Healthcare benefits are complicated. Federal regulations are under constant scrutiny and frequently undergo revisions. Plan setup, account management, and compliance are just a few of the time-consuming demands that come with the job of benefits administration. While employers may think they should handle these detail-oriented duties with an in-house staff, outsourcing benefits administration to an expert third party administrator can be more cost effective and help deliver a better overall experience.
Benefits administration is a complex and highly regulated world. Contributing factors to this complexity include the Affordable Care Act (ACA), HIPAA, COBRA, and the Americans with Disabilities Act (ADA) among others. Nevertheless, many employers still handle multiple elements of benefits administration in-house (though it’s important to note that large companies tend to outsource more than other companies).
Keeping in compliance is a challenge. Nondiscrimination testing, COBRA communications, and reporting requirements are just a few of the necessary tasks that keep employers on their toes. Failure to meet these obligations can be fiscally detrimental and often financially dangerous.
Trusting a third party benefits administrator with plan setup and account management enables employers to focus on their core competency, stay in compliance, save money, and deliver a higher quality benefits experience for its workforce.
Problems with In-House Benefits Administration
Employers who want to keep a close eye on their benefits administration may believe that they can handle it better than an outside organization, regardless of how professional and specialized. However, there are a slew of considerations an employer should consider if it wants to deliver quality benefits administration to its workforce.
Personnel costs – Benefits administration is not easy. It takes a dedicated team to ensure compliance, manage claims, perform plan testing, and other related tasks. The first question to ask is “do I have sufficient staff to handle this?” Adding more work to a busy Human Resources team may not be the best answer; it leaves less time for HR personnel to tend to other employee needs. Plus, due to the complexity of benefits administration, knowledge and competency should be a high priority.
Plan complexity – Employers who want to deliver quality to their workforce need to consider what type of plan they offer and how that affects administrative needs. Is it simple or complex? Can an in-house team crunch the numbers and provide objective oversight to the type of plan? If the plan is complicated, such as a complex HRA, experience cannot be overvalued. Also consider the plan enrollment workload, which is time consuming.
COBRA and claims compliance – Nearly three out of four employers say that compliance is the biggest issue their benefits departments face2. Administering COBRA is no simple task, and failure to comply can be exorbitant. ERISA violations can cost up to $110 per day and excise tax penalties can be levied at $200 per day. Claims processing can also cause compliance headaches. An improperly processed claim can lead to a host of additional issues for participants and the employer.
HIPAA risks – Protecting sensitive healthcare information for plan participants is a very serious issue. In-sourcing benefits administration puts an enormous amount of pressure on the benefits management team to ensure they are following all HIPAA regulations. A HIPAA violation can cost up to $1.5 million3 – a substantial risk for any employer.
Nondiscrimination testing – For many benefits, employers enjoy a tax-favored status, so long as the plan meets certain requirements. As such, plan audits should be completed annually. Benefits that should be tested include 401(k), Cafeteria Plans (Section 125), Health Flexible Spending Accounts (105), Dependent Care (129), and Self-insured Medical Plans (105). Do highly compensated employees (HCEs) get better benefits than those who are not highly compensated? If found in violation, plans that do not fix nondiscrimination test failures may lose their qualified plan status, with potentially enormous tax consequences.
Reporting – Employers of all sizes must comply with IRS reporting requirements under Sections 6055 and 6056. Large employers (those with 50 or more full-time employees) are responsible for Large Employer and Minimum Essential Coverage (MEC) reporting while self-insured small employers must also comply with MEC reporting. Ensuring the deadlines are met and correct paperwork is completed takes a lot of time.
The Pros of Outsourcing Benefits Administration
While employers may want to keep a close eye on benefits administration, outsourcing benefits administration to a professional third party administrator (TPA) can solve many of the cost, reporting, and manpower needs that employers look for.
