Benefits Outsourcing is Blooming

Linda Merritt, HRO Research Analyst, NelsonHall

Benefits administration is producing a bountiful crop of new and expanding services. Recent contract award announcements included ADP, Aon Hewitt, Ceridian, Equiniti, Fidelity, Mass Mutual and Merrill Lynch. A wide range of industry segments were represented: banking; food; education; non-profits; hi-tech; pharmaceuticals; and travel. This week, I have taken a look at some of the newer benefit outsourcing “crops” that are starting to grow nicely.

Managed Retirement Accounts

Fidelity’s relatively new managed retirement account offering – Fidelity Portfolio Advisory Service at Work – was designed to address the low rate of adequate preparation for retirement by many employees by combining Fidelity Investments plan sponsor customized portfolio active management services with auto enrollment and available advisory services to help bridge the gap in achieving retirement goals from a defined contribution plan. The service grew in both participants and assets by 50% in 2012. Already in 2013, another 135 new clients have been added, bringing the total to more than 1,800 plan sponsors.

• Fidelity awarded a contract for Portfolio Advisory Service at Work by ADM.

Health and Wellness

ADP’s Vitality wellness solution supports employers with between 50 and 1,000 employees manage rising healthcare costs and also reduce employee absenteeism. Vitality’s incentive-based program includes an interactive wellness portal, health risk assessments, biometric screenings and personalized wellness plans with recommended goals and activities. It integrates with social networking sites, mobile applications and fitness technologies; and when employees achieve planned goals, they earn points towards lowering their health plan contributions. The service is also integrated with ADP’s payroll services.

• ADP awarded a contract by Jackson Companies for ADP Vitality services.

Benefits Bouquet Bundles

HRO buyers want multiple related services from one vendor under one contract; and health and wellness lends itself to packaging separate services into bundles. Ceridian’s LifeWorks.com combines EAP, work-life, and wellness services into one program with its own portal and mobile access. Also available is Health Coaching – a program for high-risk employees that provides access to comprehensive health assessments and personalized guidance programs – and Client Value Dashboard – included for employers to monitor reports usage data and ROI information.

• Ball State University chooses Ceridian’s LifeWorks.com

Private Employer Exchanges

Mercer’s Marketplace allows employers to improve management of their benefits spending and administrative responsibilities for active employees. Employers determine how much to contribute toward the cost of their benefits program and can select from a range of insured and self-funded products and providers. The platform includes full benefits outsourcing and provides employees with call center and online decision support.

• Mercer recently announced names of 10 of its 20 national, regional and state carriers that have joined Mercer Marketplace for providing core medical and voluntary benefits.

A good garden has a variety of plants. Some base crops are evergreen like benefits enrollment and management services, while others are changed out to meet growing market demand. Benefits HRO: how does your garden grow? Very well thank you.

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Uncertainty as a Competitive Advantage for Benefits Administration Outsourcing

This week let’s explore how benefits administration (BA) can create a competitive advantage from uncertainty.  A new Institute for Corporate Productivity (i4cp) study, The State of Employee Health Care Benefits, indicates that many organizations are still in wait-and-see mode due to health care reform uncertainty and are delaying any major overhauls of health care benefits into 2012. In the meantime, high-performance organizations are differentiating themselves in the talent marketplace by:

• Emphasizing literacy in health, health care terminology, and health care plans (75%) relative to low-performing organizations (45%)
• Using incentives more than low performing organizations, especially for biometric screenings and health assessments
• Using a broader range of cost-sharing strategies than low performing organizations.

An interesting data point: more high performing organizations report that they target offering competitive benefits (64%), while many low performers target “better than” competitive benefits to effectively compete for talent (43%). High performance companies offer a wider range of common benefits like medical, vision and dental, and provide benefits for part-time employees at almost twice the rate of lower performers. All surveyed organizations continue to increase approaches for employee cost-sharing.

