- Key insight: See why employer-provided backup childcare programs are failing to deliver their promised value.
- What's at stake: Employers risk losing thousands of dollars per worker to hidden administrative fees.
- Supporting data: 91% of backup childcare usage at one large employer went to out-of-network providers
Source: Bullets generated by AI with editorial review
Employer-provided backup childcare programs are in high demand, but supply often falls short or hidden fees erode the value of this benefit.
These programs are designed to provide convenient, on-demand access to vetted care when an employee's usual arrangement falls through.
But a recent analysis of a large employer with a centralized 9-5 workforce showed that as much as 91% of backup childcare usage involved out-of-network providers, according to Upwards, a national care benefits platform. Of roughly 9,000 days when employees needed backup childcare, 8,100 ended up using a relative, friend, neighbor or a caregiver the family found on their own.
The finding also surfaced as a common theme across about 30 requests for proposals handled by Upwards, said Greg Crisci, the company's head of corporate programs. When that happens, he explained, vendors charge employers a "half credit" (about $175 to $200) but only pass $100 to the employee. They keep $75 to $100 for processing a receipt, which amounts to a whopping 75% to 100% fee on a $100 employee benefit.
Charging a processing fee that high pales in comparison to a financial-services platform like Stripe that charges only 2.9% or fractions of a penny to move money, he said, highlighting the inefficiencies of the structural-credit model found in backup care.
As such, benefit brokers and advisers should be asking their employer clients whether they know where their care dollars actually go, advised Crisci, who cautioned that vendors aren't merely incentivized to solve the problem – they're monetized by it.
The hidden high cost of out-of-network utilization also extends to eldercare and even pet care programs, he added. To help ease the sting of finding affordable care, his firm offers a care-navigation platform for employees spanning childcare, eldercare, backup care and pet care (coming in 2026). The benefit starts at $12.95 per employee for small businesses.
Caregiving has emerged as a critical issue across the workplace, even catching the attention of the Employee Benefit Research Institute, which recently announced a national, multiyear initiative with Greenwald Research to examine how family caregiving is affecting workers, employers, and the employee benefits system.
Crisci cited several reasons why someone would end up going out of network, including access and availability, quality and trust, specialized needs, continuity and relationships, and flexibility and personalization.
Backup care, however, is just one part of a family's concern and may be the tip of the iceberg. For example, he noted that people returning to work from maternity leave don't need just one day of childcare; they may need five consecutive days.
Heading in the right direction
Crisci suggested a multipronged strategy for benefit advisers to help their employer clients avoid overpaying for out-of-network backup care. The first step, of course, is to analyze how many caregiving claims were out of network. If the number was high, then it's important to determine the root cause of that utilization and ask the vendor what it is doing about closing the gap.
It's also critical to examine what the contract stipulates for out-of-network reimbursement, and if necessary, replace the credit model with a dollar-for-dollar approach. The goal is to reduce any steep delta between the benefits reimbursement an employee receives and what the employer is being charged. This will ensure that there's no leakage of employee benefit dollars.
"So, if the employer says, 'I'm willing to pay $350,' then $350 should go to the employee who needs backup care," he explained.
To ensure that a backup care network can adequately cover a client's employees, he said it's typically done through a coverage report that identifies the number of providers within a certain mile radius involving local ZIP codes.
While a credit model makes sense if it involves fixed costs, Crisci said a dollar-for-dollar strategy is much more effective considering the cost of living and income vary considerably from one state to the next. Someone in Iowa may be earning $20 an hour, while it's double in New York City.
"Most employees that have backup care programs will give 10 credits that are worth $350," he explained. "So, basically the employer is saying, 'I'm willing to pay $3,500 a year,' and so we said instead of doing this credit model, just give them $3,500 to go toward care, but do it at the market rate that's needed."
