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  • Reading the Fine Print on Employee Benefits Administrative Fees

    Plain and simple — paying close attention to the small print employee benefits administrative fees can make a big difference on your bottom line! Let me explain.

    If your employee benefits administrative fees have gone down recently, on the surface, that might seem like a good thing, right? Who doesn’t love cost savings? But, is it really a good thing?

    Well, it depends on the next level of analysis. Where else is your administrator driving revenue? What are the small print fees?

    Review 3 Key Fee Areas

    It really breaks down into three key areas:

    1) Shared Saving Fees

    These fees come from a retention of a portion of the claims costs savings and are generally captured through the claims wire.

    2) Variable Administrative Fees

    These fees are the expenses that fall below the line but can add up. They could be additional expenses as part of your administrative fee or a part of buy-up programs that routinely get added in but lack a favorable ROI.

    3) Pharmacy

    This can be a black box and is an area that needs to be monitored on a consistent basis.  Pharmacy rebates have increased at an alarming rate…are you getting these? Are you getting all of them or only a partial offset to your administrative fees? What are the other ways your administrator is driving revenue through the Pharmacy Benefits Administration space?

    In general, insurance carrier and third-party administrator (TPA) administrative fees have gone down considerably over the past decade. Is this because they have found ways to become more efficient or because the competitive environment has increased?

    Not exactly.

    As more focus was being placed on administrative fees, administrators have shifted their revenue models to where they are now charging less on the surface for base administrative fees, but they’re capturing more revenue in other places — think the claims wire, pharmacy space, and in shared savings.

    Evaluate More Than Fixed Costs

    What your organization needs to be evaluating is much broader than the fixed costs, which tends to be one of the key areas that stands out on a spreadsheet or a proposal. You must be evaluating the small print fees to come up with a total administrative cost comparison that factors in all aspects of shared savings, pharmacy, and ad hoc fees.

    Pharmacy rebates alone can easily be worth as much as $50 per employee per month. On top of that, it’s very common to see shared savings fees that can add up to an equal amount.

    Consider a Deep Contractual Review

    Our Holmes Murphy employee benefits experts have been partnering with employers to conduct deep contractual reviews on all areas of employee benefits spend. Fixed fees and network discounts don’t tell the whole story.

    To drive sustainable employee benefits cost management, a multi-pronged approach must be taken. Within that, there must be a focus on the fixed and variable costs, and it must be monitored and negotiated on a consistent basis.

    That forms a strong foundation to build on a broader strategy that incorporates the appropriate clinical risk reduction and network steering strategies to drive sustainable employee benefits programs.

    If you’re interested in having us take a deep dive into your contract, simply reach out. We’d be happy to help!

    Published on: 09.24.20

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Reading the Fine Print on Employee Benefits Administrative Fees