Employee Benefits Administration | Healthcare Costs

ADP Research Institute®


Health Care Reform Compliance Complexity Impacts Employers’ Decisions about Outsourcing Employee Benefits Administration

This insight is from: "Benefits Administration: Should You Outsource or Manage In-House?"

Deciding whether to outsource employee benefits administration or handle these functions in-house is a complex process that requires a comprehensive knowledge of the supplier market and a detailed understanding of the advantages and disadvantages of each approach. Given recent legal and regulatory changes that have increased employee benefits administration complexity, including the Patient Protection and Affordable Care Act (PPACA or Health Care Reform), the ADP Research Institute, a specialized group within ADP, decided to survey HR managers in midsized (50-999 employees) and large (1000+ employees) companies to learn what they’re thinking, doing and planning when it comes to handling key benefits administration tasks. This paper discusses the survey findings and the role that compliance plays in influencing employers’ decisions about insourcing versus outsourcing benefits administration.

Health Care Reform is Increasing Employee Benefits Administration Outsourcing

Out of nine key benefits administration tasks, employers in midsized and large companies are most likely to handle six completely or partially in-house. Employers of all sizes are most likely to outsource functions with significant compliance requirements, including COBRA, Flexible Spending Account (FSA), and 401(k) administration. Many employers surveyed indicate that Health Care Reform and its associated compliance complexity are pushing them to outsource more administrative functions. In fact, roughly half of employers (52 percent of midsized and 54 percent of large) believe that Health Care Reform will increase the complexity of employee benefits administration. An even higher percentage of employers believe it will increase the time spent on benefits administration. Other laws, including SOX, HIPPA, COBRA, FMLA, ADA and ADEA, have also contributed to employee benefits administration complexity.

Integration Becomes More Critical As Compliance Complexity Increases

When outsourcing benefits administration, large employers use more providers than mid-sized employers. Forty-four percent of large employers surveyed use three or more outsourcing providers compared to only 32 percent of midsized employers. However, use of multiple benefits service vendors is likely to become more problematic as new compliance mandates, such as those required by Health Care Reform, drive the need for integration across benefit functions.

To Manage Benefits Administration Internally or Outsource? That IS the question.


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What’s Behind Employers’ Insourcing and Outsourcing Decisions?

Midsized and large companies have different reasons for choosing to handle employee benefits administration in-house. HR managers in midsized companies report that insourcing improves their ability to stay in touch with employees and makes it easier to administer benefits, make changes, and fix errors. On the other hand, HR managers in large companies are most likely to insource benefits administration because they want to maintain control over the process. Compliance is not a major motivation to insource.

However, for employers of all sizes helping to ensure compliance is the most common driver of outsourcing. In order to help avoid lawsuits, fines, and penalties, they need access to specialized expertise that has become expensive and burdensome to maintain within their internal HR organizations. The vast majority of HR managers in both midsized and large companies indicate that outsourcing at least some benefits administration functions adds real value by supporting regulatory compliance, providing access to expertise, and reducing the administrative burden on internal HR staff.

How to Select an Employee Benefits Administration Partner

Selecting a third-party benefits administration partner is a complex undertaking, so it’s not surprising that the majority of both midsized (86 percent) and large (82 percent) employers rely on external advisors. Midsized employers are far more likely to rely on the advice of their broker, while large employers are more likely to rely on a fee-for-service consultant. For both midsized and large employers, cost of services and benefit-related expertise are the two top-ranked criteria for selecting potential outsourcing partners. This paper provides valuable tips for evaluating the HR compliance capabilities of prospective partners.

*A complete list of sources and citations can be found in the full report.

About This Report: Report data and conclusions are based on a 2011 HR/Benefits Pulse Survey conducted by the ADP Research Institute, a specialized group within ADP that provides insights for leaders in both the private and public sectors around issues of human capital management, employment trends and workforce strategy. See full report for details on research methodology.

Keywords: Benefits Administration, Compliance, Health Care Reform

Business Types: Research for Midsized Organizations, Research for Large Organizations

Roles: Research for Human Resources Professionals

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