According to an Everest group survey, the global Benefits administration outsourcing market grew at 12.5% in 2011 and has already crossed the $5 B mark. Similar studies reveal that human resource benefits transactions are being outsourced at an impressive rate and is this is far higher than the rate at which other services like pension are being outsourced.

HRO services has been seeing more momentum as HR transactions continue to become more complex. The visible trend in the industry is to start with transaction intensive work like payroll and benefits and then move on to other areas like learning and recruitment. Benefits is thus becoming the starting point or the basis for most HR outsourcing contracts.

Numerous factors are driving demand in this segment. An interaction with Rohail Khan, group president, HR Outsourcing and Solutions at ACS, reveals the major factors that are working in its favor.

Factors Driving the Benefits Outsourcing Market
1)Focus on cost management – the “double dip” economy in the United States is forcing companies to focus on core, revenue generating areas and outsource more of the other non-core functions,  like back office processing.

2)Focus on driving employee behavior change– employee behavior change drives utilization of health care and ultimately lower costs if the employees choose the right action. You must engage them in the process and that requires more domain competency and investments than companies can invest in on their own, so they are looking for partners that will invest in this capability and help them think differently about solving the problems they face.

3)Innovation and investments in technology and service model capabilities – this is not core revenue generating functions for any  company. So they prefer opting for third party service providers who are well equipped to handle changing technology requirements.

4)Convergence of health/wellness with retirement planning to drive the optimal outcomes for employees – today individuals no longer make a healthcare or a retirement decision in isolation.

5)Retirement issues facing US employees– 3 out of 5 Americans is unprepared for retirement and this only gets worse when you consider employees will carry the additional financial burden
associated with increasing costs of healthcare.
6)Clients are driving the need for much more service integration across HR domains, as client HR teams are downsizing and can’t effectively manage the host of vendors they have had historically.

7)In the United States, the continual changes of the federal government’s plans for health care reform will be a constant drum beat of change– increasing the need for third party vendors to help organizations navigate the complex and changing system and solve problems they did not have to face historically.