Benefits Outsourcing: Focus on the Employee Experience

An HR practitioner shares his views on effectively outsourcing benefits administration

By Joseph B. McGhee, PHR February 11, 2013

As companies turn to business administration outsourcing (BAO) for more and varied functions, the vendors’ presence becomes more apparent to the employee end-user. Companies that in the past may have partnered with BAO providers for behind-the-scenes functions—such as open enrollment support or summary plan description creation—are increasingly using the vendors as employees’ major point of contact for all things benefits-related.

BAO in the U.S. was a $6.1 billion industry in 2012, according to a report by the Everest Group, an outsourcing advisory firm. Despite being among the most mature HR outsourcing markets, BAO saw a 13 percent annual growth rate, driven in part by health care reform compliance challenges.

There can be added value for both the employer and employee with BAO, particularly for functions that are administratively burdensome or highly specialized, such as dependent eligibility audits. Participants recognize the cost savings that their company will reap when eliminating those who should not be enrolled in the program—savings that can be passed along in the form of smaller future increases in cost sharing.

Another specialized function commonly outsourced is the wellness program. These initiatives, though, will usually have a “champion” within the company’s HR or benefits staff. The vendor is used to assist the company in successfully rolling out its wellness brand to the workforce, tracking participation and administering rewards. Employees will see this as a natural partnership, and in most cases can readily determine who serves as the internal wellness liaison for their company. Questions and issues can be directed to and resolved by HR internally or with the vendor.

Forthy-three percent of surveyed employees would
prefer to get information and advice on benefits from
an HR/benefits professional at their company.

Communication Challenges

Employees appreciate the efforts taken by employers to educate them about their benefits choices. If the employer seeks the resources of an outside provider to tailor communications to specific employee groups with different needs, and to deliver communications through multiple media channels, all the better.

The 2012 AFLAC Workforces Reportfound that 56 percent of workers estimate they waste up to $750 each year because of mistakes they make choosing their health insurance benefits. In particular, benefits education has become of utmost importance for participants who are seeking to understand their health care spending habits as they weigh the option of enrolling in a health savings account (HSA), or who are provided with an HSA-linked high-deductible plan as their sole health care option.

But no matter how great the time or monetary savings from hiring a BAO provider, the employer should focus on the employee end-user’s experience when structuring how the new vendor relationship is going to function.

Employers should not forget that employees still need a personal touch—they often seek guidance from someone with their best interests in mind, someone within their own organization. According to the AFLAC report, 43 percent of surveyed employees would prefer to get information and advice on benefits from an HR/benefits professional at their company.

While employees are likely to accept an outside company tackling the more administratively burdensome benefits tasks, most companies would be wise to make sure someone internally in HR is sufficiently knowledgeable and readily available to step in when an issue is escalated and unresolved by the vendor. Also, the internal professional should be ready to handle issues that are particularly time-sensitive in nature.

The more hands-off and distant the company’s benefits staff is, the more difficult it will be for them to effectively intervene. The space between HR and the outsourced vendor could easily deteriorate into an environment where no one “owns” the issue and no one seems accountable. Lower employee engagement and productivity could be the otherwise avoidable result.

Joseph B. McGhee, PHR, is an HR and employee benefits professional in Richmond, Va.​


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