Employers are anticipating an increase in the cost of health benefits administration outsourcing, according to a new report by HighRoads, a provider of employer healthcare regulation compliance services.
Employers cwho are managing benefits in-house are looking to outsourcing to comply with provisions in the Patient Protection and Affordable Care Act (PPACA).
“In the past six months, there has been a wave of consolidation in the benefits administration outsourcing market which has employers uncertain about their benefits outsourcing fees and ongoing quality of services,” said Peter Hirano, a principal at HighRoads. “Even so, for those organizations who currently manage benefits administration internally, the increasing complexity of administering benefits, as more guidance and regulations are released, continues to make benefits outsourcing an attractive option.”
“It’s a good time for organizations to consider evaluating the effectiveness of their benefits administration and identify alternatives that will enhance their current delivery model while improving cost containment,” he said.
Key findings of the HighRoads Health and Welfare Benefits Administration Survey include:
- 35 percent of organizations administer their health and welfare benefits internally, while 65 percent turn to outsourcing.
- Of the organizations that manage benefits administration internally, 30 percent say new healthcare reform regulations make them more inclined to consider outsourcing, while 69 percent feel the new law will have no impact on their desire to outsource.
- 59 percent of organizations who outsource their benefits administration programs don’t know or can’t project how industry consolidation will impact their costs or their service over time, while approximately 30 percent believe they will see higher prices when they plan to renew or rebid their benefits administration work.
Of those organizations that manage internally, the factors that would cause them to outsource benefits administration include:
- The ability to react in a quick and cost-effective manner to change requests (27 percent);
- Lowering the cost of service (24 percent); and
- Access to better technology (14 percent).
“From our analysis, organizations that outsource their health and welfare administration and have a contract with associated pricing that was agreed to three to five years ago may have an immediate opportunity to extend or re-negotiate their contract at lower rates,” Hirano said. “This can effectively lock in a lower price now in exchange for a longer contract. However, if an organization has recently renegotiated with their vendor or made a transition to a new vendor, they should anticipate that costs may go up with renewal.”
Sixty-two companies, representing approximately 2.7 million employees, responded to the HighRoads survey. The average respondent had just fewer than 50,000 employees, with the largest employing 275,000 and the smallest employing 1,800. Survey respondents represented a wide variety of industries, with 17 percent in industrial manufacturing, 8 percent in healthcare and 6 percent in automotive and banking. The remaining fell into aerospace and defense, retail and transportation, electronics, food and beverage and leisure.