A deal with Iowa’s largest health insurer could allow Merit Resources Inc., Des Moines-based human resources outsourcing company, to grow by 50 percent over the next two years.

Merit Resources, a professional employer organization, or PEO, has 1,200 human resources employees working at small businesses in 39 states who on Oct. 1 became eligible for insurance from Wellmark Blue Cross and Blue Shield. Under the deal, Merit Resources’ client companies can extend the Wellmark coverage to their other employees, as long as those companies are based in Iowa or South Dakota, where the insurer does business.

“In effect, we’re a risk aggregator, aggregating all clients to create an insurance pool,” said Frank Accurso, Merit Resources’ vice president of sales and marketing. “The larger the pool, the more premiums [the insurance company collects] and the better able they are to offset claims.”

Contracting with a PEO is the only way Iowa businesses can pool together for the purpose of buying insurance, he said. There are currently no other PEOs in Central Iowa offering co-employees the benefits of a larger insurance pool, though there are other HR outsourcing companies in the metro area.

In effect, the deal is a prescription of sorts for small businesses that have been bruised by health-care costs that are rising at double the rate of inflation. Health insurance premiums this year rose 7.7 percent, according to a recent survey from the Kaiser Family Foundation. That was the lowest growth rate in six years, but still outpaced inflation.

More than 90 percent of Iowa corporations are considered small businesses with 10 or fewer employees. Spiraling benefits costs take an ever-larger bite out of their bottom lines and represent their second-largest expense, behind payroll, Accurso said. In addition to the financial toll, those companies can be at a disadvantage in recruitment.

“If you don’t have a competitively priced offering in health insurance, you’re at a disadvantage in hiring,” Accurso said. “Health care is very important component of the total value proposition today.”

Accurso said it’s important to note that Merit Resources “isn’t selling health-care insurance.”

“Brokers do that,” he said. “We are selling a comprehensive human resources outsourcing strategy that aggregates one company’s business with others.”

His company already does that with workers’ compensation benefits, allowing it to extend a Fortune 500-quality benefits package to eligible employees at its client companies.

Merit Resources previously had a similar health-insurance collaboration with Coventry Health Care of Iowa Inc., a much smaller insurer with around 65,000 members, compared with Wellmark’s nearly 1.8 million members in Iowa and South Dakota. Under the Coventry collaboration, participation in a larger group still meant only single-digit increases for the past four years and increases in the low single digits the last two, Accurso said.

He said switching insurance carriers “isn’t an indictment of Coventry,” but recognition of Wellmark’s extensive reach and strong reputation. Under the deal with Wellmark, Merit Resources expects its co-employees will still see low single-digit increases in their premiums, but will be able to use their insurance with more providers.

“Wellmark is widely accepted throughout Iowa and South Dakota and has broader networks, covering 95 percent of all doctors, service providers and hospitals,” he said. “Strategically, we have the ability to significantly expand our footprint in Iowa and South Dakota because of this very important collaboration with Wellmark.”

Merit Resources is conducting interviews to expand its sales force to serve what Accurso expects will be rapid expansion of the company. Three sales representatives will be added to serve Central Iowa, one will be added in Eastern Iowa, and another will be added in either Northwest Iowa or South Dakota. Eventually, client relationship managers and human resources specialists will be added in those areas and new offices will be opened.

Accurso predicted that increasing the company’s visibility in Iowa and South Dakota during the next two years will double the number of worksite co-employees it represents. He also thinks the opportunity for employees to become part of a larger insurance pool will help Merit Resources lure larger companies “who are looking for creative ways of not only managing their health-care expenses, but also as a long-term business strategy.”

In addition to its Des Moines office, Merit Resources also maintains an office in St. Petersburg, Fla. The 17-year-old company contracts benefits, human resources, payroll and government compliance services mainly with small businesses with between two and 850 employees. Most are in the range of 50 to 150 employees, with an average between 35 and 40 employees in the past five years. That’s up from an average size of 25 employees five years ago, according to Accurso.