# The PEO alternative for health insurance

Source: https://www.getprescience.com/compare/peo-alternative
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-03
Updated: 2026-10-13

You can offer a company health plan without a PEO. I compare the full cost of replacing payroll, HR support, workers' compensation administration and benefits before recommending an exit. Prescience designs and runs your company's health plan with no admin fees, while you keep your payroll provider.

- **Minimum group size:** 2 employees
- **Admin fees:** $0
- **Typical savings:** Usually 10–20% vs. fully insured, fixed in your quote
- **Payroll:** Keep your current payroll provider

## What a PEO is and how its health plan works

A professional employer organization provides services through a co-employment arrangement. You continue directing the work. Payroll tax treatment, benefits sponsorship and responsibilities depend on the arrangement and applicable law. Some PEOs use their EIN for federal payroll reporting; that does not erase your common-law employer obligations or settle every state tax question. Ask who sponsors the health plan and which entity appears on each contract.

Rippling and Justworks publish PEO offerings that bundle HR, payroll and benefits services. Their product pages establish what they advertise, not the rates or contract terms your company will receive. Obtain a written proposal with included services and exclusions, and compare the same employee census and effective date.

**How the money flows.** Each month you send the PEO one invoice that covers gross wages, payroll taxes, workers' comp, the PEO's own fee and the employer share of benefit premiums. The PEO pays your employees, remits the taxes and pays the carrier for the master plan. Your employees' share of premiums comes out of their paychecks through the PEO's payroll.

**Who carries the risk.** Read the health policy and PEO agreement to identify who is obligated to pay benefits and how your rates are set. Do not assume every PEO plan is funded or priced the same way. Ask which changes can alter the bill during the contract year and which terms govern renewal, plan menus and termination.

For a five-person startup, I understand the appeal. You get large-group plans on day one, one vendor for payroll, HR and benefits, and someone else handles enrollment and compliance filings. The problem is what happens as you grow.

I use the primary sources listed below for the legal rules and original survey benchmarks. Any worked cost scenario is illustrative. A proposal must still be checked against its own eligibility, coverage and contract terms before enrollment.

## What I would verify on the PEO invoice

- **Medical premium.** Separate employer and employee contributions from the total premium. Ask for each coverage tier and the number enrolled. A payroll deduction is not the price of coverage.
- **Service charges.** Identify the billing unit, minimum monthly charge, setup costs and any separately priced services. A fee per employee may count people who waive medical coverage. Confirm this in the agreement.
- **Renewal terms.** Request a written explanation of the new rate and any expiring discount. Do not assume a promotional price or a promised future cap unless the contract states it.
- **Plan menu.** Obtain the SBC and network for each option available to your actual locations. Verify dependent eligibility and waiting periods.
- **Replacement costs.** Price payroll, workers' compensation coverage, HR assistance and other services you will still need after leaving. A medical-only comparison can exaggerate the apparent saving.

> **Use evidence from your own proposal:** This page does not use customer invoices or private quote comparisons. I would reconcile the PEO renewal, the new medical proposal and the replacement service quotes using one census and one effective date. Every difference should have a line item and an explanation.

## PEO health insurance vs. Prescience, feature by feature

**How a PEO master plan compares with a Prescience plan**

|  | PEO master plan | Prescience |
| --- | --- | --- |
| Who sponsors the plan | Verify the sponsor in the plan document | Your company, with Prescience running the plan |
| Employment relationship | Co-employment; verify payroll tax reporting | Keep your current payroll provider |
| Admin fees | Per employee per month or a share of payroll, on top of premiums | $0 |
| Price | Written rates and renewal provisions for the proposed product | One monthly cost set in your quote, usually 10–20% below comparable fully insured coverage |
| Plan design | Pick from the PEO's menu | Designed for your team: effective $0 deductible, simple copays |
| Network | Depends on the PEO's carriers in your state | Broad national PPO network plus providers we contract with directly |
| Claims visibility | Ask what aggregate reporting is available | Ask what reporting is available in your proposal |
| Payroll and HR | Bundled with co-employment | Keep your current payroll provider |
| Workers' comp and HR advice | Included in the bundle | Obtain separate quotes for non-health services you need |
| Care support | Carrier, PEO support and any included navigation services | 24/7 physician-led care navigation and booking |
| Minimum group size | Varies by PEO | 2 employees |
| Start date | Set by the PEO's onboarding schedule | Any month, including mid-year |

## What 5, 25 and 75 employees pay: PEO vs. fully insured vs. Prescience

These KFF averages describe employer coverage across funding arrangements at firms with 10–199 workers. They are not fully insured quotes or observed prices for teams of five. I use the rounded monthly values of $768 single and $2,171 family only as illustrative arithmetic inputs. The exact tier counts, not an assumed 70/30 percentage, determine each total.

