What managers should ask their Professional Employer Organization (PEO)?
Jan 18, 2019, 10:05:20 PM ,
Lou D'Agostino, Principal
The below article was published in the October 2018 Edition of Wells Fargo Prime Brokerage Consulting's quarterly journal.
Wells Fargo's Business Consulting Group speaks with Lou D’Agostino, Principal at Iron Cove, a division of EPIC Brokers that specializes in PEO consulting and brokerage, to hear his opinions on where he is seeing managers gain efficiencies in their human resources management.
One of the resources PEOs provide is health insurance. This is offered either as a pass-through model or as a self-insured model. What is the difference between the two models?
The pass-through model is when the PEO functions as the intermediary between a health insurance company and your firm and the insurance company takes your premium to cover employees for medical expenses. The PEO passes through the cost and risk of health insurance.
On the other hand, if a PEO collects your premium and keeps it until they have to pay your medical expenses, that’s a self-insured model. In this setup, the PEO utilizes the medical network of a major health insurer (e.g. Aetna, United, Oxford) in order to provide a vast network of doctors. However, the true insurance risk still falls on the PEO.
The danger of working with a self-insured PEO comes when occasional cycles of extraordinary claims occur. This phenomenon not only depletes the cash reserves (aka float), but also puts the balance sheet of the PEO at risk – this in turn degrades the PEO’s financial health. In order for the PEO to recover (and meet Wall Street expectations), it will need to increase its revenue drastically.
In a pass-through model, the PEO’s financial health is immune from an extraordinary year of bad claims. In a manager’s analysis, they should consider the fact that a self-insured PEO may sustain much more financial impact in a bad claims year than a pass through model.
Other Topics Discussed in the article:
What are some of the large service charges a manager should pay attention to in terms of pricing efficiency from their PEO?
With regards to healthcare, what is the average increase a manager should expect?
Workers compensation insurance is another large expense for managers. This fee is often hard to discover due to bundling. What questions should a manager ask to uncover this charge and get a clear view into the fees they are being assessed? &
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Lou D’Agostino is a dynamic senior insurance professional with nearly 17 years of experience in the financial services industry. He is presently serving as Principle of Iron Cove, a division of EPIC Brokers. In his current role, Mr. D’Agostino oversees a group of talented insurance professionals that offer a full suite of insurance products and consulting services to some of the nation’s wealthiest families/high net-worth clients and largest organizations. He is dedicated to business/new product development and large account placement, resulting in a proven track record of successful negotiation of even the most challenging of claims such as Madoff, investor litigation, and SEC/DOJ enforcement. As part of his work at Iron Cove, Mr. D’Agostino’s expertise has been called upon by a variety of industry trade groups. He has presented to the Financial Executives Alliance (FEA), the NYSSCPA, and other peer groups on a wide array of insurance related topics. He also presented at GAIMops, a leading financial services conference focusing on non-investment operations, on the topic of AIFMD and the associated insurance implications.
Iron Cove is a Division of EPIC Brokers and represents over 400+ Financial Institutions. With over 1500 Employees, 50 Offices in the US and over $500mm in annualized revenues, we currently rank as one the largest privately held insurance brokerages in the US. Iron Cove has been named Best US and Global Insurance Provider by Hedgeweek Two (2) years running.