Benefits administration is a win-win HRO opportunity zone for client-vendor partnerships that offer great service at competitive prices while working together to optimize total benefit spend. Mercer just issued a summary of new business for 1H 2011. A significant portion of the 15 new BA contracts, including 10 large market clients, are for added service lines with existing clients. Mercer’s HRO revenues are also up 20% year-over-year, based on a similar volume of new business in 1H 2010.

Buyers, look for a BA service provider that also offers multi-channel employee communication excellence beyond the annual enrollment window. According to the i4cp, “quality of communication will likely be the arbiter of whether or not a new approach to employee health care is embraced by employees.”

Equally important is finding a BA vendor with the capability to gather and analyze evidence-based data that will help you manage the dynamic balance between employer cost, talent management, and employee benefit. Finding a strategy that balances costs with effectiveness is a moving target. Gaining employee cooperation in containing health care costs is extremely difficult for all companies, high performing or not. For example, a poorly designed and communicated incentive can disincent the desired behavior.

Providers, there will always be clients looking for low cost commodity-level BA. There will also be high-performance companies, and those who want to be, willing to lead the way with the right vendor partner in actively managing benefits programs way beyond basic administration. Do you take into account prospect and client market position, strategy, and culture when shaping offers? Do you vary service packages to create pricing offers based on client segments? How effectively are you leveraging your competitive advantages in employee communications that increase desired behaviors and do you have the empirical evidence to prove it?

Linda Merritt, Research Analyst, HRO, NelsonHall

Providing Value Through HRO Research

HRO service providers can derive significant value from producing and sharing research information. Vendors can show thought leadership, establish service and subject matter creditability, and reinforce brand differentiation, even as they gain a source of marketing materials and a lead-in to client discussions, as well as some free public relations coverage.

Much HRO research is designed to directly reinforce the need for the services and consulting offered by the service provider. A recent article by Ceridian discusses whether U.S. employers will drop employee health care plans when the Patient Protection and Affordable Care Act (PPACA) coverage requirements become effective in 2013. After providing some PPACA information, Ceridian moves to support services it offers, specifically consumer driven-health plans and health saving accounts.

When providers are not conducting primary research, it is important to reference other reputable resources. In this case, Ceridian quotes America’s Health Insurance Plans (AHIP), which recently reported that enrollment in Health Savings Accounts (HSAs) had reached 11.4m people in January 2011, a more than 14% increase over 2010. According to the AHIP, HSA enrollments have nearly doubled in the last three years and large group coverage was up 26% last year. Ceridian also quoted its executives, one of its own statistics, and ended with links to its web pages on CDHCs.

This is a solid, but perhaps overly focused on service offerings and marketing, communication designed to help it further tap a market where only 11m of a potential 160m are currently enrolled in an HSA.

A second example comes from a Mercer press release about the impact of automatic enrollment on defined contribution savings rates. It also directly supports Mercer services and it additionally offers information that is a bit more consultative.

Mercer used its own database of its 1.2m DC plan participants to show the positive impact of automatic enrollment and automatic increases on contribution rates. Participants who were automatically enrolled in their plan and use the automatic contribution increase have a 25% higher contribution rate (4.4%) than those who do not use the feature (3.5%).  Even better savings rate results come from self-enrolled participants (7.4%), and those who do self-directed increases, had the highest rate of all (8.5%). Company executives are used to further the messaging by commenting that those who self-enroll and set their own contribution rate contribute nearly two and half times more than those who are automatically enrolled.

With a bit more subtle communication, Mercer is establishing that it is a major player in DC by sharing information on what its 1.2m participants are actually doing that can help employers make policy decisions, support additional consulting, and reinforce the need to keep up proactive employee communications programs (which is a brand differentiator for Mercer) to support maximum effectiveness of the offered benefits of a DC plan.

Do you look at your vendor as a trusted and value-added source of information?

Linda Merritt, Research Analyst, HRO, NelsonHall