Benefits Outsourcing Is Up, Driven by Costs, Compliance

Corporate benefits departments are outsourcing more benefits administration and compliance functions, according to a December 2015 report, Corporate Benefits Departments: Staffing and Operations, by the nonprofit International Foundation of Employee Benefit Plans (IFEBP).

The findings are based on October 2015 survey responses from 343 HR and benefits professionals at U.S. companies across 20 industries.

On average, companies report outsourcing 40 percent of their benefits functions, most commonly for:

• Employee assistance programs (EAPs): 77 percent.

• Flexible spending accounts (FSAs): 69.4 percent.

• COBRA: 63.6 percent.

• Retirement benefit payments: 56.3 percent.

• Pharmacy benefits administration: 52.5 percent.

More than one-third of companies experienced an increase in benefits outsourcing over the past two years. The top reason companies outsource is to tap into more specialized expertise (47.8 percent), especially around legal compliance issues.

Other reasons cited were access to superior benefits administration technology and the desire to lower costs and reduce liability risk.

The top two challenges facing benefits departments by a wide margin are compliance with benefits laws and regulations (72.6 percent) and rising health care costs (51.9 percent), the survey found.

Outsourcing functions means more time can be spent addressing key challenges, like benefits communication and wellness. Almost 30 percent of companies dedicate staff primarily for benefits communication and 34 percent dedicate staff primarily for wellness programs, the survey revealed.

What does the staffing environment look like at most of the companies surveyed? The average benefits department has more than five staff members. About three staff members make up the department in companies with fewer than 1,000 employees, and up to 11 benefits staff members work in companies with more than 10,000 employees.

Despite the rise in outsourcing, benefits departments are growing and the job outlook for employee benefits is strong, the survey indicated. In the past two years, more companies have increased the size of their benefits staff than have decreased. The majority (73 percent) of respondents said they are optimistic about the future of benefits careers.

Advantages and Challenges

Both large and small companies can find greater efficiencies through outsourcing. Michele Talka is vice present for HR operations and total rewards at Baystate Health, a system of community hospitals based in Springfield, Mass., with 12,500 employees who receive benefits. The functions she outsources include absence management services such as leave under the Family and Medical Leave Act (FMLA) and short-term and long-term disability, as well as retirement administration and certain health programs.

For instance, her department outsources administration of a program to provide lower-income employees with a discount on their medical insurance. “Employees have to submit documentation around their need and family income level. Our outsource consultant does the administration so employees don’t have to submit personal, private information to us,” she said.

Baystate recently outsourced its EAP, which had been handled in-house by four staff counselors.

By outsourcing the EAP, “we saved about $300,000 a year”—mainly through reduced staffing—“and we were able to go to a national firm that provides not only those services but also work/life benefits, for a lot less than we had been paying.”

She added, “One goal is to reduce overhead expenses, but in addition there are efficiencies gained from outsourcing to a vendor that stays up-to-date with the compliance requirements, especially some of the absence management and FMLA areas, where you have to be on top of the current rules and regulations about what can and can’t be done. They’re the experts in their field, and we follow their policies for making sure that we’re in compliance.”

Baystate currently has a benefits staff of seven, and Talka estimates it would be closer to 10 to 15 if the outsourced programs remained in-house.

One communications challenge for outsourced programs has been encouraging employees to contact the vendor’s call center rather than HR. “They don’t like having to call a toll-free number; they want to talk to Craig in HR, because that’s who they have always talked to,” she noted. While that is becoming less of an issue as time passes, “it still continues to be a challenge for us.”

Help for HR Departments of One

Lena Smithis HR manager at Cannon Construction Inc., an infrastructure and utilities contractor in Lakewood, Wash. The company provides benefits to 145 employees.

“Our dental, life, long-term and short-term disability plans are all administered through a company called GIS Benefits Connect,” she noted. “We pay GIS for those premiums, and they consolidate the billing and pay the vendors.”

The outsourcing firm “also provide an online benefit enrollment and management platform, to administer the open enrollment process. Instead of having 12 enrollment forms from every employee, they just go online and do it. In that respect, outsourcing those benefits wasn’t all bogged down in my HR department of one.”

Smith added, “We’re small enough that HR is all in my office, along with a payroll manager, as we do payroll in-house. Outsourcing alleviates the need for us to bring in an HR administration person, which we otherwise would have had to do.”

Smith pointed to Affordable Care Act (ACA) compliance as a chief outsourcing driver. “Everybody is trying to figure out ACA reporting,” she noted. “Our vendor has an ACA reporting tool; they’re tracking the data so it should be relatively easy for us, which was particularly nice because we don’t outsource our payroll—and most ACA services are being provided as an ancillary feature to outsourced payroll.”

Smith still has to oversee reporting and disclosures, “but they collect the ACA data and put together all that information.”

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow me on Twitter.