Should you outsource benefits checks or keep them in-house?

Benefits checks are the systematic verification and auditing of employee benefits programs to ensure accuracy, compliance, and proper administration. These checks include verifying enrollment data, confirming eligibility, auditing carrier billing, ensuring regulatory compliance, and identifying discrepancies. As organizations evaluate their HR operations, a common question emerges, should benefits checks be outsourced to specialists, or managed internally by your HR team?

The right choice depends on your organization's size, resources, and priorities.

The case for keeping benefits checks in-house

Research by Edvardsson and Óskarsson on small- and medium-sized enterprises reveals that SMEs tend to outsource human resources on a very limited scale, with only 5.5% outsourcing HRM and training, and 17.8% outsourcing payroll functions. This suggests that for smaller organizations, internal management remains the preferred approach.

When you keep this function in-house, you maintain direct control over every aspect of the process, from plan selection to employee communications.

One of the advantages of internal management is institutional knowledge. The HR team knows the workforce. This familiarity allows for more personalized service and quicker responses to employee questions. 

Cost is another consideration. For smaller organizations with limited benefits offerings, the expense of outsourcing may exceed the cost of handling these tasks internally. Interestingly, Edvardsson and Óskarsson found that while cost reduction is often cited as a reason for outsourcing, it actually comes in third place behind accessing expertise and simplifying operations as the primary motives for SMEs.

The case for outsourcing benefits checks

Despite these advantages, there's an argument for outsourcing, especially as organizations grow in size and complexity. Eva Hibnick from One Body which provides an AI verification of benefits product to streamline verifications for more than 500 clinics, says there are many factors to consider when thinking about outsourcing verification of benefits for your clinic. “It comes down to understanding your internal costs vs the costs of outsourcing it, as well as how important it is for you to automate workflows by using technology systems. A lot of clinic owners’ I speak with tell me that their front desk is sometimes spending 3-4 hours verifying a patient’s benefits. If you take the hourly of the front desk and multiply by 4, you’ve already lost money on that claim. This is a scenario where it is likely better to outsource or use a tool that decreases the time your front desk spends on verifications.”

Compliance and risk reduction

Benefits administration is governed by different regulations such as HIPAA, and other state-specific requirements. Professional benefits administrators use specialists who stay current with these rules, reducing an organization's compliance risk.

Proven cost savings and efficiency gains

Research by Monica Belcourt in "Outsourcing — The benefits and the risks" demonstrates that outsourcing can deliver financial benefits. Studies of outsourcing arrangements lasting at least two years showed cost savings ranging from 10-20%, with an average of 15%. Beyond direct cost reductions, organizations that outsource achieve better HR staff ratios, 1:231 (one HR person to 231 employees) compared to the traditional 1:100 ratio.

Supporting this perspective, Edvardsson and Óskarsson's study of SMEs found that managers in companies that outsource human resources are more satisfied with many aspects of outsourcing compared to those who do not outsource these resources. Specifically, firms that outsource HR activities realized more actual cost reduction. The study also revealed that these managers were more satisfied with cost reduction in general, managed to increase expertise more effectively, achieved better focus on core competencies, improved cost discipline and control, and added more value to their companies.

One example comes from BP's partnership with Exult, which at $600 million was the largest outsourcing contract on record at the time. Belcourt notes that this arrangement achieved a 40% reduction in HR staff, $15 million in annual operating cost savings, and helped BP avoid $30 million in capital costs for technology. The outsourcing freed HR professionals to focus on supporting business lines rather than administrative tasks.

Strategic focus and scalability

Scalability represents another advantage. As an organization grows, benefits administration demands increase. Edvardsson and Óskarsson's research confirms this pattern, finding that 46.3% of firms with more than 50 employees outsource HR functions, compared to only 28.9% of firms with fewer than 10 employees. As they note, "it is mainly big firms that tend to outsource HR functions, as increased company size brings more human resource challenges." Outsourcing partners can scale their services to match an organization's growth, without requiring additional internal staff.

Companies that outsource report improvements in their strategic capabilities. According to Belcourt, organizations reduced administrative tasks by more than half and increased their strategic focus by 40%. The systematic literature review titled "What we know about the trends, prospects, and challenges of human resource outsourcing."  corroborates these findings, noting that the primary drivers for outsourcing include cost advantage, organizational learning, and the opportunity to concentrate on core business functions. This shift allows HR teams to concentrate on high-value activities like talent development, culture building, and workforce planning.

