A PEO medical rate is not a carrier premium passed through at cost. It is a price the PEO sets against its own cost of risk across the whole client pool, with a margin built in. That sounds cynical. It is just the business model, and the useful part is that two of the largest PEOs publish enough in their SEC filings for you to see how it behaves. Almost nobody shopping a PEO reads them. You should.
Your rate is built from the pool, then fitted to your census.
The mechanics run in roughly four layers.
- The master plan’s expected cost. The PEO projects what its pooled population will cost next year, from its own claims history and the terms it has with its carriers.
- A rate table. That cost is spread across plan options and coverage tiers, then adjusted for whatever rating factors the PEO chooses. Age and location are typical.
- Your census. Your employees are mapped onto the table. Some PEOs weigh industry too, and for larger clients some ask for a health questionnaire or prior claims.
- The load. Administration and risk charges sit on top, with the margin built in.
Compare that with a small group carrier (employers with 1 to 50 employees, or up to 100 where a state has extended the definition). Under 45 CFR 147.102, an ACA small group insurer may vary premium only by age within a 3 to 1 band, tobacco within 1.5 to 1, geography and family size. Never claims. A PEO master plan is rated as one large arrangement, so the constraint on your price is different. It is the pool’s experience, plus whatever the PEO decides your group looks like.
Which means two companies with identical ACA small group quotes can get very different PEO quotes. Or the reverse.
The public PEOs tell you their target margin.
TriNet reports a metric it calls the insurance cost ratio, defined in its filings as insurance costs divided by insurance service revenues. For fiscal 2026 its published guidance, as revised in July 2026, is an insurance cost ratio between 88.50% and 89.50%. Read plainly, TriNet expects to spend roughly 88.5 to 89.5 cents on insurance costs for every dollar of insurance revenue it bills clients.
That is not a scandal. Carriers carry loads too. The point is narrower and more useful: the medical line on a PEO invoice has a designed spread, the company manages to it, and a year when the spread shrinks is a year the company works to widen it again.
What happens when the pool runs hot
Insperity’s 2025 results are the cleanest public example. Full year revenue rose 4% to $6.8 billion, on a 3% increase in revenue per worksite employee. Gross profit fell 14% to $900 million, which the company attributed primarily to unfavorable results in its benefits program. Fourth quarter gross profit dropped 21% to $172 million, with the release blaming medical and pharmacy trends plus more frequent large claims. The year ended in a $7 million net loss.
Revenue per employee went up 3%. Benefits costs went up faster, and margin absorbed the difference.
Now read the recovery plan. Insperity’s chief financial officer described margin recovery coming “through pricing and client selection, our new contract and plan design changes with UnitedHealthcare.” Every one of those phrases lands on clients. Pricing is your renewal. Client selection is which groups the PEO wants to keep. Plan design changes are benefits your employees lose inside a master plan you do not control.
Repricing and client loss move together.
TriNet went through its version one year earlier. Its fiscal 2025 release quotes the chief executive saying the company “successfully repriced our business” that year. Over the same year, average worksite employees fell 5% to about 334,000, and fourth quarter average worksite employees were down 9% year over year to about 324,000.
Here is the claim most PEO sales conversations will not make. When a pool reprices, the clients with the best alternatives leave first, and the clients with the best alternatives are usually the healthiest groups, because they can pass medical underwriting elsewhere. The pool that remains is sicker than the one that was priced. We would not call that a reason to avoid PEOs. It is a reason to ask any PEO, in writing, what its last two renewal cycles looked like across its book, and to read the public filings where they exist.
The service fee is the small number on the page.
Justworks is one of very few large PEOs that publish list pricing, at $79 per employee per month for PEO Basic and $124 for PEO Plus, both with no base fee. TriNet’s pricing page publishes no rate and routes to a quote. Neither figure tells you anything about the medical rate, which for most groups is several times larger than the fee.
Payroll tax treatment is the other hidden line. The Social Security wage base for 2026 is $184,500, and the FUTA wage base is $7,000. Ask whether the PEO’s tax charges stop when each employee crosses those limits, and whether the PEO is an IRS certified PEO. Under 26 U.S.C. 3511(b), a certified PEO is treated as a successor employer when you join and your company is treated as successor when you leave, which protects those wage bases mid year. The IRS publishes the certified list, and it separately names suspended and revoked organizations.
How to read a PEO medical quote
Five questions separate a real quote from a sales rate.
- Is the medical line broken out by plan and tier? If it is bundled with the fee, you cannot test next year’s increase.
- How long is the rate guaranteed? A twelve month guarantee on a mid year start can mean a repricing in month seven.
- Is there a renewal cap? Get the number in the contract, not the deck.
- Does your own experience enter your renewal? Larger clients are often partly rated on their own results, which shrinks the pooling benefit you were sold.
- What claims reporting will you receive? Without it you cannot price a level funded alternative next year.
Who the pool is priced for
NAPEO’s 2025 client white paper estimates more than 230,000 PEO clients. It is industry funded research. Half have 10 to 49 employees and more than a third have fewer than 10, which puts roughly 85% under 50. NAPEO estimates penetration at 14% among employers with 20 to 499 employees, 15% at 50 to 99 and 13% at 100 to 499.
So the typical pool is built around small groups. A 25 person company with one serious claimant tends to win inside it. A 200 person company with clean experience is the one funding that win, and it can usually prove as much on a level funded quote. Price both sides before assuming which one you are, a comparison laid out on how health insurance works inside a PEO.
Frequently asked questions
How do PEOs price health insurance?
A PEO first projects what its pooled master plan will cost and spreads that across plans and coverage tiers. It then maps each client’s census onto the resulting rate table, usually by age and location, and adds a load that includes its margin. For larger clients, some PEOs also use health questionnaires or prior claims.
Do PEOs make money on health insurance?
The public ones disclose that they manage to a spread. TriNet reports an insurance cost ratio, insurance costs divided by insurance service revenues, and in July 2026 guided to 88.50% to 89.50% for fiscal 2026. Insperity reported a 14% drop in 2025 gross profit to $900 million, which it attributed primarily to unfavorable benefits results.
Why did my PEO health insurance renewal go up so much?
PEO renewals reflect the pool’s experience and the PEO’s margin target as well as your own group. When benefits costs outrun pricing, as Insperity reported in 2025 with revenue per worksite employee up only 3%, the following renewal cycle is where the PEO recovers margin. Insperity’s chief financial officer tied that recovery to pricing and client selection.
Are PEO health rates cheaper than small group rates?
It depends on your census. ACA small group carriers (groups of 1 to 50 employees, or up to 100 in some states) may rate on only four factors under 45 CFR 147.102, and claims history is not one of them. A PEO master plan is rated on the pool. Groups whose real risk is worse than those four factors imply often do better in a PEO, and healthier groups often do better on a medically underwritten level funded plan.
What is the difference between the PEO fee and the health insurance cost?
The fee pays for payroll and HR services. Justworks publishes it at $79 and $124 per employee per month. The health insurance cost is a separate and usually much larger line, priced from the PEO’s master plan. A proposal that does not separate the two cannot be evaluated at renewal.
See the medical line on its own before you sign
Send one census and your current plan summary. We price the PEOs that fit your group and pull out every medical line. Then we set it beside open market fully insured and level funded quotes on the same census. There is no fee to your business.
More context: how a PEO broker runs the PEO market, whether your renewal increase is normal.