If a business finds a benefits administration system that works well for them, it may seem sensible to continue using it indefinitely. However, many organizations fail to realize that outdated practices can create significant vulnerabilities, putting them at risk of operational inefficiencies, financial penalties, compliance violations, and other problems that can undermine their objectives and damage employee satisfaction.
The benefits administration field tends to change significantly in a short time, which means that practices can quickly become outdated. Regulatory requirements are increasingly complex, as employee expectations shift and technology advances. Businesses must adapt their practices accordingly. Professional business employee benefits consulting is invaluable in helping companies to reduce these risk exposures while improving efficiency.
Compliance Vulnerabilities Create Real Exposure
Outdated benefits administration often relies on manual processes and disconnected systems, making it nearly impossible to create accurate compliance reports. For example, the Affordable Care Act’s reporting requirements involve accurate and precise tracking of employee hours, benefits eligibility, and coverage details, and many legacy systems lack this capability.
COBRA administration is another significant risk area given the many opportunities for errors that arise when manually tracking qualifying events, adhering to notification deadlines, and addressing premium collections. Even missing one notification can lead to substantial penalties and potential litigation. These processes can be automated using modern administration platforms, thereby reducing the possibility of human error and maintaining consistent compliance.
Making matters even more complicated, each state has requirements for benefit mandates, continuation coverage, and employee notification timing and processes. Businesses operating across multiple jurisdictions cannot effectively manage this using outdated systems.
Hidden Financial Costs Add Up Quickly
Handling benefits administration manually creates hidden costs that many businesses overlook until they become major problems. In addition, the staff time spent on routine administrative tasks, duplicate data entry, and correcting errors can add up quickly and take considerable time away from other business activities.
One particularly costly problem is reconciliation errors. When a business doesn’t have proper controls, it can lead to incorrect employee classifications, missed terminations, and billing discrepancies, resulting in overpayments that may never be recovered. These errors tend to compound over time, which can have an outsized impact on the budget.
Audit vulnerabilities are also an issue for businesses using outdated administration practices. Department of Labor investigations, insurance carrier audits, and internal compliance reviews are always stressful, but they can become even more challenging when records are incomplete or scattered across several systems. Audit remediation costs are often much higher than what it would have cost the business to modernize its administration processes.
Data Security Weaknesses Pose Serious Threats
The highly sensitive personal and health information in employee benefits data requires top-notch security measures. Unfortunately, outdated systems often lack modern encryption standards, multi-factor authentication, and thorough access controls. This puts businesses at risk of data breaches, financial penalties, and reputational damage.
HIPAA requires specific safeguards for protected health information, and legacy systems often do not provide the audit trails, user access logging, and data encryption capabilities needed to remain compliant. Organizations using outdated practices risk substantial penalties if they cannot demonstrate that they adequately protect their employees’ health information.
Many older systems also lack adequate backup and disaster recovery capabilities. Employee data stored in outdated formats is at a higher risk of loss due to system failures and natural disasters.
Employee Satisfaction Takes a Hit
Modern employees expect easy, self-service access to their benefits information and enrollment capabilities. Outdated administration practices that still rely on paper forms, manual processes, and limited employee access to information only lead to frustration and chip away at employee satisfaction. This can negatively affect retention rates and make it more challenging to attract good job candidates.
This can be especially painful during open enrollment periods, when limited enrollment options, paper-based processes, and delayed implementation can result in enrollment errors and missed deadlines.
Growth Gets Hampered by Legacy Limitations
Businesses experiencing growth often find that outdated benefits administration practices cannot scale effectively. Manual processes that may have worked well for smaller employee populations can become unmanageable quickly as the workforce expands. An inability to scale can limit opportunities for growth and lead to operational bottlenecks.
Geographic expansions can become significantly more complex when a business relies on outdated administration practices. Different state requirements and varying employee populations require advanced administration capabilities that most legacy systems are unable to provide.
Taking Action to Reduce Risk
Modernizing benefits administration requires carefully analyzing current processes, identifying vulnerabilities, and introducing strategies that minimize disruption.
The return on investment that businesses enjoy thanks to administration modernization typically includes reductions in compliance risks, improved operational efficiency, enhanced employee satisfaction, and improved strategic insights. These benefits often justify the investment within the first year alone while continuing to provide ongoing value in the long term.
Schedule an Employee Benefits Consulting Appointment Today
Are you concerned about risks from your current benefits administration practices? At Business Benefits Group, our experienced benefits consultants are ready to help you develop a modernization strategy that reduces risk while improving efficiency. Contact us today to learn how our professional employee benefits consulting can help protect your organization.