Should You Outsource Your Employee Benefits Administration?
Administering employee benefits can be quite complex. Understanding the considerations involved in the process will assist you in deciding whether you should handle your benefits administration on your own or outsource all or part of it.
Small business owners are some of the busiest people around. They usually wear many hats and may consider adding employee benefit administrator to their job description. However, administering even a few employee benefits can be complex and will be time-consuming. Only you can make the decision as to whether you should handle your employee benefit administration or hire someone else to take over the job.
When considering whether you should you handle your own benefits administration or whether you should hire someone else to do it, ask yourself:
- How involved in the administration do I want to be?
- Can I afford to purchase the software or hardware needed to manage the process myself?
- Will self-administration take too much of my time?
- Is there someone available who can administer my benefits at a reasonable cost?
The great temptation as a small business owner will be to handle the administration of your compensation package yourself. Many a small business owner has said, "I just have two [or whatever the number] employees; how hard can it be?" Resist the temptation, if at all possible. The road to frustration is lined with small business people who convinced themselves that they could handle their own administration. In today's market, you should be able to find an able administrator for a fair price, so that you can concentrate more of your time on what you know best. Among those who provide administrative services for a fee are insurance companies, consulting firms, banks, payroll service companies, and investment brokers.
Although there are firms and individuals who specialize in plan administration, your best bet may be just to use the company from whom you bought the plan. For example, you could use the insurance company from whom you buy the policy or the investment company who'll be handling your pension funds. They generally offer those services for a small additional charge.
So, the bottom line is that unless the plan you buy takes care of the administration, if you want to offer benefits without having to hire a full-time employee to administer them, you'll have to outsource the administration of the benefit programs.
Even if you choose to outsource your benefits, you cannot become completely disconnected from their administration simply by virtue of the fact that they involve your employees. Consequently, there are some laws and concepts that you should have a working knowledge of, even if it's only to keep tabs on your administrator. These subjects include:
COBRA, the health-care continuation law that applies only to employers of 20 or more
ERISA, a complex law that applies to benefit and pension plans
court orders that require you to pay or provide benefits to someone other than the employee
Outsourcing Benefits Administration
Outsourcing benefit administration allows you to keep your workers as employees of your business but takes away most of the administrative burden of having to do the paperwork and jump through the legal hoops of administering the benefit plans.
There are two essential steps in finding and keeping a good administrator:
- using good selection criteria in choosing an administrator
- measuring performance to make sure the administrator is working out
Selection tips. Finding just the right administrator for your employee benefits should not be something you rush into. When you're trying to pick an administrator, keep the following in mind:
- Although you have the option of switching administrators every year, switching can be costly and disruptive; therefore, you should take great care in making your choice, and you should assume that your relationship will be continuing.
- Administration has become increasingly paperless; you should be comfortable with your administrator's level of technology, sophistication, and commitment to keeping up with future trends.
- If you seek bids on your coverage, you should state clearly what your plan design will be and what your administrative needs will be; otherwise, you may end up with extra costs you didn't anticipate.
- If you expect your administrator to be able to guarantee certain performance standards (for example, to pay claims within x number of days), you should incorporate those in your request for a bid.
Measuring Performance. Whether you outsource your benefits administration or your insurance or plan company does the administration for you, you may want to set up a way to measure your administrator's performance. If so, generally, you will want to watch two areas: timeliness and accuracy. One good way to measure performance is to talk to your employees and ask them if they are satisfied with the service they are receiving.
Any administrator should be able to offer you a package of information that will help you measure your plan's effectiveness. For an additional fee, most will provide you with a customized package. Obviously, most of this information will be available only after you have been using the administrator for at least a year.
You should also be able to compare your employees' experiences against other employees' experiences. Ask your administrator whether it can deliver such a report to you. The report should allow you to break down the comparison by geography and by industry.
The term "claim payment performance" refers generally to how quickly the administrator pays claims. Some employers discuss claim payment performance with their administrators; others have specific performance standards put in their contracts. If you have some idea of how quickly you want claims paid, you should ask that your requirements be put into the contract. More specifically, here are some items you may want to monitor:
- claims appearing in the system
- claims being adjudicated
- claims being paid or denied
- checks being mailed
- phone inquiries being handled
- claim payment accuracy percentages for dollar amounts
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