Wednesday, May 9, 2012

Health Reform May Increase Benefits Administration Outsourcing

Health reform and compliance complexities are causing many companies to reconsider how they’re administering benefits and whether to outsourcer the benefits administration function, according to recent research from the ADP Research Institute. In fact, 45 percent of midsize (those with 50-999 employees) and 54 percent of large (those with 1,000 or more employees) employers have indicated that the Patient Protection and Affordable Care Act (ACA) and increasing compliance complexity have made them more likely to outsource some or all of their benefits administration, according ADP. The ADP survey noted that compliance with ACA provisions can increase both the complexity and time required to administer benefits, and 28 percent of midsize and 42 percent of large companies report that they are planning to outsource more services over the next 24 months.

Why? ADP found that ensuring compliance is one of the top reasons survey respondents said they outsource benefits administration (54 percent of midsize and 49 percent of large). Employers also cited the need to access subject matter knowledge and expertise (50 percent of midsized companies and 41 percent of large firms) and reduce the administrative burden on internal staff (43 percent of midsized companies and 50 percent of large firms) as other key reasons for outsourcing.

“It’s likely that outsourcing will become more common as compliance becomes increasingly complex with new health care regulations in the mix,” said Tim Clifford, President, Benefits Services at ADP. Clifford added that it is not just in the area of health care reform that compliance is becoming more demanding. The Sarbanes-Oxley Act (SOX), Health Insurance Portability and Accountability Act (HIPAA), Consolidated Omnibus Budget Reconciliation Act (COBRA), Family and Medical Leave Act (FMLA), Americans with Disabilities Act (ADA) and Age Discrimination in Employment Act (ADEA), to name only a few, have also increased administrative complexity in benefit plans for most employers. As new regulations are issued or prior ones are amended and modified, this trend is likely to continue.

Outsourcing experiences. The vast majority of HR/benefits decision makers reported that their outsourcing provider or providers have met or exceeded expectations (88 percent of midsize and 92 percent of large), the survey found. Additionally, 80 percent of midsize and 91 percent of large employers report that outsourcing at least some elements of benefits administration provided real value for their company and that outsourcing achieved several of their key goals.

ADP noted that most employers continue to handle at least some elements of benefits administration internally, although large employers are more likely to outsource a greater number of tasks than midsize employers. Forty-one percent of midsize companies (compared to 21 percent in large companies) said that they are most likely to administer benefits in-house because they believe it is easier to do so. Large companies have a different priority, with almost half (48 percent of large compared to 29 percent of midsize) reporting that they are most likely to administer benefits in-house because they want to maintain control over the process.

Currently, COBRA administration, Flexible Spending Account (FSA) administration and 401(k) administration are among the most highly outsourced functions. Almost two-thirds of companies say that allowing internal staff to focus on more core business or strategic issues is a key advantage of outsourcing benefits administration functions (65% of midsized and large). Cost of services is the most important criterion when identifying an outsourced provider (71 percent of large and 72 percent of midsized), the ADP study found.


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