Technology and automation

Leading benefits administration firms invest in platforms that streamline enrollment, integrate with payroll systems, provide employee self-service portals, and generate analytics. Building or purchasing comparable technology internally requires capital investment and ongoing maintenance that many organizations find too expensive and impractical.

Potential challenges

While outsourcing offers clear benefits, it's important to acknowledge the challenges. Belcourt's research reveals that about 50% of organizations found outsourcing more expensive to manage than originally expected, with service levels not meeting expectations. Over 30% of outsourcing arrangements were not renewed because projected cost savings weren't achieved.

The systematic literature review echoes these concerns, identifying common barriers including "the absence of proper management regulations and prior experience, difficulties in finding trustworthy suppliers, uncertainties regarding cost-effectiveness, and potential consequences in case of outsourcing failures."

Service and relationship considerations

About 25% of organizations in Belcourt's study reported decreased customer service and less personal relationships with employees after outsourcing. The vendor provides services as specified in the contract, but if your organization's needs change, contracts must be renegotiated. The flexibility of adding new features or enhancing service can be reduced compared to in-house management.

Employee morale impact

Outsourcing decisions can affect employee morale. The systematic literature review notes that "HRO leads to a reduction in the number of permanent employees and often necessitates the recruitment of seasonal employees. Consequently, this can create a gap in organizational and interpersonal relationships, leading to a lack of psychological contact."

However, the actual employment impact may be less severe, particularly for SMEs. Edvardsson and Óskarsson found that outsourcing in SMEs has little impact on employment, with only 3% of firms laying off staff and 6% transferring staff to vendors. In fact, 90.2% of managers in their survey reported that outsourcing had an insignificant effect on employment. Larger firms and firms that outsource HR are more likely to change their staff's employment status after outsourcing, but even among these organizations, the impact remains limited. 

Success factors for outsourcing

If you decide to pursue outsourcing, success depends on how well you manage the arrangement. Belcourt emphasizes several factors:

• Cultural fit: CIBC specifically searched for a vendor that would adapt to client needs, recognizing that you can't put everything in a contract. Choose a company you can work with, not just one with the lowest bid.
• Clear performance standards: Establish baseline metrics for current service levels before outsourcing. Service level agreements should specify exactly what success looks like, for example, "90% of benefits inquiries must be answered within 24 hours, with the remaining 10% answered within three working days."
• Detailed contract management: Contracts should include performance standards, penalty clauses for failures to meet requirements, and incentive structures for superior service. 
• Ongoing monitoring: Assign dedicated resources to monitor results continuously. The relationship requires active management to ensure the outsourcer acts in your firm's best interests.

Questions to guide your decision

As you evaluate the best approach for your organization, consider these questions:

What is your organization's size and growth trajectory? Growing companies often benefit from outsourcing's scalability, while stable, smaller organizations may find internal management more cost-effective.

How complex is your benefits package? Multiple plan options, varied employee populations, and multi-state operations increase complexity and strengthen the case for specialized external support.

What is your HR team's capacity and expertise? Be honest about whether your team has the bandwidth and specialized knowledge to manage benefits administration effectively alongside their other responsibilities.

What are your compliance risk factors? Organizations in regulated industries or those with compliance requirements may find the risk mitigation of outsourcing worth the investment.

What does the total cost of ownership look like? Don't just compare outsourcing fees to current HR salaries. Consider technology costs, training, potential compliance penalties, efficiency losses, and opportunity costs of staff time. 

Can you manage the vendor relationship effectively? Successful outsourcing requires dedicated contract management, ongoing monitoring, and the ability to hold vendors accountable to performance standards.

How will this affect your organizational culture? Consider the impact on employee relationships and morale.

FAQs

What do benefits checks involve beyond verifying employee data?

They also include auditing billing accuracy, monitoring compliance with federal regulations, and ensuring plan integrity across multiple systems.

How do companies measure whether outsourcing actually saves money long-term?

Organizations compare total administrative costs and time savings against vendor fees and technology expenses over several years.

What kinds of businesses are most likely to benefit from outsourcing benefits checks?

Large or growing companies with complex, multi-state operations usually gain the most from outsourcing.

Can outsourcing improve compliance with healthcare and employment laws?

Yes, professional benefits administrators often have compliance experts dedicated to monitoring evolving regulations like HIPAA and ACA.

What are the most common mistakes companies make when outsourcing benefits administration?

Failing to set clear service-level expectations or monitor vendor performance can lead to unmet goals and higher costs.