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

HRO Tips You Can Use

1.  Buyers, U.S. healthcare reform will continue — be prepared.

At the Mercer client conference last week, it was very helpful to hear its view of the precarious future of the U.S. healthcare reform. The healthcare reform act is being challenged in court in whole and in part and the outcome is uncertain. In the meantime, dates for further implementation are rolling near. Mercer posits that the act is unlikely to be repealed in total, but some amendments will likely be changed. Some are concerned large employers will dump employees into state healthcare exchanges and pay the relatively small penalties. Terms in the act make that unlikely as subsidies decline as income rises and are eliminated totally at $100,000. Also, larger employers need to compete in the war for talent and providing healthcare benefits will keep them in the game. The advice for smaller employers may be different and hybrid employee segment coverage models may develop.

2.  Misaligned expectations and poor implementation can still kill a HRO deal.

At lunch, a buyer told the sad tale of a failed initial outsourcing experience. By now, you know the too often told tale: misaligned expectations, a botched implementation, and an adversarial governance relationship that was not healed in time to save the deal. In retrospect, the benefits manager can see that they were 49% at fault, which includes failing to appoint a full-time implementation project manager or addressing the internal change management issues that come with first time outsourcing. The client is now with Mercer, providing a happy ending that was earned the costly way.

3.  Have a social media curator.

Brand management has changed permantly; any illusions of controlling your own brand are being shredded by social media and the same will be true of employment brand management. Can your HRO vendor manage its own brand socially and can they help you manage yours?

4.  An issue of passion can turn into a global wellness campaign and change lives.

Launching a wellness campaign to reduce healthcare costs and indirectly increase productivity is a worthy business objective. Levi Strauss, very early on, addressed HIV education out of deep concern for its employees and found it needed to first break through misinformation and fear. Now there is a new generation that will get the same education. Value-based passion, along with a great wellness program will be sustained for the long-term, helping employees and their families as well as generating savings.

5.   Vendors, invite industry analysts to your client conference.

Hearing the presentations and thinking about how they inform in ways that showcase the strengths of the service provider (perhaps stimulating further inquiries), speaking informally to clients, and looking for the consistency and continuity in what was said to industry analysts and now to clients. It all helps build a 3-D view into the vendor’s world.

Are you ready for your HRO 3-D close-up?

Linda Merritt, Research Director, HRO, NelsonHall