Why Plan Sponsors Don’t Benefit When HR Admin Platform Fees are Embedded

Jun 05, 2018

question-mark-1872634_640Fences are built to keep livestock (or people) in and predators (or other benefits providers) out. And he who builds the fence usually benefits more than who or what is inside. As journalist Richard Engel said, “Fences and walls can be effective and even soothing, at least for those who build them.”

This is true whether the inhabitants are horses, dogs, or benefit plan sponsors. Throwing up a fence around their clients is essentially what advisors do when they recommend HR admin platforms with fees embedded in the premiums. And it’s the advisors who largely benefit. In this blog, we take a look at the drawbacks of these kinds of platforms, and we’ll see they’re simply a fence by another name.

Let’s start with compensation costs. Despite strides in machine learning and artificial intelligence, which are rapidly transforming many industries, there are still inherent costs to develop, maintain, and upgrade these platforms. So, who pays?

Sometimes, an advisor may reduce their compensation to secure buy in, which brings up further questions. Even despite robust contractual language, sponsors will wonder how they can receive the full range of services if the provider is paid less. Are premiums higher because of this unclear remuneration, or is there another factor?

Pricing then becomes difficult to tease out and a realistic comparison of premiums is opaque when items are bundled and included. This means that plan sponsors have to be particularly adept at understanding the nuances of group benefits to determine the true costs of so-called free HR admin platforms. Ironically, this puts them in a kind of competition with their advisor, whose business it is to know those nuances. It can be a conflict of interest.

To continue the analogy, sponsors are also fenced in because only a restricted number of insurers will support the data interchange that coordinates benefits administration with the HR platform. This limits the scope of product available for competitive pricing and introduces more possibility for bias in advice. The real cost is the difference between the best price in the wider market versus that in the fenced, or limited, market. Once again, this opacity puts the plan sponsor on the back foot.

The last fence is around the higher than average opportunity cost of changing carriers, which effectively ties the plan sponsor to a provider. Over time, this may not be optimal depending on the trigger costs of changing carriers or advisors. And again, this hobbles the plan sponsor.

The central problem with all these issues is the lack of disclosure. The obscurity makes it hard to determine a program’s value because its real costs can’t first be determined.

Fortunately, sponsors do have options as there are many stand alone HR admin platforms that can be implemented for a reasonable cost. Their chief advantage is that costs are transparent so sponsors can accurately assess value. The full breadth of the market with its array of features and availability is also on offer with these options. And, if needs change either quickly or over time, the gate is wide open to switch carriers.

Collectively, these advantages serve plan sponsors’ interests as they separate the decision about program and plan from that of choosing a provider or advisor.

As songwriter Cole Porter once wrote, he couldn’t look at hobbles and couldn’t stand fences.  He called it, “Don’t Fence Me In.”

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