Health Reform’s Impact on Benefits Administration

Due to the increased compliance complexities created by Health Care Reform and the Patient Protection and Affordable Care Act (PPACA), outsourced benefits administration will become increasingly prevalent among midsized (50-999 employees) and large organizations (1000+ employees).

Due to the increased compliance complexities created by Health Care Reform and the Patient Protection and Affordable Care Act (PPACA), outsourced benefits administration will become increasingly prevalent among midsized (50-999 employees) and large organizations (1000+ employees). According to a May 2012 study conducted by the ADP Research Institute, roughly 50% of midsized and large organizations are more likely to outsource since the passing of PPACA for three primary reasons:

• Ensure compliance
• Gain access to subject matter expertise
• Decrease the burden placed on the internal staff

BenefitFocus.com Inc., a web-based benefit information administration portal for employers, insurance carriers and consumers, is rumored to be pursuing an Initial Public Offering in the coming months. This would be the second major benefit administrator to go public within the last year, following WageWorks [WAGE] whose IPO priced at $9 per share in May of 2012. Since that time, WageWorks has fared well in the open market, where its stock currently trades at roughly 2.5x its opening price.

In addition to WageWorks’ IPO and BenefitFocus.com’s rumored IPO, several recent transactions have occurred in the outsourced benefits management space, demonstrating the different ways that firms can capitalize on the market trends, with two examples provided below:

• Lightyear Capital’s 2012 recapitalization of Alegeus Technologies, Fidelity National Information Services’ former benefits administration solutions business for consumer directed healthcare.
  • Lightyear seeks to take advantage of the shift towards a consumer-centric healthcare system by leveraging Alegeus’ market leading 11 million consumer directed health accounts.
• FTV Capital’s 2012 recapitalization of Empyrean Benefit Solutions, a benefits technology for employers, insurance brokers and healthcare exchanges.
  • FTV sees Empyrean as a platform to navigate Health Care Reform and to capitalize on emerging opportunities around cost control and transparency and the employee demand for a flexible benefit administration solution.

Two Market Trends behind This Activity

Consumerism:  The convergence of healthcare and consumerism has been a driving force in the industry for over a decade.  Changes due to health reform, the advent of healthcare insurance exchanges, and the dramatic growth of individual health insurance, has the industry accelerating its shift to accommodate empowered consumers. Organizations are now increasingly burdened with providing personalized benefits administration for all employees, but lack the capabilities and expertise to do so.

Defined Contribution Programs & Private Exchanges: Expansion of defined contribution programs supported by private exchanges will further empower consumers to make their own choices for health and supplemental benefits. As these health and supplemental benefits become more integrated with health offerings, employers and consumers will demand multi-product support across health and ancillary benefits from carriers and vendors as well as customer decision support and billing tools. Employers will continue to seek ways to provide access to benefits while limiting their financial exposure and desire broader functionality from their primary benefit administration vendor.

As benefit administration outsourcing becomes more prevalent across midsized and large organizations, companies like BenefitFocus.com are pursuing various strategies to capitalize on the increased compliance complexities presented by reform. It is still to be seen whether BenefitFocus.com will proceed with the rumored IPO, but this will hardly be the last of the market activity surrounding outsourced benefits administration.

image: health care reform/shutterstock