Not a Member?  Become One Today!

Health Care Reform Accelerates Benefits Outsourcing
 

By Stephen Miller, CEBS  10/5/2011
 

The benefits administration outsourcing (BAO) market in the U.S., largely fueled in recent years by employers needing help to comply with health care reform measures, grew at a rate of 12.5 percent in 2011 and has crossed the $5 billion mark, according to Everest Group, a global services advisory and research firm.

Everest Group’s Benefits Administration Outsourcing Annual Report–The BAO Market: Mature Yet Dynamic, finds that buyers are outsourcing health and welfare services at four times the rate they are adopting outsourced pension-related services. Everest Group estimates the global benefits administration outsourcing market is about $5.4 billion in annual contract value.

“While cost reduction, compliance and improving employee engagement continue to be drivers of benefits administration outsourcing adoption, the theme for 2010-2011 was health care reform in the U.S., which brought increased regulation of insured and self-insured insurance plans,” said Rajesh Ranjan, research director at Everest Group. “Consequently, we’re seeing buyers looking at outsourcing as an option to understand the reforms, navigate the complexities and identify new savings potential.”

In addition to new deal signings, several second- and third-generation deals are shaping up the overall benefits administration outsourcing market. “Instead of auto-renewals, several existing buyers are more deliberate in their end-of-term strategy decisions and often evaluate their next generation option by going out in the market,” said Ranjan.

Among service providers, Aon Hewitt and Fidelity led the U.S. benefits administration outsourcing market in 2011, with a combined market share of nearly 50 percent in terms of annual contract value, Everest Group found. Other BAO service providers with substantial market share included (alphabetically): ACS-Xerox, ADP, Ceridian, iGate Patni, Infosys, ING, Mercer, Secova and Towers Watson.

“We’ve seen the highly competitive service provider landscape evolve as the result of mergers and acquisitions,” said Ranjan. “The BAO market also saw significant activity by some service providers that built up additional capabilities across technology, processes and delivery models. Additionally, many service providers are differentiating themselves through specialization by focusing on geography or process scope.”

The study includes analysis of 2011 outsourcing contracts for health and welfare plans as well as defined benefit and defined contribution plans, with a contract length of at least two years and buyer size of 3,000 employees or more. Service providers covered by the study offered benefits administration as a stand-alone outsourcing service.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Articles:

Growth Forecast for Benefits Administration Outsourcing, SHRM Online Benefits Discipline, July 2010

Benefits Administration Outsourcing: A Primer, SHRM Online Benefits Discipline, October 2006

Weighing the Advantages of Total Benefits Outsourcing, SHRM Online Benefits Discipline, December 2004

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform Resource Page

SHRM Online Retirement Plans Resource Page

Sign up for SHRM’s free Compensation & Benefits e-newsletter

Copyright Image Obtain reuse/copying permission