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DHR Expands Into Texas, Strives to Educate Market
DHR EXPANDS INTO TEXAS, STRIVES TO EDUCATE MARKET
published in the Phoenix Business Journal 06.24.05
the following is a summary edited by Dan Wheeler
This is a big year of change for Diversified Human Resources, which is expanding into Texas and bucking the way its competitors offer health insurance. The Phoenix company is a professional employer organization that outsources human resource administration services, such as health benefits, payroll and taxes, for businesses.
With 1,500 employer clients nationwide, DHR is opening an office in San Antonio. Also on the drawing board are plans to potentially open two more offices in the Lone Star state.
Paul Jorgenson, DHR's executive vice president, said the Texas market understands the PEO concept because competitor Administaff Inc. is based there. "The awareness level is up, but the market is still virtually untapped," Regalado said. "Nationwide, PEOs have a market penetration of 3 percent." He also stated DHR doesn't consider Administaff or any other PEO competition because there is room for everyone in the market.
The company also is changing the way it offers health insurance to employers, shifting from a large group policy where all employers are lumped under one health insurance policy to multiple small group policies. This will help to increase the accuracy of claims administration and loss reporting to rating bureaus, said Dan Wheeler, executive vice president of DHR. This is similar to what DHR did in its workers' compensation program about five years ago.
One of the pros of offering multiple contracts to employers on an individual basis is that the low-risk customers don't get lumped in with high-risk customers, who usually cause premiums to skyrocket at renewal time, he said. "A good client isn't subsidizing a bad client," Wheeler said. When all the good customers begin to leave the group health insurance, what's left are those high-risk groups that can't afford to get health insurance on their own, leaving an unhealthy pool of participants, he added.
Administaff, which is based in Texas, welcomes DHR into its backyard. "We think educating the marketplace is something we need to do," said Paul Sarvadi, chairman and CEO of Administaff. "When people get educated about our business, a small business becomes more successful. We're strong supporters of competition."
DHR was instrumental in getting legislation to protect Arizona businesses that contract with PEOs, requiring a minimum financial requirement of $100,000 in bonds, securities, net worth or letter of credit beginning in March 2006. When Beers approached lawmakers to craft legislation that would regulate the PEO industry, they thought he was crazy to be asking to be regulated. They told him several times to go away and come back when there actually was a problem.
But he and other PEO operators figured it would be better to be proactive to keep problems from happening in Arizona as they have in other states. Other states are doing the same, with about half the success so far.
"We are very pleased to have that bill because it's a licensing bill," Sarvadi said. "It gives a foundation for which PEOs are allowed to operate, and that brings on good prudent financial management, good policies and good practices. It's definitely a help to eliminate unscrupulous players."
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