If you're reading this, you've probably realized your PEO isn't scaling with your ambition. Maybe the costs are spiraling. Maybe you're tired of losing control over your employee data. Or maybe you just want the flexibility to build your benefits program without being locked into their bundled everything.
Whatever the reason, you're not alone. We've helped hundreds of startups transition off PEOs, and the good news is: you have options. Better options. Options that give you control without drowning you in administration.
Why Companies Leave PEOs
Before we dive into your options, let's acknowledge why you're here:
Loss of control. PEOs co-employ your team. That means they technically own your employee relationships, your benefits data, and often make decisions that affect your culture without your input.
Unpredictable costs. That "all-inclusive" pricing? It includes massive markups on benefits premiums, administrative fees that scale with headcount, and surprise charges for services you assumed were included.
Inflexibility. Want to offer an ICHRA instead of their group plan? Too bad. Want to switch 401(k) providers? Can't do it. PEOs bundle everything because it benefits them, not you.
You outgrew them. Many founders choose PEOs when they're 5-10 employees because it seems simpler. But by 15-25 employees, you realize you're paying for handholding you don't need.
The question isn't whether to leave. It's what to do next.
Your Three Options for Health Benefits When You Leave a PEO
When you leave a PEO in New York, you're losing access to their group health plan. Here's how to replace it:
Option 1: Traditional Small Group Health Insurance
What it is: You become the plan sponsor. You work with an insurance broker, select a carrier (Aetna, Blue Cross, United, Oscar), choose 2-3 plan options, and your employees enroll.
New York requirements:
- Contribute at least 50% of employee premiums
- Achieve 50% employee participation (those with coverage elsewhere count)
- Offer coverage to all employees working 20+ hours per week
Why companies choose this: It's familiar. Employees understand group plans. Coverage starts immediately with no shopping required.
Why companies regret this: At your size, it's expensive and unpredictable. One high-cost medical claim can trigger 15-30% premium increases at renewal. Your small risk pool means you're essentially gambling that your team stays healthy. And with New York's community-rated market, you're paying premium prices for average coverage.
Real costs in New York (2025-2026):
- Single coverage: $600-900/month per employee
- Family coverage: $1,800-2,800/month per employee
- You pay at least 50% of these amounts
For a 10-person team with mixed single/family coverage, expect $6,000-10,000/month minimum.
The hidden cost: You're locked in for a year. When renewal hits with a 20% increase, you either absorb it or shop carriers again, restarting the whole process.
Option 2: Individual Coverage HRA (ICHRA)
What it is: You set a monthly allowance. Employees buy their own health insurance from the individual marketplace. You reimburse them tax-free up to your set amount.
No New York-specific requirements. No minimum participation. No minimum contribution. No arbitrary rules about who can enroll.
Why companies choose this: Complete budget control. You decide you can afford $500/employee/month? That's your number, and it stays your number. No surprise renewals. No risk pooling. No premium spikes because one employee had a baby or a surgery.
Why it actually works: Your employees get personalized choice. The 30-year-old who's healthy picks a high-deductible plan for $400/month and pockets the difference. The 55-year-old with a chronic condition picks a gold plan for $1,200/month and you contribute your $500. Everyone wins.
Real costs:
- You choose: Common ranges are $300-800/month per employee
- Your cost is fixed regardless of claims, ages, or health status
- Administrative platform: ~$20-40/employee/month
For that same 10-person team, expect $3,000-8,000/month with zero risk of renewal shock.
The catch: Employees have to shop for insurance. This is either a feature (empowerment, choice, personal fit) or a bug (learning curve, decision fatigue) depending on your team's preferences. Most startups find that with proper onboarding support, employees actually prefer having options.
Option 3: QSEHRA (Qualified Small Employer HRA)
What it is: Like an ICHRA, but simpler and with lower contribution caps.
2025 limits:
- Single coverage: $6,350/year ($529/month max)
- Family coverage: $12,800/year ($1,067/month max)
Why companies choose this: If you're offering benefits for the first time and want to start modestly, QSEHRA is straightforward. No class structures to design. No age adjustments. Just one flat allowance for everyone.
Why most skip it: In New York's expensive insurance market, $529/month often doesn't provide meaningful coverage for employees. An ICHRA gives you the same budget control with unlimited contribution flexibility.
When it makes sense: You have fewer than 50 employees, you're just starting to offer benefits, and the contribution caps align with what you can afford.
How to Decide Which PEO Alternative Is Right For You
Here's the framework that matters:
Choose Traditional Group Insurance If:
- You have 15-25 employees and can achieve strong participation
- Your team is predominantly young and healthy
- You can comfortably afford $600-800/employee/month AND absorb 20%+ annual increases
- Employees have explicitly asked for traditional group coverage
- You value the "set it and forget it" simplicity (even though renewals will remind you nothing is forgotten)
Choose ICHRA If:
- You have 1-25 employees (the sweet spot)
- Budget predictability matters more than premium savings
- You're starting benefits for the first time or coming off a PEO
- Your team is diverse in age, health needs, or family status
- You want flexibility to scale contributions as your company grows
- You're willing to invest in employee education during the transition
Choose QSEHRA If:
- You have fewer than 50 employees
- The contribution caps ($529-1,067/month) meaningfully help your team
- You want the absolute simplest version of employee-directed coverage
Choose Nothing (Temporarily) If:
- You genuinely can't afford any benefit right now
- You're between funding rounds and need 3-6 months to stabilize
- Most employees are covered through spouses or other sources
But understand: offering no health benefit in today's talent market is choosing to lose candidates to competitors who do.
The Real Cost of Declining Health Benefits For Your Startup
Let's say you skip health benefits entirely. Here's what it actually costs:
Lost recruiting leverage. That senior engineer choosing between you and two other startups? You just lost. Health benefits aren't a nice-to-have. They're table stakes.
