In an era of rising health costs and aging baby-boomers, health insurance and retirement programs are becoming more and more important to employees.
For a small employer, a good benefits package can be one of the best ways to attract and keep good employees. Job candidates usually weigh job offers based on three aspects: career advancement opportunities, pay, and benefits. In a small company, career advancement may be limited and the company may not be able to match the salary offered by a larger competitor. That makes the benefits package all the more important.
Your company can select and administer insurance and other benefits programs in-house, but many small businesses find it more cost-effective to use outsource services for all or part of the process. Specialized services can help you find the most affordable insurance, compare and double-check vendors’ terms, and manage enrollment and ongoing administration of those programs.
But the array of companies and consultants that want your benefits business can make your head spin. To simplify, we’ll divide them into two categories.
One type of benefits outsourcing service goes by a variety of names: benefits broker, human resources consultant, insurance agent, insurance company, financial adviser. But behind the fancy labels, they are all basically insurance or investment brokers. Primarily, brokers sell insurance policies or financial products and make their money on commissions. But as the market for providing and administering benefits has grown, brokers, especially ones that call themselves benefits brokers or benefits consultants, have also expanded to provide a variety of other benefits-related services, such as Web portals for your employees or help with regulatory compliance. Generally, when it connects you to additional benefits-related services through its partners, the broker makes a commission on these services. It might also charge an extra fee for handling a particularly thorny regulatory or personnel issue.
A good broker will explain various health insurance options and suggest the best ways to save money while still providing good insurance to your employees. Insurers will look at your employees’ risk profiles, as well as how they use health care, and will raise your rates accordingly. That’s where a broker can examine an underwriter’s evaluation and challenge it if it doesn’t look fair.
This partner is called the human resource organization. Also called administrative service organization or business process outsourcer, this company provides HR administrative functions. Rather than sell the actual insurance or financial products, this is the partner that is connected to brokers who can obtain those products. For example, an HRO would administer open enrollment for health insurance and flexible spending account programs.
An HRO often provides a self-service Web portal that allows employees to find information on their health and retirement programs, download forms, change account information, and handle other administrative details. An HRO can also do background checks and/or drug screening on potential hires. In addition, it usually offers compliance help, everything from providing posters required at a worksite to providing an e-mail service that alerts you to changes in state regulations.
Some HROs offer services à la carte: You can buy just COBRA administration or just flexible spending account administration. A la carte prices are typically between $1 and $2 per employee per month. Other HROs take an all-or-nothing approach: You must buy their entire package of services. In this case, clients usually rely on the HRO and its full suite of services rather than employing a full-time human resources employee. An HRO might typically charge around $50 to $85 per employee per month for its suite of services.