Business owners should understand the pros and cons of both PEOs and fully-insured plans when evaluating health insurance options for employees.

Health insurance benefits are important to employers of all sizes—but they are often most difficult for small businesses. Administrative challenges, small staff and budgetary concerns all come into play.

But providing employees coverage is essential. So how can small businesses make the right choice when it comes to which health plans to offer? Being well-informed will greatly simplify the process of choosing which health plans ultimately make the most sense for you and your company. With that said, if you’re not entirely sure whether you should use a professional employer organization or consider fully-insured medical plans, it might be helpful to know the pros and cons of each.

Here’s what small employers should know about both plans.


The basics: PEOs offer services ranging from payroll processing, benefits administration, HR training and support and workplace insurance coverage to both small and medium-sized businesses.

The pros of PEOs:

  • PEOs include employees with all of the PEO’s co-employees to create one larger group/pool of employees. This enables the PEO to provide the employees with access to employee benefits similar to ones they would receive as part of a larger corporation, despite the fact they work for a small business.
  • PEOs offer more services to small business employees than just health benefits. PEOs make available compliance support, payroll, human resources services, and workers compensation.
  • PEOs lower the administrative burdens of small businesses which allows them to focus on their core business strategies in lieu of worrying about the minutiae of benefits.

The cons of PEOs: 

  • PEOs offer a very limited choice in carriers, meaning that your employees won’t necessarily be presented with the best options for them or their families.
  • PEOs require administrative fees to support their services and are charged per month per employee or percentage of total payroll.
  • PEOs force small businesses to rely on an external team (rather than internal employees) to handle important and sensitive HR processes.

Fully-insured plans

The basics: Fully-insured plans are employer-sponsored health plans where the premium rates are fixed for at least a year (could have longer contracts) and are based on the number of employees enrolled in the plan each month and their ages. The company pays the insurance carrier a premium.

The pros of fully-insured plans: 

  • With fully-insured plans, the prices are based on ages and/or zip code which allows employers to budget. The rates don’t vary with the health of employees, and you cannot be denied based on the health of your employees (no medical underwriting required.) The insurance provider manages all claims, and the risk is assumed by the insurance company.
  • With fully-insured plans, you can traditionally choose your own package and decide on carriers, as opposed to being required to stick to a very limited set offered by a PEO. You can purchase a fully-insured plan if you have at least two employees. Some PEOs require you to have a higher minimum number of employees (five employees).
  • With fully-insured plans, there are no administrative fees paid to a PEO. You can choose your own payroll company and have internal HR resources.

The cons of fully-insured plans: 

  • With fully-insured plans, premium costs can be higher depending on your geography and age of employees, regardless of the overall health of your employees. (Sometimes claims experience varies depending on the size of the company.)
  • With fully-insured plans you don’t have the “one-stop shop” of payroll, HR, and compliance that is available with most PEOs.
  • With fully-insured plans, the administrative burdens associated with running a small business fall solely on the business.

The health insurance options available for small business employers are vast, and there are pros and cons to each choice available to you and your employees. Prior to making a decision, it’s best practice to be as familiar with all of the details as possible. In the case of PEOs vs. fully-insured plans, neither is necessarily better than the other. The best approach to acquiring small business health insurance is entirely dependent on the specifics of your company and your individual employees. If you do your research and don’t rush into making a final decision, you’ll secure coverage for your team that suits all parties concerned.

This article was written by Sally Poblete from Employee Benefit News and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to

Santander Bank does not make any claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in this article. Readers should consult their own attorneys or other tax advisors regarding any financial or tax strategies mentioned in this article. These materials are for informational purposes only and do not necessarily reflect the views or endorsement of Santander Bank.

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