It's Probably Time to Re-Bid Your Benefits Contracts



Failing to regularly evaluate the market for group health coverage, retirement plan services and ancillary benefits could be costly for employers, causing them to spend too much for benefits that employees don't value.

Many employers don't bid out their contracts—typically, by sending out requests for proposals (RFPs)—often enough, said Chris Renz, a partner with HR consulting firm Nua Group in San Francisco. "Some never do it and just renew their contracts each year."

Re-bidding annually, however, could lead vendors to view any contract as a short-term commitment rather than a relationship in which they should invest.

Renz recommended that employers make sure their vendors are delivering competitive pricing and services by putting contracts out to bid every three to five years—or earlier if there is a major issue with the vendor's service or if some aspect of the arrangement has changed.

Given the scrutiny of retirement plan fees, rebidding 401(k) service provider contracts can help employers feel more confident that they are fulfilling their fiduciary duty by offering a plan that isn't overcharging participants.

Other benefits contracts can also grow stale over time. An employer, for instance, might want to issue RFPs to seek a better deal if their workforce has increased in size or if an employer may be looking for a particular new product or technology to improve employees' satisfaction with their benefits.

With regard to health plans, employee satisfaction is driven by cost, coverage and choice, new research shows. Employers won't know if a different insurance issuer or third-party administrator can better meet these needs unless they survey the market.

The number of vendors selling ancillary benefits—including employee-paid but employer-negotiated voluntary benefits—continues to grow. As employers become increasingly concerned about employees' financial wellness and physical well-being, for example, a periodic re-bid of existing contracts can be a good way to see what's become available in these areas.

Get the Most from Re-Bidding

When an employer decides to re-bid a contract, Renz suggested obtaining three or four bids and choosing the vendor with the service model that best fits the employer's needs and offers the most competitive pricing.

Here are some other ways to make sure the organization is able to negotiate a competitive contract for the services it needs.

Know what you want and need … and what you don't.
Cost is not always the driver when an employer re-bids employee benefits contracts. "Most employers are looking for the best value, better service and responsiveness from their provider and a multiyear strategy to help them reach their goals," said John W. Seltzer, CEO of benefits consulting firm J. Seltzer Associates in Pittsburgh.

By articulating what they are trying to achieve, employers can increase their options. With a clear strategy, employers can better evaluate whether an all-in-one bundle of services will help them achieve their goals or if a pick-and-choose unbundled approach is more appropriate. For example, "when looking at medical plan benefits, consider placing the prescription plan with an independent pharmacy benefits manager versus having it embedded in the medical plan," said Laurie Brednich, CEO of HR Company Store, an online clearinghouse of HR service vendors information based in Chandler, Ariz.

Don't let size limit options.
While the largest employers with the biggest budgets are likely to get the best deals and most attention, small and midsize employers also have opportunities to find better deals. In these cases, "it is important to leverage any and all special arrangements within [a given] industry," said Brednich. Industry associations, for instance, "create affinity programs or purchasing coalitions for their members to buy health or retirement plans, leveraging their larger size for greater purchasing power."

Membership in regional health care purchasing consortiums can also help smaller employers gain access to better deals and more services.

Vendor size can also impact contracts. Brednich suggested that employers consider the benefits of being a bigger fish in a smaller vendor's pond, compared to the potential cost savings of contracting with the largest providers that may offer the greatest economies of scale.

A "small and hungry boutique vendor may provide great pricing coupled with outstanding service," she said. At the same time, the largest vendors, "by nature of their size, have pricing that just can't be beat. It is important to look at both to figure out which is best for the organization."

[SHRM members-only HR Q&A: What should my company consider when selecting a benefits broker?]

Get it in writing.
"Vendor promises made in proposals and during meetings will not amount to much unless those promises make it into the final service level agreement," Renz said. Contract terms can cover a vendor's commitment to review and share employees' experiences, analyze service center statistics, describe the technology that will be available, and so on.

"When asking for financial terms, it is important to ask for metrics not just on the prices you pay but on service performance," Renz explained. "What will they measure, how often will they measure it, and what will be the penalties or remedies if they do not meet those metrics?"

Leverage internal resources.
HR executives do not have to handle this re-bidding process on their own. Analysts from finance, the CFO, internal procurement professionals and even the CEO can all play a role in creating a re-bidding process that will yield the best possible services for the most competitive price.

Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Article:

Know What You Need to Select a Benefits Provider, SHRM Online Benefits, July 2017

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