Health Insurance for Small Companies in 2024: How a PEO Helps Negotiate Better Rates

When it comes to building a benefits package that supports your people, affordable health insurance should be at its foundation. Health insurance is an expectation from your current and future employees and is required for companies with 50 or more full-time employees by the Affordable Care Act.

When startups aren’t thoughtful about their comprehensive healthcare strategy, they can lose out on top talent, leading to significant attrition costs. In fact, when an employee resigns, businesses spend 50%-60% of the employee’s annual salary to replace them. Attracting and retaining your team members with a competitive benefits package starts with the healthcare plans you choose.

However, the healthcare benefits costs in the United States are a source of concern for most businesses, particularly on the startup scene. After salary, wages, bonuses, and commission, health insurance is the next highest employee-related cost eating away at a startup’s funding. And, healthcare benefits costs are expected to increase by more than 12% this year, with the rising annual cost of health insurance for small companies showing no sign of abating. With that said, it becomes paramount for startups to figure out how to provide the best possible health insurance for their employees without severely compromising their burn rates.

This is where a Professional Employer Organization (PEO) comes in.

Most referred PEO in Tech blog

Leveraging Buying Power to Negotiate More Affordable Health Insurance Plans

When you outsource HR and benefits to a PEO, you enter a co-employment model where your startup’s leadership will maintain control of business decisions and daily operations while the PEO takes on the liability and administrative tasks as the employer of record. This means that amidst the flux of rising healthcare costs, a PEO can negotiate better, more affordable healthcare premiums due to its pool of co-employed team members. It acts as a single, larger entity with significant bargaining power and the healthcare benefits cost is spread out among more employees, which lowers each startup’s cost per employee (and in turn what premiums employees will need to pay).

This PEO model allows all startups, from early-stage to growth capital, to provide a comprehensive healthcare package as competitive as a Fortune 100 company, regardless of their size.

Another aspect where PEOs shine is in their deep understanding of the insurance market. They are up to date on the trends in the industry and are skilled in negotiating with insurers to secure the best rates. Some PEOs even have built-in benefits benchmarking capabilities within their workforce analytics platform. This allows them to be proactive on what affordable health insurance plans make your startup stand out above the rest while still providing employees the coverage they need.

By partnering with a PEO, a startup no longer has to carry the burden of watching market trends, spending thousands of dollars to do their own benefits benchmarking, or negotiating better deals, all while trying not to compromise on the health plan’s quality.

Curbing Administrative Overhead Associated with Healthcare Benefits Costs

Managing health benefits brings a whole host of administrative tasks. Besides the obvious advantage of securing large group composite rates on health insurance for small companies, PEOs help cut down on administrative burden and HR heavy lifting. From finding plan carriers and creating your healthcare package to negotiating rates and enrolling employees during open enrollment, your team can quickly get distracted managing your benefits plan instead of focusing on overall company goals. By hiring a PEO to manage these tasks, startups free their resources to focus more on their core business operations.

Moreover, the rising health insurance costs are making it more challenging for startups to manage the administrative functions properly. Incorrectly managed health benefits could lead to compliance issues and even financial losses. PEOs shoulder these liability-laden tasks, having experienced and dedicated service teams manage administrative and compliance responsibilities and giving startup founders peace of mind.

Harnessing the Power of a Tech Startup Benefits Pool

While many PEOs lump all SMBs together to provide cost-saving health insurance plans, it’s important for tech startup leaders to consider a PEO that pools other tech companies together. Tech companies have additional buying power when negotiating their healthcare benefits cost. Carriers tend to view startups as having a healthier and younger workforce that takes advantage of wellbeing benefits. This, in turn, keeps healthcare costs down as less major medical procedures are needed. Choosing a PEO that specializes in servicing tech startups allows your company to join a pool that is already receiving more affordable health insurance rates than other companies.

Partnering with the Most Referred PEO in Tech

As a tech startup coping with rising healthcare costs in 2024, it’s wise to consider partnering with a PEO. With Sequoia One, your company benefits from securing better healthcare packages for your employees and scaling down administrative tasks, thereby allowing you to concentrate on your core business objectives. Sequoia One is specifically built to help tech startups backed by venture capital and private equity firms extend their runway and scale. We start by negotiating Fortune 100-quality health insurance for small companies and then help tech startups provide competitive benefits that attract, retain, and engage their employees.

Discover how Sequoia One will help you attain better healthcare benefits today.

Cris has nearly a decade of experience in the HR, benefits, and PEO industry. He's helped early-stage founders build and retain top talent by optimizing their people spend. A licensed health and life insurance broker, Cris's experience allows him to know what employees need from their total rewards packages and how startup leaders can meet these needs while providing compensation and benefits at the right price and the right level. After supporting the Bay Area tech community for 6+ years, Cris now resides in Hermosa Beach with his wife and two dogs.

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