Professionalism and industry knowledge – The number one reason employers outsource benefits administration is expertise2. With an industry that is continually changing, it makes sense that companies would turn to an experienced TPA for help. Keeping up with new regulations and ensuring every T is crossed and I is dotted is a monumental undertaking, particularly for an HR or benefits department that is already consumed by other work.
Objective assessment – Having an objective professional opinion provided by experts is invaluable. HR staff, no matter how competent, may not be able to see the bigger overall picture and provide the feedback necessary to ensure a plan design tailored to the employers’ needs. Talking through your vision and exploring different solutions can lead to a more satisfying experience for everyone involved.
Better use of internal resources – Outsourcing benefits administration has several financial and staffing advantages. First, employers don’t have to hire additional people to manage benefits (an average benefits department has more than five staff members4). For companies with small HR departments who are already busy, outsourcing can leave the HR team free to focus on its primary duties. It will also result in fewer overhead costs, less training, and less impact when turnover occurs within the benefits department. A TPA already has the staffing in place to manage accounts, which could lead to better cost savings for the employer.
Improved communications – Third party benefits administrators have communications plans in place for their employer groups. These communications can help the employer’s HR team circulate benefits education, enrollment deadlines, and other important information. In turn, this can help boost plan enrollment, resulting in higher savings for employers.
Keep employees happy – Having a professional team manage the company’s benefits can ultimately lead to a happier workforce. A TPA most likely offers a greater range of benefit options than an employer may have known were available. Plus, in addition to better plan management, outsourcing can result in less internal animosity and emotional conflict with sensitive issues like COBRA or if something else goes awry.
Fewer compliance and HIPAA worries – An experienced COBRA administrator relieves the employer of the worrisome compliance burden. If an issue arises, the TPA should have the tools necessary for tracking, reporting and other controls to prove to the regulatory bodies that the employer’s obligations have been fulfilled. In addition, the TPA assumes the risks for HIPAA compliance, not the employer. Consider these examples of costly HIPAA violations from 20185:
- Fresenius Medical Care North America paid $3.5 million for multiple compliance failures that resulted in five personal health information breaches.
- University of Texas MD Anderson Cancer Center paid a penalty of $4.3 million for a lack of electronic encryption that led to the disclosure of nearly 35,000 patients’ personal health information.
- Anthem, Inc. settled for a $16 million fine for a data breach of 78.8 million records.
Benefits administration is challenging. Plan setup, enrollment, and HIPAA and COBRA compliance are just a few of the considerations that employers must navigate to provide employees with a high quality benefits experience while also avoiding costly penalties and fines. Hiring a dedicated benefits staff can be expensive and burden an already busy HR department with additional duties that can lead to a wide variety of problems. Ensuring that you deliver a quality benefits plan that saves money, keeps employees happy, and keeps you in compliance with state and Federal regulations is crucial. Outsourcing benefits administration can deliver peace of mind and a better benefits experience for employers and employees alike.
About the Company:
Founded in 1984, DataPath, Inc. is an administrative solutions provider for tax-advantaged healthcare benefit plans including FSAs, HRAs, HSAs, COBRA and other employer-sponsored benefits. The company also created the award-winning employee education and engagement program, The Adventures of Captain ContributorTM. Learn more at dpath.com or call (800) 633-3841.
1 Benefits Administration: Should You Outsource or Manage In-House?, ADP Research Institute, 2012
2 Corporate Benefits Departments: Staffing and Operations, International Foundation of Employee Benefit Plans, https://www.ifebp.org/bookstore/corporate-benefits-departments/Pages/default.aspx
3 “HHS to cap HIPAA fines based on ‘culpability,” Modern Healthcare, https://www.modernhealthcare.com/government/hhs-cap-hipaa-fines-based-culpability
4 ”Benefits Outsourcing Is Up, Driven by Costs, Compliance,” SHRM,
https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/benefits-outsourcing-up.aspx 5 “HIPAA Violation Cases,” HIPAA Journal, https://www.hipaajournal.com/hipaa-violation-cases/