Reading through hundreds of pages of new regulations and complying with the health insurance component of the Affordable Care Act (ACA) is no easy task, particularly for small- and mid-sized companies that lack a human resources department.
That’s why David Fernandez, president of East Hartford professional employer organization OEM America, says his company is projecting significant growth over the next few years.
Fernandez’s company operates as a full-scale, off-site HR services firm, mainly to small- and mid-sized employers, providing everything from talent recruitment and payroll to benefits administration.
Such firms, known as PEOs, have been around for decades and can help small businesses gain scale by allowing them to pool employee benefits, like health insurance, with many different companies.
PEOs, however, haven’t gained widespread use, in part because they require employers to cede some control over their workforce. But complexities involved with understanding and complying with the Affordable Care Act is driving more interest in the PEO industry, which posted $92 billion in gross U.S. revenues in 2012, up 13.6 percent since 2010, according to the National Association of Professional Employer Organizations.
“It levels the playing field for small companies to compete with bigger firms to recruit and retain quality talent,” said Fernandez.
A PEO is responsible for all the legal risks and liability issues associated with HR compliance, not the company doing the outsourcing. If a company outsources a significant number of services, the PEO can legally be considered a co-employer.
The Connecticut Insurance Department (CID) does not regulate PEOs. But health insurers that provide coverage for professional employer organizations must certify with the state that a PEO is “fully integrated” or a co-employer of the business it’s providing services too, said Donna Tommelleo, a CID spokesperson.
Companies that use PEOs are able to offer employees a wider range of life insurance, and health and retirement benefits, Fernandez said.
A big challenge the industry faces, however, is educating companies about their services. Firms like OEM are using federal healthcare reform as a major opportunity to market themselves.
“It’s really about scale,” Fernandez said. “Insurance companies are scared to insure a business with 15 employees, but they’re comfortable with 1,500 people.”
OEM offers several different types of benefit plans, but clients don’t opt for all of them, Fernandez said. When it comes to health care, the PEO collects the company share of the premium from its clients and negotiates plan options and rates directly with the insurance carriers, Fernandez said.
OEM and other PEOs in the state see significant market potential in Connecticut, particularly because the state is dominated by small- and mid-sized businesses. In fact, those firms represent 97.1 percent of all employers and employ 49.7 percent of the private-sector labor force, state Labor Department data shows.
Rob Lynn, president of Total Team Solutions, a Glastonbury-based PEO, said currently only a small number of businesses actually use a professional employer organization. But he believes many small firms could benefit from their services to help deal with complexities of healthcare reform.
New requirements, including limits on out-of-pocket expenses, elimination of lifetime caps, tax credits, and higher fees make the new health benefits landscape confusing, said Lynn.
The Affordable Care Act is also making health insurance more expensive for some businesses.
Steve Gifford, an account executive at OEM, which targets businesses with fewer than 500 employees and currently serves about 60 clients on its PEO platform, said some small firm clients were recently hit with rate shock as their health insurance plans came up for renewal.
Some clients, Gifford said, have seen rate hikes of up to 40 percent, or more, even though they didn’t file any large insurance claims during the past year.
Fernandez said some of OEM’s clients may find better coverage at cheaper rates on the state’s new individual insurance market exchange, created as a result of the ACA. But Fernandez says his companies need more information before they can make a decision.
“They can’t plan for something if they don’t understand how it works or how it will impact their bottom line,” said Fernandez. “Our clients want to make sure they are doing the right thing for their workers.”
