Health Care Reform Driving Administration Outsourcing

Forty-five percent of HR/benefits decision makers in mid-sized companies and 54% in large companies report that regulatory changes have made them more likely to outsource some or all of their benefits administration, as health care reform increases both the complexity and time required to administer benefits, according to a survey from ADP. 

Ensuring compliance is one of the top reasons survey respondents said they outsource benefits administration (54% of mid-sized and 49% of large). Employers also cited the need to access subject matter knowledge and expertise (50% of mid-sized and 41% of large) and reduce the administrative burden on internal staff (43% of mid-sized and 50% of large) as other key reasons for outsourcing.   

Nearly three out of 10 mid-sized companies (28%) and four out of 10 large companies (42%) report they are planning to outsource more services in the next 24 months.   

Most employers of all sizes continue to handle at least some elements of benefits administration internally. Forty-one percent of HR/benefits decision makers in mid-sized companies (compared to 21% in large companies) report they are most likely to administer benefits in-house because they believe it is easier to do so. HR/benefits decision makers in large companies have a different priority, with almost half (48% compared to 29% of mid-sized) reporting that they are most likely to administer benefits in-house because they want to maintain control over the process.   

Other findings of the survey include:  

• COBRA administration, Flexible Spending Account (FSA) administration and 401(k) administration are among the most highly outsourced functions; 
• Almost two-thirds of companies say that allowing internal staff to focus on more core business or strategic issues is a key advantage of outsourcing benefits administration functions (65% of mid-sized and large); and 
• Cost of services is the most important criterion when identifying an outsourced provider (71% of large and 72% of mid-sized).  

The online survey conducted in December 2011 by the ADP Research Institute includes input from 504 HR/benefits decision makers in U.S. enterprises, including 254 participants from mid-sized organizations (those with 50-999 employees) and 250 from large organizations (those with 1,000 or more employees).