Imagine taking all the hassle from your entire benefits package and pushing it off onto someone else to let them deal with it. No more complicated forms, no more searching for the right plan, no more quality reports, no more mumbo jumbo. You pay a basic fee to someone to handle it all for you while you concentrate on making money.
An outside agency takes over many of the roles of a human-resources department. Information about new hires and fires is sent to the agency, which deals with COBRA notifications, handing out medical enrollment kits, filling out forms for 401(k) plans, and maintaining the mountain of paper work that comes with any benefits package.
"Outsourcing is a mentality where you are working off of one number," says David Neikrug, president of Hakol Benefits Group, a health-care consulting firm specializing in small- and medium-sized businesses. "There is one number for all benefit issues. There is no medical card, dental card or 401(k) card. With outsourcing, the employee can call one number and any benefit problem will be taken care of."
To track down why a claim wasn't paid, an employee can call the agency instead of using up his own time.
"They're on the phone five or 10 minutes, then they're back at their desk for work," notes Neikrug.
The less time an employee is arguing with insurance company customer-service reps, the more time he has to concentrate on his duties. This one-number method is also seen as an added benefit to employees because it simplifies the work they have to do to take advantage of the benefits package.
Keeping employees off the phone isn't the only reason to consider outsourcing.
"There are a number of compliance issues," says Neikrug. "The Department of Labor and the IRS are increasing their reporting requirements and increasing their penalties."
It's difficult for a business to have all the expertise on staff to deal with the myriad of subject areas that benefits encompass. There is no college degree available in "benefits," and expertise may be needed in law, taxation, accounting, industrial psychology or compensation.
Who can outsource
For smaller firms, outsourcing simply may not be an option. Most of the firms handling outsourcing are interested only in companies with thousands of employees. Some firms will handle smaller clients, but a minimum of 100 employees is required to make it feasible. Outsourcing benefits is possible for fewer than 100 employees, but is typically limited to high-revenue companies such as law firms or high-tech ventures.
"If a company is willing to pay the fees, who wouldn't take them?" says Neikrug. "But the fee structures for small firms are going to be cost-prohibitive."
There is usually an implementation cost that will vary as to how much work the company has to do to get all the insurance documents in order. After the initial setup, there will be a monthly per-employee cost of $5 to $25. These are just the administration costs, and do not include the cost of the insurance coverage.
There are many firms that will handle a part of your benefits package regardless of the number of employees. For instance, you may already be paying someone to administer only your 401(k) program. It is possible to simply farm out every aspect of the benefits package to specialized firms. Although you may be able to minimize your human-resources staff, that won't be the one-number-solves-all solution that outsourcing to a single entity creates.
"It's the piecemeal approach to outsourcing, but you'll still need someone to manage the pieces," says Neikrug.