“The old are in second childhood” – Aristophanes
Although the benefits outsourcing market (BAO) – one of HRO’s oldest – may seem passé, it’s currently displaying the kind of dynamism typically associated with a younger market. Indeed, in the last year it has continued to innovate and evolve, driven in large part by the U.S. healthcare reform.
More than a year back, President Barrack Obama announced the Patient Protection and Affordable Health Care Act (PPACA). Against the backdrop of the act’s first anniversary, the market still seeks answers to impending questions: Has the market changed? Are buyers still skeptical? Do they now fully understand the implication of these changes? How has service providers responded to the reform?
Everest Group’s just published BAO Annual Report provides a comprehensive view of the BAO market and the impact the reform is having on all parties. So let’s take a quick look.
The study showed that the BAO market grew at a healthy rate in 2011. A closer look at this market reveals that the health and welfare (H&W) market is growing at a much faster rate, albeit on a smaller base, compared to the pension administration market. As the healthcare reform is the main driver behind the growth of H&W outsourcing, this truly indicates the extent to which the healthcare reform is fueling the growth of the overall BAO market.
The healthcare reform surely brought greater access to healthcare for Americans but what for employers? For employers, the reform has created greater compliance requirements, increased administrative burden, and mandates better information delivery to employees. While in 2010, employers were in a wait-and-watch mindset, they have now taken a front seat and begun to analyze the implications and imperatives of the reform. In today’s uncertain economy, many employers are struggling to maintain a balance between new requirements and the soaring healthcare costs, which they believe will increase further due to the PAACA’s auto enrollment provision. Additionally, many employers are realizing they lack the in-house expertise to steer through the reform. All these concerns are spurring them to seek outside assistance to navigate through the complexities of the reform.
On the other hand, the PAACA has created a pool of opportunities for BAO service providers and they are making significant organic and inorganic investments in order to capitalize on them. First, service providers are enhancing their consulting capabilities to help employers align their benefits strategy with reform’s requirements. For example, Mercer acquired Mahoney & Associates and ADP established a strategic advisory services group. Second, service providers are making technology advancements to provide better employee communication, decision support tools, online/self-service tools, and so on. The high rate of M&A activities in 2010-2011 was a result of service provider’s efforts toward strengthening their H&W capabilities, ala ADP’s acquisition of Asparity Decision Solutions. Net-net, service providers are rapidly ramping up their H&W value proposition to appeal to buyers and “make hay when the sun shines.”
Although the market has responded well to the healthcare reform, some organizations believe that the 2012 election will have an impact on the reform, driving a wait and see stance. They will continue with their current benefits strategy until 2012, and focus on tactical ways to reduce healthcare costs, remain competitive, and provide better benefits services to their employees.
The clock is quickly ticking to 2014, the year in which PAACA will be in full swing. And of course we’ll be keeping you informed on how the regulations are affecting change in the BAO market, including whether the buyer will choose “play or pay.”