The complexity of remaining compliant with provisions under healthcare, disability and family medical leave legislation has led many employers to look at outsourcing some or all of their companies’ benefits administration and reporting requirements, according to CFO Research conducted with Prudential Financial Inc.
The survey of financial executives found 46% of employers were outsourcing or looking to outsource reporting and other regulatory requirements of the Affordable Care Act, 40% for American with Disabilities Act directives and 39% for Family Medical Leave mandates.
“The escalating regulatory burden placed on benefits programs makes them increasingly complex to administer,” says Jake Biscoglio, vice president for absence management and disability at Prudential Group Insurance. “Employers are finding it easier and cheaper to outsource, rather than build and maintain the expertise in-house.”
Gartner Inc. research reveals that 80% of companies now outsource at least one HR activity, and that number is swiftly growing. Nevertheless, a significant number of organizations still opt to continue administering benefits internally as they are more comfortable maintaining control. They also may wish to stay in close contact with their employees because they believe they can provide a more personalized experience.
However, depending on where the company is coming from, Biscoglio thinks that outsourcing benefits administration can result in a better experience for employees.
“For the most part, it makes things easier for plan members because they are given tools that may not have been available in the past to help them better understand and manage their benefits,” he says.
Larger companies are more likely to outsource benefits administration due to the size of their workforces, their multiple locations or the complexity of their benefit programs. However mid-sized or smaller organizations often consider outsourcing benefit programs because they have a lack of internal resources and expertise.
Another reason for outsourcing noted in the Prudential study is that controlling benefit costs —particularly for health and medical coverage — remains the top priority for financial executives. Nearly 80% of the 180 participating companies had revenues of more than $1 billion.
But despite being wary of the costs and administration of benefits programs, financial executives do not dispute their value. A majority of survey respondents (63%) say employee satisfaction with benefits is important for their company’s success, and 65% believe employee benefits are critical to attracting and retaining employees.
One approach to managing the rising costs of healthcare and non-healthcare benefits is to give employees more control over their benefits packages and allow them to customize coverage to suit their particular situations. For example, a widely employed cost-saving strategy noted by respondents (30%) is to replace some employer-paid benefits with voluntary benefits.
Biscoglio says the starting point really has to be for employers to understand their benefits strategy and have a good understanding of the cost drivers. “By having a robust data set, plan sponsors can work with their carrier, broker and consultant to make informed decisions about potential plan design changes.”
A report from Texas-based Empyrean Benefits Solution Inc. suggests that whether soliciting third-party advice or making the determination on their own, a good place for employers to start when deciding whether or not to outsource all or part of their benefits administration is to ask internal staff and business partners the following questions:
- Do we have the appropriate resources and infrastructure to handle benefits administration in-house?
- Do we have the financial support to develop and maintain the skill sets and technology needed to manage benefits administration effectively?
- Do we have the in‐house expertise to understand today’s complex regulatory compliance issues?
- Can we continue to manage all of our daily administrative functions while also supporting the strategic initiatives necessary for our company to grow?
If the answer to even one of these questions is “no,” Empyrean says it may be the time to consider outsourcing some or all of the company’s benefits administration.
When selecting a benefits administration outsourcing vendor, Biscoglio advises plan sponsors to look for several things. “Make sure the company has experience working with other similar employers plus demonstrated efficiency dealing with constantly-changing regulatory requirements,” he says. “Also, flexibility to administer your unique plan and any future design changes you may be contemplating are very important.”
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