A Professional Employer Organizations(PEO) is a co-employment arrangement where a collection of small groups band together for certain services such as human resources and payroll and can purchase their health insurance as a single large group rather than purchasing community rated small group products individually.
PEO’s can be an attractive alternative for smaller employers who are unable to self-fund on their own due to regulation that prohibits self-funding to groups or less than 50 or 100 employees(depending on state regulation). For instance, for 2016 groups with 51-100 employees in New York State are required to be considered small group thus will be moved to the community rated pool along with groups of 2-50 employees. Prohibitions preventing stop loss carriers from selling to small groups also takes self-funding off the table for these groups. The better performing 51-100 groups will favorable risk profiles will see significant premium increases as they are forced to the community rated pool.
The PEO can provide an alternative allowing groups to purchase experience rated large group products as a single large entity.
The RiskVantage Algorithm can be an integral component of managing a PEO risk pool. PEO’s in any given market compete with other PEO’s and other insurance offerings. To grow, the PEO not only needs to provide excellent service offerings but also needs to provide an attractive insurance option that others can’t match.
The PEO that manages the risk selection game the best will be the winner. The PEO that handles risk selection well will create their own insurance pool that will have lower premiums than a competing PEO that accepts all participants regardless of risk profile or manage their poor poorly. Some PEOs attempt to manage their risk pool by using antiquated methods such as a cursory review of industry, demographics and past year claims experience when available. They might chose to remove an employer from their risk pool if the employer had some high cost claimants in the past year. These approaches may seem to be the best you can do to manage the risk but in reality have very limited ability to predict or control future claims cost.
RiskVantage will allow the PEO to manage their risk profile in a systematic way to develop the best possible risk pool leading to favorable premium rates. For newly forming PEO’s, the algorithm can be utilized to evaluate potential new entrants to select only those that have a favorable risk profile. For existing PEO’s, current participants can be evaluated and those with less favorable risk profiles can be removed from the risk pool or stratified into a higher premium tier.
RiskVantage is available to contract with PEO’s to utilize the RiskVantage algorithm on a project or an employer by employer basis. RiskVantage also is willing to develop an exclusive arrangement with a PEO in a given geographic area.
