A small HR department, along with the increased regulatory complexities brought on by health care reform, leave Ed Bray, director of benefits at Hawaiian Airlines, little time to delve into the health metrics of his company's 5,000 employees.

"There is so much good technology out there now where I can put in the employee data and it will spit out exactly what's going on - do you have a smoking situation, an obesity problem, do you have prescription drugs that are maybe being overused or too many people using the emergency room when urgent care is an option," he muses. He just doesn't have the time to look into it.

"We've got to hunker down and go with our core competencies: We've got to pay the health insurance bills, we've got to get people enrolled in the benefits, answer their questions, help in recruiting and hire the right people, so it doesn't really leave us time to work on anything else," says Bray. "So when management says 'Hey, how does health reform affect us?' or 'What about a new initiative?,' we're looking at them right now and saying 'We just don't have the bandwidth to get to that.'"

He's hopeful that will change as Hawaiian Airlines recently decided to outsource its benefits administration. "If I can make a difference of just a few percentage points [in our total medical spend] - which I am confident of being able to do because if I outsource, it will free me up to do that - then it's a win-win at the end of the day," he says. "But that's a leap of faith for some employers. They have to trust in the fact that will be the case." And, he admits, some employers aren't willing to make that leap.

Shrinking HR departments, coupled with the increased legal and regulatory complexities involved in offering health care and retirement benefit plans, are leading organizations like Hawaiian Airlines to outsource their benefits administration.

And while it may seem like an easy decision - outsource something that's not your core competency - it's anything but. Bray says outsourcing benefits administration isn't the right answer for every company, but you'd be hard-pressed to find an executive these days who wouldn't at least listen to someone make a case for it. "It's not a no-brainer for every employer to outsource because the costs associated with it have to be taken seriously. We are willing to pay this cost because of the return on the other side," he says.

Cost is still one of the primary reasons employers decide to outsource their benefits administration, says Greg Kuisel, senior vice president, outsourcing sales with Aon Hewitt, which administers benefits for 22 million people in North America. Choosing to outsource can relieve employers of ongoing investments in technology. As well, privacy is a big area of concern. "Many employers that are in-sourced today are concerned about doing the administration on their own employees," says Kuisel.

Moreover, employers need the ability to evolve and change quickly as the market changes. Whether it's keeping up with health care reform regulations or the acquisition of a new company, employers need to be able to make plan design changes in a constantly changing environment. "If the technology you have in-house today isn't flexible enough, it could hold you back," says Kuisel.



Choosing a vendor

If you're looking to outsource benefits administration, have a clear understanding of how the vendor makes money, advises Kuisel. Some firms are pure recordkeepers, making money from the administration fees. Others in the 401(k) space make money from the loads on the mutual funds they sell. Some vendors do only administration, others can provide advice in addition to administration and some vendors do administration in a variety of areas, not just benefits.

"Looking at the vendor and how they make money will give you a good sense of what the relationship should be like for you as the employer, and also how they're going to be interacting with employees," says Kuisel.

He also recommends employers "pick a vendor that really maps to your employees." For example, if you're in the retail business and employees don't have easy access to laptops at work and the vendor you choose provides all their services on the Web, employees "may not get things they're looking for," he says. "I would definitely look how the workforce interacts with HR [now.]"

Don't choose a vendor that just looks good on paper, cautions Bray, who also is an EBN contributing editor. For Hawaiian Airlines, it was important to choose a vendor that was philosophically aligned with the company's business model. The outsourcing vendor is "truly becoming a partner. That word is overused, but they're not a consultant anymore," he says. "They are an extension of your HR department, so you want to make sure they're doing, philosophically, what your company has set out to do."

Another important consideration for Hawaiian Airlines was the vendor's ability to be proactive.

"One of the reasons I'm outsourcing is to make sure all of the legal requirements coming down on an almost daily basis are abided by," says Bray.

Customer service capabilities and the ability to work in different time zones was also critically important, Bray says. "No company is going to want to compromise customer service. We're a support function in benefits, and we are going to want a vendor that provides the customer service we're looking for," he says. "People will have different criteria in terms of what their expectations are, but I would definitely ask a potential vendor: Who is going to be answering our calls? Are they going to be a dedicated group? How often are you going to change them up? Are you going to pass the phone calls off to someone else? What's your backup plan?"

While Bray acknowledges that not every employer will have a time zone issue, the point he makes is that when employers are "looking at outsourcing and their audience, don't forget the fact there will have to be conversations around [whether] the outsource vendor [will] be able to meet the needs of what the employee base can ultimately handle."

Kuisel says many of the clients Aon Hewitt works with go through an independent third-party adviser to help them find a good fit. "They can match your current processes and practices, your current plan design and put that into a format which vendors can easily understand and come up with a costing proposal that won't be full of surprises," he says. "If you try to do this on your own, sometimes you don't provide information that's deep enough, and then there's a big surprise on the receiving end."

Having your shop in order "sounds easy, but it's often not the case," says Bray. "Maybe some documentation is in order but not enough for the vendor to feel comfortable. At the end of the day, they're taking responsibility."



Change management

Bray also recommends involving any other department that might touch the outsourcing project at some point - legal, marketing, payroll, IT, HRIS - as soon as possible. Unions also need to be brought into the loop. Bray set up an advisory board with representatives from the five unions at Hawaiian Airlines "so that it will make sense to them. If I just did this in a bubble and rolled it out to the organization, which is 85% unionized, they would have something to say about it."

For Hawaiian Airlines, the move to outsource its benefits administration comes with huge change management implications. Currently, everything benefits-related is done on paper. In fact, the only person taking benefits calls right now works with Bray and has been with the company for 25 years.

"My initial concern was: Are we going to be able to marry this nonpaternalistic approach to benefits with this environment I'm being told is paternalistic and family-oriented?" he says. "Everyone knows the woman who works for me. They'll get on the phone and talk to her about things other than benefits."

Outsourcing administration requires employees, who may be used to walking down the hall to discuss benefits with their local HR rep, to get into a different mindset. "I've got to not only make employees feel comfortable with this whole online environment for benefits, which will involve enrolling and open enrollment and qualifying events, but also picking up the phone and calling a 1-800 number with questions," says Bray.

Bray and his team are launching the first phase of their change management process May 1. At that time, employees will be able to go online and look at their benefits but will not be able to make any changes. "I have to be careful," says Bray of this first phase of communication. "I'm going to be selling this whole new concept to employees, but I'm going be saying, 'But you can't make changes right now.' I'm selling them on the informational side."

He feels strongly that employees need to be well-versed about their current benefits options when the system goes live during the company's open enrollment in November. "We can roll this out, have this great call center, this great graphical user interface that employees can go on to enroll in their benefits and look a their benefits, but if they don't truly understand the benefits - what's a PPO, what's an HMO, etc. - it's only as good as putting a tool out there that they're only going to become more confused about."

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