Here is how the totals compare at three team sizes. The numbers are illustrative, not a quote. I built them from KFF's 2025 averages for firms with 10 to 199 workers: $9,211 a year for single coverage ($768 a month) and $26,054 for family coverage ($2,171 a month).

**Illustrative monthly health benefit cost by team size**

Uses the explicitly listed single and family enrollment counts (4 + 1, 18 + 7 and 53 + 22). The assumed PEO year-one premiums equal the rounded survey-based input, plus a $125 per employee per month PEO fee on every employee. The hypothetical Prescience comparison is shown at 15% below the premium input, the middle of our usual 10–20% range, with no admin fees. Premium totals include both the employer and employee shares.

- 5 employees, fully insured: $5,243/month
- 5 employees, PEO ($5,243 premiums + $625 fee): $5,868/month
- 5 employees, Prescience: $4,457/month
- 25 employees, fully insured: $29,021/month
- 25 employees, PEO ($29,021 premiums + $3,125 fee): $32,146/month
- 25 employees, Prescience: $24,668/month
- 75 employees, fully insured: $88,466/month
- 75 employees, PEO ($88,466 premiums + $9,375 fee): $97,841/month
- 75 employees, Prescience: $75,196/month

At 25 employees, the PEO path costs about $385,800 a year against about $296,000 with Prescience, a gap near $90,000. That comparison is not entirely fair to the PEO: the assumed fee is intended to include payroll, HR support and workers' compensation administration. Before you decide, add back what standalone payroll, HR software and a workers' comp policy would cost you, then compare the totals.

In this illustration the $125 fee is an assumed input, not an observed or published PEO price. If the fee covers employees who waive health coverage, model total payroll headcount separately from medical enrollment. If the PEO quote prices services as a percentage of payroll, calculate that charge from expected wages instead.

## How PEO renewals behave over two to three years

I would model renewal uncertainty for every option, including the standalone plan. Ask which price components are guaranteed for the current contract period, how a change in enrollment affects the invoice and when the renewal arrives. The examples below demonstrate compounding; they are not a forecast or a claim that PEOs generally renew faster than other coverage.

- **Expiring terms.** Identify temporary discounts, minimum fees and the date each expires. Put the contract provision next to the budget assumption.
- **Enrollment changes.** Separate changes in rates from changes in family tiers, employee count and covered locations. The bill may rise even when rates stay the same.
- **Benefit changes.** Confirm that the renewal preserves the same deductible, network and formulary. A lower renewal can still mean a less generous plan.

**Illustrative three-year premiums for a 25-person team (premiums only, before PEO fees)**

|  | Year 1 | Year 2 | Year 3 |
| --- | --- | --- | --- |
| Illustrative 6% annual increases | $348,252 | $369,147 | $391,296 |
| Illustrative 30% increase, then 10% | $348,252 | $452,728 | $498,000 |
| Three-year difference |  |  | About $190,000 more on the PEO path |

These renewal rates are illustrative, not a forecast for any PEO. The point is how quickly one large renewal compounds. Ask any PEO for its average renewal across clients your size over the last three years, and get your year-two rate cap in writing before you sign.

## What changes for your employees

Changing from a PEO plan to a company plan is a new coverage decision for employees. Even if both proposals say PPO, compare the precise provider networks. Have employees check their clinicians and prescriptions through a private benefits channel. Confirm the effective date in writing before anyone cancels existing coverage.

