A new ADP survey shows that health care reform and compliance complexity are leading more companies to re-think how they administer benefits and to consider outsourcing the function.

Part of this shift is being driven by the Patient Protection and Affordable Care Act (PPACA). Forty-five percent of HR/benefits decision makers in midsized companies and 54 percent in large companies report that regulatory changes have made them more likely to outsource some or all of their benefits administration, as health care reform increases both the complexity and time required to administer benefits.

The online survey conducted in December 2011 by the ADP Research Institute, a specialized group within ADP that provides insights to leaders in both the private and public sectors around issues in human capital management, employment trends and workforce strategy, includes input from 504 HR/benefits decision makers in U.S. enterprises. These respondents include 254 participants from midsized organizations (those with 50-999 employees) and 250 from large organizations (those with 1,000 or more employees).

Ensuring compliance is one of the top reasons survey respondents said they outsource benefits administration (54 percent of midsized and 49 percent of large). Employers also cited the need to access subject matter knowledge and expertise (50 percent of midsized and 41 percent of large) and reduce the administrative burden on internal staff (43 percent of midsized and 50 percent of large) as other key reasons for outsourcing.

“It’s likely that outsourcing will become more common as compliance becomes increasingly complex with new health care regulations in the mix,” said Tim Clifford, President, Benefits Services at ADP, a leading provider of human resource management, payroll and benefits administration services. “Our study shows that many employers view outsourcing as a viable option to help them successfully cut through this complexity.”

Clifford added that it is not just in the area of health care reform that compliance is becoming more demanding. The Sarbanes-Oxley Act (SOX), Health Insurance Portability and Accountability Act (HIPAA), Consolidated Omnibus Budget Reconciliation Act (COBRA), Family and Medical Leave Act (FMLA), Americans with Disabilities Act (ADA) and Age Discrimination in Employment Act (ADEA), to name only a few, have also increased administrative complexity in benefit plans for most employers. As new regulations are issued or prior ones are amended and modified, this trend is likely to continue.

Nearly 3 out of 10 midsized companies (28 percent) and 4 out of 10 large companies (42 percent) report that they are planning to outsource more services in the next 24 months.

The vast majority of HR/benefits decision makers in midsized and large companies report that their outsourcing provider or providers have met or exceeded expectations (88 percent of midsized and 92 percent of large). Additionally, HR/benefits decision makers (80 percent of midsized and 91 percent of large) report that outsourcing at least some elements of benefits administration provided real value for employers and that outsourcing achieved several of their key goals.

Most employers of all sizes continue to handle at least some elements of benefits administration internally ― although large employers are more likely to outsource a greater number of tasks than midsized employers.

Forty-one percent of HR/benefits decision makers in midsized companies (compared to 21 percent in large companies) report that they are most likely to administer benefits in-house because they believe it is easier to do so. HR/benefits decision makers in large companies have a different priority, with almost half (48 percent of large compared to 29 percent of midsized) reporting that they are most likely to administer benefits in-house because they want to maintain control over the process.

Other findings of the survey include:

• COBRA administration, Flexible Spending Account (FSA) administration and 401(k) administration are among the most highly outsourced functions.
• Almost two-thirds of companies say that allowing internal staff to focus on more core business or strategic issues is a key advantage of outsourcing benefits administration functions (65% of midsized and large).
• Cost of services is the most important criterion when identifying an outsourced provider (71 percent of large and 72 percent of midsized).

For greater detail about the survey and findings, please go to www.adp.com/pulsesurvey0512.