The crisis in employee benefits administration (Part 1)

Revenue growth in the employee benefits sector is driven primarily by inflation and rising prices rather than by better outcomes, which is what employers are seeking. Nearly 60% of employers surveyed expect their benefits partners to move past traditional cost and experience measures and affect health and financial outcomes, while 48% focus on improving the experience of using benefits.

The competitive insurance brokerage market has undergone considerable consolidation over the last five years, according to HFS Horizons research. Brokers, agencies, and HRIS enterprises are either merging to broaden their range of products and services or integrating vertically by acquiring complementary businesses to extend their service portfolios.

Insurance brokers and agencies have adopted technologies to aggregate, package, and distribute benefits faster and more easily. Those technologies have also added layers of operational complexity, creating an intricate web of systems, carriers, and employer needs that has to be managed.

Despite broad technology adoption, brokerages still handle critical tasks manually. Group builds, also called case builds, and renewals are fundamental operations at every phase of the benefits management lifecycle. When those processes break down, the problems cascade through the entire employee benefits lifecycle, which is already under strain from economic turbulence, mass layoffs, and shifting federal legislation.

Employee benefits are a complex arena to navigate from a regulatory perspective. Regulations remain onerous and are becoming materially expensive to address and comply with. Brokers must help employers meet healthcare regulations (ACA, OWCP), financial regulations (ERISA), and other employee benefits regulations at both the federal and state levels.

Evolving federal regulations, from healthcare and retirement policy to immigration and trade decisions, create continuous compliance work for benefits administrators. Each regulatory shift requires brokers to interpret the implications quickly, communicate the changes to employers, and implement them across multiple systems.

The “one size fits all” value proposition of traditional benefits administration has not changed in decades. Many brokers accept the role of line-item benefits aggregator, packaging and bundling coverage for sale to employers with limited focus on efficacy or outcomes. That model has lost its purpose. Today’s global workforce spans five generations, and employers have to address different needs differently.

Case builds should make enrollment run smoothly, but a typical case build for a mid-sized employer with multiple plan offerings can consume up to 20 hours of an account manager’s time. The manual burden raises error rates and forces rework, creating a cycle of corrections that stretches timelines during the phase most visible to employers and their employees. Delayed implementation can affect enrollment periods and leave a poor impression of both the broker and the employer’s benefits program.

Layoffs in the United States reached a five-month high in August 2024, exceeding 75,000 job cuts, which pointed to growing economic uncertainty and a weakening labor market, according to a Challenger, Gray & Christmas report. That was an increase of 193% over July and the highest monthly total since March. Setting aside the 2020 pandemic, it was the highest August job loss figure recorded since 2009.

Case builds also carry mid-year plan changes as employees experience life events or employers adjust their offerings. Frequent onboarding and offboarding, combined with manual case builds and renewals, limits scalability and creates bottlenecks that affect service delivery exactly when employers need responsiveness most. Manual processes often produce inconsistent quality across account teams, which makes outcomes and experiences unpredictable.

As the cycle begins again, case builds support new plan year setup with updated information, while renewals drive the annual update that keeps benefits programs current and competitive. But across a disrupted benefits lifecycle, account managers at brokerages are overloaded with basic administrative work, leaving little capacity for strategic client consultations, relationship building, proactive problem-solving, or thorough market analysis, the activities that drive employer satisfaction and retention.

The challenges facing employee benefits administration require a change in how brokers and agencies approach their fundamental processes and service delivery. Despite the obstacles, there is a clear path forward for organizations willing to evolve.

Part 2 of this series looks at how brokers and agencies are reclaiming their value proposition, improving operational efficiency, and delivering the measurable outcomes employers now expect.