Beware the pitfalls of online benefit platforms
In the 1970s and 80s, many households in the United States were asking the same question: VHS or Betamax? Back then, purchasing a home video recording machine was a serious decision. Choosing incorrectly could be a costly mistake, as every change in technology brought with it equipment changes and additional costs.
Today, many HR professionals can find themselves feeling similarly overwhelmed when it comes to online benefits technology. This is especially true at organizations with 10–500 employees. Everyone seems to agree that they will be online in the not-so-distant future. Just like the families a generation ago struggling to choose between Betamax and VHS, the question at hand is which HR/benefits platform to choose. This is a decision that both employers and brokers are wrestling with, as the decision affects them both.
Following are the three most compelling reasons causing employers to move HR and benefits online, followed by three of the pitfalls to watch out for.
Reason to go online #1: New reporting requirements. There has never been any shortage of paperwork in HR administration, but the 1094-C and 1095-C are new government forms that relate directly to benefits. The purpose of these forms is to help the government gauge which employees were entitled to subsidies on the exchange and whether the employer is subject to any employer penalties. All employers with more than 50 full-time employees must provide the 1095-C, the “health care W2.” These forms can be a huge pain to complete if employers don’t administer benefits online.
Reason to go online #2: New health insurance quoting rules. In years past, insurance companies had great flexibility to design fully insured plans for the small group market. They could often accommodate requests for office visit copays to be lower than the amount first quoted, for example. Times have changed. In many states, small employers that want to be fully insured have had to choose from a limited set of pre-configured plans. These plans can be more expensive and are often age-rated rather than composite-rated, meaning plan pricing will be based on the age of specific employees rather than a single rate being provided for all employees of the organization. This new way of determining rates poses significant administrative challenges that can be resolved by being online.
Reason to go online #3: Millennials changing the game. With millennials entering the workforce in greater numbers, there has also been an increased demand for online and digital solutions. Benefits and other HR functions need to be a click away to keep pace with employees accustomed to living life online. The days of life on paper are quickly becoming a thing of the past, as more and more services are expected to be no further than a finger click away. HR managers and brokers are adjusting to this growing segment in order to remain competitive and attract and retain the best talent.
Now, what about pitfalls to watch out for when moving benefits online?
Pitfall #1: Integrations and billing. Many automatically equate the idea of going online with integrating the online system with the insurance companies and payroll. They also imagine it means that the bills they receive from the insurance companies will now be error-free.
This is not the case. Insurance and payroll companies are working hard to get to a point where they can deliver the kind of online experiences that Google and Apple have caused us to expect, but they are not there yet. In the meantime, one should bear in mind that your benefits platform has its own database full of your employees’ information. This database is separate from the payroll and insurance companies’ databases.
Very few payroll and insurance companies can offer anything close to the kind of “real-time” integration between databases that Google and Apple would approve. ADP is leading the payroll industry with the ADP Marketplace, where it is the first payroll provider to offer the possibility of this kind of “real-time” integration. Allstate Benefits is one of the only insurance companies to do so. With most payroll and insurance companies, the best they can do is a manual file feed.
As a result, it’s important to know how the integrations will work with your partners. And don’t stop auditing those bills.
Pitfall #2: Voluntary life elections over the GI amount. This one is potentially a very big deal, but can be easily addressed. Say that you began offering voluntary life insurance five years ago. All employees who were making their first election were promised a guaranteed issue amount of $100,000. Because voluntary life is difficult to administer with paper, however, very few enrolled.
This year, you go online. The system correctly inputs that the guaranteed issue level is $100,000 for employees making their first election. Because enrolling online is so much easier than with paper, enrollment shoots up by 120%. Yay! You have a lot of employees who elected the $100,000 guaranteed issue amount.
Because many of these employees were offered the coverage before with paper, however, the insurance company is going to come back asking for evidence of insurability information. Coordinating this is often a nightmare.
There are three ways to avoid this situation. One is to make sure your new benefits platform can distinguish between employees who were offered voluntary life before with paper and those who were not. Many will not be able to do this. The second option is to change insurance companies and get a new guaranteed issue offer from the new company. The third and arguably best approach is to ask your current insurance company to re-issue the guaranteed issue offer for open enrollment because of the new, online enrollment conditions. Most will agree to do this — after all, the request is a reasonable one and they know that if they do not accommodate it that you can always get new open enrollment conditions with a new carrier.
Pitfall #3: Switching costs. If your broker is offering you the ability to go online as part of his or her value proposition, investigate what impact this would have on your switching costs. Many benefits platforms do not work directly with employers at all, but rather only through brokers. In these arrangements, the employer does not truly own their data as they cannot use the system without keeping the same broker they had. This would be true even if the broker you like moves to another city and you are assigned a new account manager who you do not like.
If you’re comfortable that you will always stay with your broker, then the idea of investing a lot of your time — and your employees’ time —in a system that is not yours could be fine. Alternatively, employers should look for a system where they own their own data. And brokers should beware the idea of adopting a platform that “locks in” the employer too tightly. While many employers do not know to ask about this yet, eventually they will. Once they do, they will avoid platforms that do this — as well as the brokers who endorse them.
A wise investment
Online HR platforms bring all of a business’s HR silos into one system. Functions such as onboarding, payroll, benefits, paid time off and even offboarding are all handled in one place. This not only makes benefits election and other HR services more streamlined for employees, but HR managers can access and manage employee data more efficiently. Processes that previously involved extensive paperwork and storage of documents in HR department file cabinets can now be handled all in one place and in a fraction of the time.
In the same way that families who selected Betamax in the ’80s endured some pain points when they had to make their transition over to VHS, there will likely be some bumps along the way, as online HR/benefits system adoption continues to grow. However, as these platforms become ubiquitous over the next several years, HR managers will find they have additional time and resources to invest in their employees — time previously spent filling out paperwork and managing a set of cumbersome, antiquated systems. Increased investment of time and attention to employee training, career path management and recruiting — and less handling administrative functions — will pay many dividends.