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What is the Fate of Benefits Administration?

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Concerns have been expressed about the future of the traditional benefits administration market with the advent of private health insurance exchanges: will the market move from a B2B model to a B2C where benefits administration as we know it will disappear? 

Rest assured, while the benefits administration market will undergo some transformation, it will not disappear entirely for the following reasons.

First, there are multiple components that make up benefits administration, including DB administration, DC administration, H&W services, and flexible benefits administration. Health care reform will specifically affect the H&W administration piece. Therefore, the DB, DC, and flex markets will not be affected and will continue to utilize a B2B model.  Also remember that the H&W market is more than just H&W administration.  For example, other H&W services include spending account administration, which often works in conjunction with the exchanges, leave of absence administration, EAP services, etc., which will all continue business as usual. Therefore, there is no need to panic about benefits administration disappearing.

Second, private exchanges can be viewed as an evolution in the H&W space. Private exchanges are not only being established by insurance companies, but also by brokers and consultants, such as Aon Hewitt, Mercer, Towers Watson, and Xerox via Buck Consultants, who all are key benefits administration vendors. Therefore, even as organizations transition away from employer-sponsored health plans to private exchange models, revenues will not be entirely lost if those organizations stay with the same provider.

Third, there will always be some companies that will value the traditional employer-sponsored health plan and will keep it in place as a mechanism to attract and retain top talent. This will be analogous to how organizations in the U.S. have largely transitioned away from DB plans and have implemented DC plans. Employer-sponsored plans will likely remain prominent in certain industries.

Therefore, the larger benefits administration portfolio will remain intact as revenues largely shift from H&W administration to private exchanges over the next several years. The restructuring will resolve the benefits spend issue that organizations have been at odds to control, while ensuring compliance with health care reform. Ultimately, private exchanges will create a financially sustainable environment for organizations in the long-term. 

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