums (employer portion)
- 401(k) recordkeeping fees
- FSA administration (sometimes)
Employees pay:
- Their portion of premiums via payroll deduction
- Deductibles, copays, coinsurance when receiving care
PEO administrative fees (the $100-$200 PEPM) typically don’t include actual benefit costs.
Evaluating PEO Benefits Proposals
When comparing PEO benefits:
Request:
- Specific plan designs with deductibles, copays, out-of-pocket maxes
- Premium quotes for your actual employee census
- Carrier names and network information
- Summary of benefits and coverage (SBC) documents
- 401(k) fee schedules
Compare:
- Total premium costs (employer + employee)
- Plan quality (lower deductibles, better networks = better plans)
- Carrier reputation and network adequacy
- Employee choice variety
- 401(k) costs and investment options
Don’t just compare bottom-line costs. Plan quality matters significantly.
Questions to Ask About PEO Benefits
- Which health insurance carriers do you offer?
- How many plan options will employees have?
- Can I see actual plan designs and rates for my census?
- What’s included vs employer-paid vs employee-paid?
- Are there plan design minimums I must offer?
- How does open enrollment work?
- What happens with employees in different states?
- What 401(k) provider do you use and what are total fees?
- Do you mark up benefits costs beyond actual premiums?
- How do premiums typically change year-over-year?
Red Flags
Watch out for:
- Vague benefits information
- Only one carrier option
- Only high-deductible plans
- Unwillingness to provide detailed rate quotes
- Hidden benefits markups
- Poor carrier reputation
- Limited geographic networks
- Inflexible contribution requirements
The Bottom Line on PEO Benefits
For most small businesses:
- PEO benefits are 20-40% less expensive than independent coverage
- Plan quality equals or exceeds what you can get independently
- Employee choice improves
- Administration is dramatically simplified
Benefits savings alone often justify the entire PEO relationship, with all other services essentially free.
Ready to see what benefits and savings a PEO can provide? Contact PEO Consulting Partners for a free consultation. We’ll obtain detailed benefits proposals showing exact plans, carriers, and costs for your specific employee population—at no cost to you.