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Increased Medical Costs

As we roll into July, we’re on the precipice of receiving official information from many national PEOs in regard to their annual health increases, and they are all going to be higher than normal. Health insurance carriers have passed an additional 4-6% increase on to PEOs in order to cope with the rising costs brought on by health care reform. So if your increase was 12% last year, expect 16-18% this year!

The following HCR mandates are effective in 2010 and have directly caused additional cost:

Expanded eligibility for groups of employees who are not currently eligible and for dependent children up to age 26

Elimination for lifetime and annual maximums

elimination of pre-existing limitation for dependent children under age 19

Many PEO clients have heard that increases this year should be lower than usual due to health care reform. They are gravely mistaken, the three points listed above do nothing but expand coverage and incur costs for all medical carriers; it’s unrealistic to think a PEO has the ability to counter this.

Tax Credits – A Mixed Bag

Are PEO clients eligible to receive tax credits even though they are co-employed? Yes.

Will tax credits make it cheaper for small employers to provide health coverage and therefore open up more markets for PEOs? Yes.

Will existing PEO clients get a big check from Uncle Sam? Probably not.

Most have already heard that businesses with fewer than 25 employees and wages averaging less than $50k per employee are eligible for a credit. Most have also heard that the credit is equal to 35% of employer’s premium costs. However most haven’t realized that the 35% credit gradually phases out if your average wage is over $25k and you employ more than 10 employees.

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According to NAPEO the average PEO client is 17 employees, so already the tax credit will be mitigated due to employee count. Furthermore, most PEOs have switched their marketing focus from blue-collar industries (with lower average wages) to white-collar industries where average wages of $25k are non-existent. The impact of this credit is severely limited for most PEO clients.

PEOs will have their work cut out for them in the upcoming years, and most have dedicated additional resources to understand and manage for the upcoming changes so that their clients don’t have to. However Psychotherapy Definition Psychology as I often mention, PEOs are not commodities and are not created equally, PEO shoppers will need to be more educated on who is who in the PEO industry in order to make the best choice for their future.

To determine which PEO is right for your business, contact PEO Spectrum for a free vendor comparison and cost analysis.