Increased compensation demands. Employees without benefits negotiate higher salaries to offset the cost. You'll pay $10,000-15,000 more in cash comp per employee, which costs more than just offering benefits.
Tax inefficiency. Benefits contributions are pre-tax for both you and your employees. Cash comp is fully taxed. Offering $500/month in benefits costs you less than paying $500/month more in salary.
Uninsured employees. Some of your team will go without coverage because individual insurance feels expensive. When they eventually need care, they'll be financially devastated. That affects morale, productivity, and retention.
What Warp Does Differently
Full disclosure: we're not a neutral third party here. Warp is a licensed insurance broker (NPN: 22074328), and we think the benefits industry is broken.
Traditional brokers call once a year for renewal conversations, send you a spreadsheet of plan options, and disappear until next year. That's not automation. That's neglect with a commission.
We built benefits that actually run themselves:
Direct carrier relationships. We work with 30+ carriers including Oscar, Guardian, Aetna, United Healthcare, Anthem, and Blue Cross Blue Shield. No middlemen marking up your premiums.
Automated administration. Enrollment, EDI feeds, premium reconciliation, qualifying life events, COBRA compliance - all automated and native to your payroll. When an employee gets married, has a baby, or leaves your company, benefits sync automatically. No carrier portals. No manual data entry.
ICHRA or group, your choice. We support both models. Want to offer traditional group insurance? We'll quote multiple carriers and handle enrollment. Want ICHRA's budget predictability? We'll set up the structure and help your employees shop. Most of our customers choose ICHRA because the math works better at small scale, but we're agnostic.
Integration with payroll. Benefits deductions sync automatically with payroll. Contribution limits, catch-up contributions, employer matching for 401(k), HSA/FSA coordination—all calculated and filed automatically. No reconciliation spreadsheets. No missed deductions.
Here's what that actually means in practice: When you hire someone in California today and New York tomorrow, we auto-register you with every state agency for benefits compliance. When tax notices arrive, our AI triages them before they hit your inbox. When an employee changes their 401(k) contribution, it flows through payroll without you touching anything.Warp is the only AI employee management platform built for scaling startups. Instead of fighting for attention from an overloaded PEO rep, Warp's AI agents open every state tax account, file every payroll form, and resolve every tax notice automatically.
Every company gets a dedicated Account Manager and Benefits Advisor included to guide you through the transition, multi-state expansion, and benefits selection, so you get personalized support that actually scales with you.
The Migration Process (What Actually Happens)
8-12 weeks before PEO exit:
Start planning. If you're moving to traditional group insurance, you need time for carrier quotes, plan selection, and enrollment. If you're moving to ICHRA, you need time to design your contribution strategy and educate employees.
6-8 weeks before:
Make your decision and lock in your provider. For group insurance, this means selecting your carrier and plan options. For ICHRA, this means finalizing contribution amounts and setting up your administration platform.
4-6 weeks before:
Employee communication. This is critical. Your team needs to understand what's changing, why it's changing, and what they need to do. For ICHRA, they need education on how to shop for individual coverage. For group insurance, they need enrollment instructions.
2-4 weeks before:
Enrollment window. For group insurance, employees make their elections through your new carrier. For ICHRA, employees shop on the individual marketplace (they have a 60-day special enrollment period triggered by loss of PEO coverage).
PEO exit date:
Old PEO coverage ends. New coverage begins. If you planned properly, there's no gap. If you didn't, employees are temporarily uninsured, which is both illegal in some states and catastrophic if someone needs care.
Post-transition:
Group insurance: You're managing premiums, reconciliation, and preparing for renewal anxiety in 12 months.
ICHRA: Employees submit reimbursement claims. Your platform processes them automatically. You sleep well knowing your costs are locked in.
We'll handle your transition for free. Most companies go live in under a week. We migrate your employee data, set up your benefits structure, and handle carrier coordination. You focus on building your company.
The Question You're Actually Asking
Here's what we hear from founders: "I know I need to leave my PEO. But I'm terrified of screwing this up. What if I choose wrong? What if I miss a deadline? What if my employees end up uninsured?"
The truth? Those are valid fears. Benefits administration is genuinely complex. The insurance industry makes billions from that complexity.
But here's what we've learned from helping 1,000+ companies navigate this transition: The biggest mistake isn't choosing the wrong benefits model. It's staying in a PEO that no longer serves you because you're afraid of the alternative.
Group insurance works for some companies. ICHRA works for others. What doesn't work is paying 40% more than you should for a PEO's bundled services because you're paralyzed by decision fatigue.
Want To Move Off Of Your PEO? Start Here
If you're 1-25 employees in New York and coming off a PEO, here's our honest recommendation:
For most startups, start with ICHRA. Set a base contribution of $400-600/month for single coverage. Adjust by age so older employees aren't priced out. Use Warp to handle administration, compliance, and employee support. Plan to reassess in 12-18 months as you grow.
Consider group insurance if you're closer to 25 employees, your team is predominantly young, and you can absorb premium volatility. But get real quotes first. The sticker shock is real.
Get quotes for both models. Seriously. Don't guess. We'll run the numbers for your specific team demographics and show you what each option actually costs. Most founders assume group insurance is cheaper because it's familiar. Then they see the math.
Want to see what your benefits would cost with Warp? We'll quote both ICHRA and group insurance options, show you the real numbers, and let you decide. No pressure. No commission games. Just transparent pricing and honest advice.
You didn't start a company to become an HR administrator. Stop pretending you care about benefits renewal spreadsheets. Focus on building. We'll handle everything else.
Book a demo or email us at benefits@joinwarp.com
