Rather than reduce or eliminate benefits, employers are better off with outsourcing as a way to significantly reduce costs.
by Helen Neale
Healthcare costs are rising globally. It seems as though there are only two options for the provision of employer-sponsored healthcare benefits to employees to stem the tide of these increases: outsource healthcare benefits administration or no longer offer healthcare benefits within total reward.
NelsonHall research has shown that outsourcing health and welfare administration in North America is to increase by 14 percent on average per annum to 2013, with flexible benefits administration growth in Europe to be 17 percent in the same period. Clearly, organizations have begun to embrace this form of outsourcing.
In the current environment, it seems madness to remove additional health benefits from the total reward package when bonuses are not being paid, and salaries are frozen. The fallout could include:
- Lower employee productivity;
- Health management issues, particularly within countries with non-mandated healthcare;
- Losing high-performing employees;
- Negatively affecting the perception of the employer among top-talent candidates.
Despite these compelling reasons to remain in the health benefits business as an employer, a recent survey from Hewitt Associates states that 19 percent of employers are looking at exiting health benefits in the next three to five years, up from four percent in 2008.
So if companies do not want to suffer these fates, outsourcing seems a sensible course of action. What are some of the overall benefits achieved from outsourcing healthcare administration services?
- Reduced operating costs (first generation outsourcers principally) through economies of scale, access to improved technology, access to global delivery structures, and provision of multiple-channel contact center operations;
- Minimizing benefits-related costs, e.g., cost of benefits services being purchased, with organizations able to reduce administrative costs across commonly used insurance carriers in the U.S., and utilize buying power for wider healthcare benefits outside the U.S.;
- Access to wider range of technology, particularly with drive to providing employees with better education/communication surrounding their benefits choices to help change participant behaviors and drive utilization of existing programs;
- Ability to access flexible skills base, and therefore a variable cost base, which can be changed depending on current requirements such as increasing employees during open enrollment. An added benefit here is that HR employees are likely to be able to spend more time during these high-demand periods focused on the more strategic aspects of healthcare benefits such as health productivity management; and
- Improved integration with health management programs, to enable a company to address wider health issues within its employee population.
The ranking of these and other outsourcing benefits will naturally vary depending on the buyer’s current state and the strategic objectives of the benefits function. However, even within the U.S., where plan sponsors have historically been focused on improving participant experiences, sponsors have had to be more cost conscious.
Operational cost savings can be higher when outsourcing healthcare administration services…
- Alongside other services in total benefit outsourcing (TBO) arrangements, where buyers gain further benefits through sharing and integrating employee communications, technology, and resources between pensions and healthcare functions.
- Through global delivery models, with providers offering plan sponsors a mix of service delivery locations depending on buyer appetite for risk, and comfort for utilizing offshore delivery locations. As of the end of 2008, 10 percent of benefits administration services are carried out offshore. NelsonHall research expects this to increase to 15 percent by 2011. Cost savings can be as high as 50 percent.
- Through considering outsourcing discrete, single health and welfare administration processes, potentially as a step to outsourcing wider services. Single processes appropriate for consideration include dependent audits, with larger organizations paying for 5 to 15 percent of dependents that are ineligible; absence management, which when integrated with absence consulting services can result in the development of programs that can reduce costs associated with absence by up to 50 percent; and reimbursement administration (in the U.S.).