With the face of healthcare changing and spending under greater scrutiny, benefitsadministration contracts are expected to rise in 2010.
By Debbie Bolla
Benefits administration outsourcing has been making headlines lately. You can’t go a day without hearing about the healthcare debate. Several companies are reaping the rewards, reporting an increase in contracts, including Secova and Aon Consulting. Both have seen boosts in the organizational demand for benefits administration services. A down economy coupled with a firestorm of legislative changes is driving this industry.
“We’ve seen an uptick in interest,” reported Joel Carter, vice president of business development and client services of Secova. “When you look at the market cycles, down business cycles are up times for outsourcing. One of the things that we are hearing differently this year, is that clients are looking to outsource not just because of a cost factor, it’s also due to the flexibility factor.”
Steve Migliaccio, vice president of product management at Workscape, agreed. “I am seeing the biggest first quarter pipeline activity I’ve seen in my nine years. Economic factors are causing companies to validate their options in the marketplace. I think more so than ever, the cost of healthcare is the top issue that CFOs are wrestling with.”
Cost of healthcare certainly weighs heavily on the minds of both the employers and their staff. As reported in Workscape’s annual 2009 Benefits Study, high deductible health plans were offered at half of small and mid-sized organizations, and two-thirds of large organizations. Total adoption has increased by 10 percent. With high deductible plans, employees typically see less total contributions withdrawn from their paychecks since the plans help reduce the cost of premiums.
“Today we have a much stronger ability to drive consumer-driven plans because the tools to activate are far more personalized and more specific to individual circumstance,” said Migliaccio. “The economy is driving these plans; employees have less discretionary income at home so the attractiveness of the cost is certainly there.”
Michael Murphy, leader, global sales and marketing for Excellerate HRO, HP’s HR services business, also emphasized that the opportunity for employees to be more involved in healthcare plans is now available. “Consumers are now taking control of health and benefits decisions when 15 years ago it was on the plan sponsor to own all of that,” he said. “Now we are seeing the shift. Shifts only work if you have embedded programs for the consumer.”
An area that companies are tapping into to save additional funds is investigation of ineligible dependents. Secova has been contracted by 23 new companies to implement dependent eligibility verification projects. On average, U.S. organizations lose approximately $22 billion annually by providing healthcare for employee dependents who are ineligible, according to provider Ceridian.
“Our research shows that up to 15 percent of employees’ dependents receiving employer-provided medical benefits aren’t eligible to receive them,” said Jon Attwooll, manager of Ceridian Verification Services.
Migliaccio cited similar findings. “2009 was a big year for dependent eligibility audits, because companies wanted to eliminate that leakage,” he noted. “It’s one key area where companies can eliminate fraudulent claims and unnecessary spends.”
He recalled two cases that Workscape addressed this year. In one instance, an audit revealed 6 percent of dependents of employees working for a large healthcare system were fraudulent and saved the company $2.2 million. Similarly, a national organization with an employee population of 10,000 exposed 13 percent of ineligible dependents and saved nearly $2 million.
It’s clear that the savings can be great. On average, by removing just one ineligible dependent from a healthcare plan, an employer can save about $3,000, Attwooll said.
Another hot button-issue on the minds of benefits administration providers is the amount of HRO contracts that are out in the market for renewal. According to the Everest Research Institute, $6 billion of multi-process HRO contracts are nearing renewal in 2010 through 2012, and everyone wants a piece of that pie.
“We’ve got a couple of clients that have broad HRO relationships with other companies, but we are the benefits administration provider,” said Murphy. “As these contracts begin to come up, the benefits administration is embedded with the broader deal and companies may be looking for a new provider looking to step in, in a broad way, and that will provide opportunities for benefits administration providers.”
And the changing face of healthcare will undoubtedly prove the value of leveraging the expertise of outsourcing experts.
“Everyone was waiting for the healthcare initiatives to hit, and a lot of clients were worried about how to handle these from an administrative perspective,” commented John Tirney, health and welfare practice leader for Excellerate HRO. “It doesn’t look like much will potentially happen right now. The big thing this year is continued focus on Cobra plans, regulations, and staying on top of those things.”