A single hospital stay without health insurance can wipe out years of savings. With medical costs continuing to rise, health benefits have shifted from a nice-to-have perk to a crucial necessity for both employers and employees.

For US employers looking to provide health benefits, there are three main approaches:

• Partnering with a PEO (Professional Employer Organization)
• Setting up a traditional small group plan, or
• Offering reimbursements through an ICHRA (Individual Coverage Health Reimbursement Arrangement).

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Let's dive into the details of each option so you can make an informed decision based on your requirements.

PEO (Professional Employer Organization)

A Professional Employer Organization (PEO) is a company that manages HR, payroll, and employee benefits for other businesses. When you partner with a PEO, they become a co-employer of your team - meaning your employees officially work for both you and the PEO.

You keep full control of your business operations and employees' day-to-day work. The PEO handles:

• Payroll processing and tax filing
• Health benefits and insurance
• HR compliance and paperwork
• Workers' compensation
• Employee handbooks and policies
• Benefits administration

For health benefits specifically, the PEO:

• Negotiates with insurance carriers using their large employee pool
• Offers enterprise-level health plans at competitive rates
• Manages employee enrollment and claims
• Handles all benefits paperwork and compliance

The cost is typically 2-6% of your total payroll, plus insurance premiums. While this may seem expensive, many small businesses find value in offloading HR tasks and accessing better benefits.

Pros of PEOs

Here's what's great about PEOs:

• You get the same level of health benefits that big companies offer. Because PEOs represent thousands of employees, insurance companies give them better deals. Your team can access comprehensive health, dental, and vision plans that you probably couldn't afford on your own.
• You can stop worrying about HR paperwork and legal compliance. The PEO handles all the tedious stuff - payroll, tax forms, benefits paperwork, making sure you're following employment laws. It's like having an entire HR department without having to build one.
• Everything's under one roof. Instead of dealing with five different vendors for payroll, benefits, HR software, and more, you have one partner handling it all. One call solves most problems.

Cons of PEOs

But there are some downsides to consider:

• You'll have to play by their rules. Want a specific health insurance plan? If it's not in the PEO's offerings, you're out of luck. It's like joining a gym - you get access to their equipment, but you can't bring your own.
• It's not cheap. PEOs typically charge a percentage of your payroll (around 2-6%) on top of the actual benefit costs. Yes, you're getting lots of services, but it adds up, especially if you have highly-paid employees.
• Breaking up is hard to do. If you decide to leave your PEO, it's like untangling from a long-term relationship. You'll need to set up your own HR systems, find new health insurance, and your employees might need to switch doctors. It's doable, but it's a hassle.

ICHRAs (Individual Coverage Health Reimbursement Arrangements)

ICHRAs (Individual Coverage Health Reimbursement Arrangements) are a newer way for employers to provide health benefits, introduced in 2020. Instead of offering a traditional group health insurance plan, you give your employees a monthly allowance to buy their own individual health insurance plans. The key here is that employees choose and purchase their own insurance from the marketplace, and you reimburse them tax-free up to your set amount.

Pros of ICHRA

• Complete flexibility in how you structure your health benefits. You can set different reimbursement amounts based on employee classes (like full-time vs part-time, or by location). You're not stuck with one-size-fits-all premiums. For instance, you might offer $400 monthly to entry-level staff and $700 to managers, or higher amounts to employees in cities with more expensive healthcare costs.
• Predictable costs with no surprises. Unlike traditional insurance where premiums can spike yearly, you decide exactly how much you'll spend per employee. The reimbursement amount is fixed - if an employee picks an expensive plan, they pay the difference, not you.
• Less administrative hassle than managing a group plan, with fewer compliance headaches. You don't have to scout insurance plans, negotiate with carriers, or handle enrollment periods. Your main job is to set up the reimbursements and verify that employees have qualifying coverage.

Cons of ICHRA

But ICHRAs come with some challenges:

• Your employees need to be comfortable shopping for their own health insurance. This means understanding deductibles, networks, and plan features. While some employees love this freedom, others might find it overwhelming and prefer having their employer choose for them.
• The success of an ICHRA depends heavily on your local individual insurance market. If your area has limited or expensive individual plans, your reimbursement amounts might not stretch as far as they would with a group plan. Your employees could end up with higher out-of-pocket costs.
• Setting up reimbursement amounts requires careful planning. Too low, and employees might struggle to afford decent coverage. Too high, and you're overspending. Plus, you need to consider how your allowances compare to what competitors offer to stay attractive as an employer.

Small group health plan

A small group health plan is the traditional way of offering health benefits - your company works directly with an insurance carrier or broker to select and offer health insurance plans to your employees. "Small group" typically means businesses with 2-50 employees, though some states extend this to 100.

Pros of Small group health plan

Here's what makes small group plans attractive:

• You have direct control over your insurance options. You can shop around with different carriers, compare plans, and choose coverage that fits your team and budget. If your employees have strong preferences about certain hospitals or doctors, you can pick plans that include those networks. Many businesses appreciate this control over one of their biggest expenses.
• The costs are predictable and tax-efficient. Your business typically pays a fixed percentage of employee premiums (usually 50-75%), while employees pay the rest through pre-tax payroll deductions. This setup is familiar to most employees, and both your contributions and their premiums are tax-deductible.
• Group plans often come with better networks and additional perks than individual plans. You might get access to wellness programs, employee assistance programs, or special rates on other insurance products. Plus, there's something to be said for the simplicity of everyone being on the same plan.

Cons of Small group health plan

But there are significant drawbacks:

• Small group plans can be expensive, and you have limited negotiating power. Unlike large companies or PEOs, you can't leverage thousands of employees to get better rates. You're also at the mercy of annual premium increases, which can be substantial and unpredictable. One bad year of claims can send your rates soaring.
• Managing a group plan requires significant administrative work. You'll need to handle annual renewals, employee enrollment, questions about coverage, and ongoing administration. Even with a good broker, someone on your team needs to own this process. Plus, there's always the fun of explaining to employees why their favorite doctor is no longer in-network.
• You need high participation rates to qualify. Most carriers require 75% of your eligible employees to enroll in the plan. If your employees have coverage through their spouses or choose not to participate, you might struggle to meet this requirement. This can be particularly challenging for companies with younger employees who might prefer higher wages over health benefits.

Hire Employees, and Contractors Compliantly with Thera

While navigating health benefits can be complex, Thera offers a streamlined solution for businesses looking to hire US employees. As a comprehensive employer of record (EOR) platform, Thera can help you:

1. Hire US Employees Compliantly: Thera handles all the paperwork and compliance requirements for hiring US employees across all 50 states.
2. Access Competitive Benefits: Through Thera's platform, you can offer your US employees comprehensive health benefits without the complexity of managing multiple vendors or navigating compliance requirements.
3. Simplify Administration: Instead of juggling multiple systems and providers, Thera provides a single dashboard for managing payroll, benefits, and compliance.
4. Scale Efficiently: Whether you're hiring your first US employee or expanding your team across multiple states, Thera's platform grows with your needs.

By partnering with Thera, you can focus on growing your business while ensuring your US employees have access to the health benefits they need. Schedule a call with us and let us show you how Thera can help you hire & pay compliantly, without pinching your pockets.

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