Purchasing Medical Benefits from a PEO

[Guest Bob W]

My company is considering leasing employees from a PEO and purchasing their medical benefits through the PEO. What is your experience, pro and con, with securing medical benefits from a PEO?

[vebaguru]

There is nothing inherently more risky or less risky about a PEO's health plan vs. one of a private company. You should carefully compare the provisions and coverages of all health plans you are considering. For example, some self-insured plans of PEOs are limiting certain coverages much more than insurance companies (like organ transplants, for example.

Making a decision to lease your employees from a PEO is a much more comprehensive decision than where to purchase health insurance. It affects many aspects of your business. For example, when we switched to a PEO for our payroll, benefits, etc., it also made us subject to Federal labor laws and requirements, which we were previously exempt from (under the Contract Clause of the Constitution).

Another funny thing happened: after a month of being covered under the PEO's health plan, we were summarily terminated from coverage under their health plan (although we remain clients for payroll purposes). We were terminated because of health problems of a spouse of a part-time employee who will never become eligible to participate in our health insurance plan.

We also are unable to participate in the PEO's 401(k) plan because we have a pension plan of our own.

I suggest that you carefully weigh all of the advantages and disadvantages of employee leasing prior to getting involved with a PEO.

[GBurns]

On the contrary. One of the riskiest things that you can do is to purchase any employee benefit including health insurance from a PEO. I suggest that you do some research. A good place to start is the Q&A Columns at benefitslink, in particular "Who's the employer?"; "404(k)" Questions 31 and 41; "Advanced Plan Design" Question 14. There is also a lot of info available on the websites of many of the law firms that practice Labor law.

[Guest ScottN]

I have heard stories similar to vebaguru's before. If the health plan is cancelled, that could create a very bad situation.

Questions arise...since the PEO is the employer and your employees are now their employees - isn't there something illegal about not offering the same benefits to all of the eligible employees of the PEO?

Can the PEO discriminate on the basis of health status? Can the PEO legally decide not to "hire" your employees based on the health status of an employee or dependent?