**Employee experience on a PEO master plan vs. a Prescience plan**

|  | Typical PEO master plan | Prescience |
| --- | --- | --- |
| Deductible | Varies by plan; KFF's 2025 average single deductible among workers with a general annual deductible at firms with 10–199 workers was $2,631 | Effective $0 deductible |
| Cost of a visit | Check the plan's cost estimates and service-specific member charges | Simple copays shown before the visit |
| Network | The PEO's carrier network in your state | Broad national PPO network |
| Getting help | Carrier phone line or PEO support desk | 24/7 physician-led care navigation that books appointments |
| Paycheck deductions | Through PEO payroll | Through your own payroll provider |

Deductible and out-of-pocket credits may not transfer to a new plan. Ask for a written answer about any credit before switching mid-year. Employees with ongoing treatment should also verify authorizations and transition-of-care options. A census alone does not identify providers, prescriptions or treatment needs.

## Compliance and admin: what the PEO does now and who does it after

Part of what you pay a PEO for is work you won't see until you leave. List it before you give notice, and assign each item:

**Who handles each task, inside and outside a PEO**

| Task | Inside a PEO | After you leave |
| --- | --- | --- |
| Payroll and payroll tax filings | Verify the responsible filer and EIN | Your payroll provider, under your own EIN |
| State unemployment accounts | Often the PEO's accounts | Your own account in each state where you have employees |
| Workers' compensation | PEO's master policy | Your own policy, priced partly from your loss runs |
| Health plan documents and notices | PEO | Your plan administrator (Prescience runs this for its plans) |
| COBRA for current and former employees | PEO | Your plan administrator; confirm in writing who covers people already on COBRA |
| 401(k) and other benefits | Check the retirement plan agreement | Your own 401(k), dental and vision, or a payroll provider's bundle |
| Handbook and HR advice | PEO HR team | Your HR software, an HR consultant or an employment lawyer |

> **Check whether your PEO is IRS-certified:** CPEO successor-employer rules can preserve Social Security and FUTA wage-base treatment for qualifying work site employees when a CPEO contract begins or ends. The rule is not a blanket guarantee for every worker or state tax. Ask the outgoing and incoming payroll providers to document which wages carry forward, what information is needed and whether any separate successor rule applies.

The [IRS CPEO final rules](https://www.irs.gov/irb/2019-24_IRB) distinguish qualifying work site employees when applying successor wage-base treatment.

## How to switch off a PEO, step by step

1. **Read your PEO contract (about 90 days out)** Find the written notice period in your actual agreement, the earliest clean exit date, any termination fees, and what happens to COBRA participants after you leave.
2. **Get a quote and a network check** Request the quote early enough to review its documents. Confirm covered employees, tiers, locations, effective date and provider access before giving cancellation notice.
3. **Choose payroll** Stay on the same company's non-PEO payroll (Rippling, Justworks and others offer one) or move to another provider. Set it up under your own EIN.
4. **Open your own tax and insurance accounts** Register for state unemployment and withholding accounts in each state with employees, and buy a workers' comp policy. Ask the PEO for your workers' comp loss runs; the new carrier will want them.
5. **Export your data before access ends** Download payroll history, tax filings, benefits elections, PTO balances and personnel files. Ask for at least three years of payroll history.
6. **Give written notice** Send notice in writing, on the date your contract requires, with the exact last day of PEO coverage.
7. **Run enrollment (2–3 weeks before the start)** Employees elect coverage on the new plan. Tell them the new plan starts the day after PEO coverage ends, so there is no gap.
8. **Start the new plan and close out** Coverage starts the day after PEO coverage ends. Confirm the first payroll deductions, and keep the PEO's final invoices and year-end W-2 plan in your records.

I wrote a full checklist in [How do I leave a PEO?](https://www.getprescience.com/guides/how-to-leave-a-peo), including the data to export before you give notice.

## How a Prescience plan works

At Prescience, we design and run your company's health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

- **An effective $0 deductible,** so the plan helps from the first visit.
- **Simple copays** shown before a visit, capped by a low out-of-pocket maximum.
- **A broad national PPO network,** plus providers we contract with directly.
- **24/7 physician-led care navigation:** a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** Leaving a PEO? We run the plan, enrollment, COBRA and compliance documents, and you keep the payroll provider you choose.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

## When a PEO is honestly the better choice

A PEO can be the right call, and I tell founders so. Choose a PEO if:

- **Nobody can own HR.** You want one vendor for payroll, HR advice, workers' comp and benefits, and no one on the team has time to manage them separately.
- **You are hiring in many states at once.** A PEO already has tax accounts and compliance in most states, which saves registration work for a small, scattered team.
- **Workers' comp is a big cost.** In higher-risk industries, a PEO's master workers' comp policy can be cheaper than buying your own.
- **You want large-group benefits for a very small team right now,** and you accept that pricing may change sharply at renewal.

