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Outsourcing Benefits: Answering Pressing Questions
Payroll Blog Post

Benefits Administration Outsourcing: A Question & Answer Guide

I have been trying for the last several days to wrap my head around the U.S.’s new healthcare reform provisions. But unfortunately either I’ve grossly overestimated my intellect, or seriously underestimated the lengths to which legislators will go to make things complicated. Whichever the case may be, I didn’t color myself surprised when I found out that CedarCrestone’s HR Systems Survey uncovered results that indicated a trend towards benefits administration outsourcing (BAO) caused by the complexity of these new regulations.

Even so, benefits administration has been a stalwart function in the Payroll and HR landscape for decades; and for many organizations is the last bastion of the transactional elements that are rapidly being replaced by newer, transformational processes and technologies. So just as it might be no surprise that our increasingly intricate and involved compliance environment has caused many companies to seek out specialist benefits outsourcing providers, it’s likewise no surprise that there are just as many businesses that are reticent to go the BAO route. In large part though, what I’ve heard from business leaders and benefits administrators trying to navigate these murky waters is that what really keeps them away from BAO is the queries they have that remain unanswered. That’s why I decided to write this post; to address (if I can) just some of the frequently asked questions (FAQs) that keep coming up in my conversations about outsourcing the benefits function.

Benefits Outsourcing Question #1: Can It Help With Healthcare Reform Issues?

As I often quip with the business leaders I talk to who pose this question, the only thing that BAO can’t help with is electing new politicians; that part’s up to you. Seriously though, not to oversell the benefits outsourcing option, but the current round of health care reform (including the much-maligned PPACA) is the single biggest driver for the delegation of benefits administration to a 3rd-party provider. And honestly, for good reason says Towers Watson’s Annual Benefit Enrollment Survey. According to the company’s research, “More companies that outsource reported that implementing health care reform-related administrative changes was easy”. Yep, you read that right…easy. How is that possible? Because maintaining up-to-date knowledge and expertise in-house are becoming increasingly taxing tasks—especially considering how many employee questions are having to be fielded about those very reforms. BAO providers on the other hand have paid staff to handle those responsibilities.

Benefits Outsourcing Question #2: What Processes Should Be Outsourced?

Not to sound too wishy-washy, but the answer to this is: it depends. What I mean by that is that individual business needs and the level of specialist knowledge that you already have through current staff will have a serious impact on what outsourcing needs your organization will incur. For instance, SHRM’s Transforming HR Through Technology report found that many organizations are opting to just go with benefits information support like financial literacy, 401(k) management, and healthy living practices. At the same time, Towers Watson’s research confirmed that the majority of outsourced benefit processes fall into the category of technical processes such as Family Medical Leave. Further still, ADP, who is one of the world’s largest providers of business process outsourcing (or BPO), discovered that (of the thousands of clients that choose to outsource elements of their business processes) the most common ones included COBRA, FSA, open enrollment, and eligibility verification. So as you can see when we look at just three studies on the same topic, there isn’t consistency. That means you’re going to have to get down into the nitty-gritty of what your workforce is asking for; evaluate the resources you currently have to be able to handle those requests; and then put together your unique list of the areas where BAO will net you the most benefits (all pun intended!).

Benefits Outsourcing Question #3: What Effect Will This Have on Staff?

Again, the answer to determining the effect a benefits outsourcing strategy will have on your employees depends largely on your organization’s requirements and unique situation. For instance, are you talking about the effect this will have on benefits administrators or employees utilizing the outsourced services? For the benefits function staff, there will undoubtedly be an adjustment period, but the lessening of their administrative burden will allow for more strategic benefits initiatives to be undertaken. And as for the employee end-user, assuming that the process results in a more efficient and informative service experience, employee reactions tend to be positive. However, as Aberdeen Research Group points out, BAO self-service capabilities for employees are the real lynchpin; for both efficiency and adoption. In fact, Aberdeen found that these self-service transactions were one of the key differentiating factors between “Best-in-Class” organizations and laggards. Irrespective of feature sets though, what cannot be ignored (no matter which constituency you’re talking about) is the need for change management. If you want your BAO service to be successful, then stakeholders in the benefits process have to be involved with these decisions.

Some Final Thoughts on Benefits Outsourcing

Depending on your unique organizational needs and environment, your business may be one of a growing number of companies that’s ready to outsource the administration of benefits. In fact, Towers Watson’s HR Service Delivery & Technology survey found that you may be one of the 17% of businesses that’s looking to do so within the next 2 years. And with reasons like improved services at lower costs; compliance assistance; and access to specialist expertise and newer technologies and platforms, that would seem like a wise decision. Just remember that there is no “one-size-fits-all” strategy when it comes to the BAO process. So get to know what you need first before jumping headfirst into an outsourcing relationship.

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