> **Prescience Choice: ICHRA for $20 per enrolled employee per month.** Hiring a few people across many states? Choice works in all 50 states without co-employment, and each employee picks a plan that is local to them.
> - **You set a monthly allowance;** each employee picks and owns an individual plan
> - **$20 per enrolled employee per month,** with no setup or platform fee
> - **Works in all 50 states and DC,** so remote and multi-state teams fit
> - **Plan comparison, enrollment help and Crystal,** our assistant for benefits questions
> Best for small teams, teams in several states, and anyone pricing ICHRA. [Get a Choice quote](https://www.getprescience.com/employer/choice)

Choose your own plan when the documented coverage and total replacement cost better fit the business. Keep the PEO when its services, network or operating support justify the full price. I would compare recurring costs and one-time transition costs separately, then assign a named owner to every task the PEO currently performs.

## Frequently asked questions

**Can a small business get group health insurance without a PEO?**

Yes. Companies with as few as 2 employees can sponsor their own group plan. Prescience sets up and runs that plan, so you get PEO-style administration without co-employment or per-employee admin fees.

**Is Prescience a PEO?**

No. Prescience is not a co-employer and does not run your payroll. We design and run your company's health plan, and you keep your current payroll and HR software.

**How much can we save by leaving a PEO?**

It depends on your team, location and current plan. Prescience quotes are usually 10–20% below comparable fully insured coverage, with no admin fees. Whether you avoid a PEO service charge depends on the PEO agreement and which services you retain. Include replacement costs in the comparison.

**Why did our PEO renewal go up so much?**

Ask the PEO to explain your own renewal in writing. Compare rate changes, enrollment, plan design, fees and any expiring discount. This page does not establish an industry-average PEO increase.

**Can we keep Justworks, Rippling or Gusto for payroll?**

You can keep your current payroll provider with Prescience. Leaving a PEO may still require a separate payroll agreement, account setup and data transfer. Confirm what the payroll vendor will support before scheduling the exit.

**Do we have to wait until January to switch?**

No. A Prescience plan can start mid-year, so you can time the switch to your PEO's notice period instead of open enrollment.

**What happens to employees already on COBRA through the PEO?**

It depends on your PEO contract. Some PEOs keep covering former employees who elected COBRA; others expect the client's new plan to take them. Ask the PEO in writing before you give notice, so nobody on COBRA loses coverage.

**Will leaving a PEO mid-year cost us extra payroll tax?**

Potentially. CPEO successor rules apply to qualifying work site employees and specified federal wage bases. Other arrangements may have different treatment. Have payroll specialists confirm the facts and state rules before choosing the transition date.

**Do we need to buy our own workers' comp after leaving?**

If your existing workers' compensation coverage ends with the PEO agreement, arrange any required replacement coverage before the exit. State requirements and ownership exemptions vary; have a licensed adviser verify the policy and effective date.

**Will my employees' deductibles reset if we switch mid-year?**

Usually yes, because each plan tracks its own deductible and out-of-pocket totals. Prescience describes an effective $0 deductible. Other accumulators, including an out-of-pocket limit, still need review when changing plans.

## Sources

- [Rippling, PEO services and platform transition](https://www.rippling.com/products/hr/peo)
- [Justworks, product pricing and scope](https://www.justworks.com/pricing)
- [IRS, final CPEO regulations and successor wage-base treatment](https://www.irs.gov/irb/2019-24_IRB)
- [KFF, 2025 Employer Health Benefits Survey (original survey)](https://www.kff.org/health-costs/2025-employer-health-benefits-survey/)
- [DOL, Employer guide to COBRA](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/an-employers-guide-to-group-health-continuation-coverage-under-cobra)
- [IRS, Employer shared responsibility questions and answers](https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act)
- [HealthCare.gov, Summary of Benefits and Coverage](https://www.healthcare.gov/health-care-law-protections/summary-of-benefits-and-coverage/)