In my youth, I spent a summer transferring paper documents in a college registrar’s office to microfilm. That job showed my ability to do mind-numbingly dull tasks repeatedly, 40 hours a week for three months. Basically, I grabbed folders full of college applications and report cards from the 1940s, put them one-by-one under a device with a bright light and a button, pressed the button, and repeated. Over and over and over again.
Manual benefits reconciliation isn’t quite as mind-numbing, but it’s similar. At its core, benefits reconciliation involves a manual monthly review of health insurance and other benefit premium invoices against payroll deductions. For many organizations, that means that a benefits specialist or someone in accounting reviews benefits enrollment information and a payroll spreadsheet to ensure that there weren’t any overpayments, that you’re not paying for terminated employees and dependents, and that employees are enrolled in the right plans at the correct rates. HR then reviews Any discrepancies and corrects any mistakes made.
Manually reviewing this information can take hours every month, depending on the size of your organization. Because many errors occur when life events happen, if your organization has a large number of events, you’ll likely find a lot of errors that need correcting. Failing to do so — if not caught in time — could be a compliance risk.
What is benefits reconciliation?
Benefits reconciliation is the process of reviewing health insurance and other benefit premium invoices against payroll deductions. For many organizations, it’s a manual process performed by a benefits specialist or someone in accounting. The individual responsible reviews benefits enrollment information and a payroll spreadsheet to ensure that there weren’t any overpayments, that the organization is not paying for terminated employees and dependents and that employees are enrolled in the right plans at the correct rates. HR reviews any discrepancies and makes corrections.
Unfortunately, manual benefits reconciliation also has a serious drawback: As the name suggests, it’s manual. Manual processes are prone to more error than automated, electronic processes. Especially ones that require line-by-line manual analysis and review.
As a result, manual benefits reconciliation can be costly. Consider these three hidden costs of performing benefits reconciliation manually:
According to a Mercer study, the average US company has a turnover rate of 22%. Research from the Kaiser Family Foundation found that the average employer-sponsored health insurance premium in 2019 was $7,188 for single coverage and $20,576 for family coverage, with employers covering $5,946 for individuals and $14,561 for families. To make the math easy, let’s assume a 100 employee company only has individual plans. Their annual health insurance cost — no other benefits — is just south of $600,000. 22 of those 100 employees turnover in a given year, representing $130,812 in annual health insurance costs.
Let’s assume a 1% overpayment rate ONLY on those 22 employees — which is likely a conservative number. Most employers aren’t likely to terminate 99 out of every 100 employees on time. Then, we’ll divide that by each employee to get a rough per employee overpayment number: $13.08. So failing to properly terminate just 1% of employees from an individual (no dependents) health insurance (not other benefits) costs $13.08 per employee annually. That’s a very conservative estimate based on just a 1% error rate.
Creating an automated process to calculate and pay for benefits based on real-time enrollment information can save the typical employee a significant amount of money annually.
The rough overpayment calculation outlined above highlights what it costs an organization when it fails to terminate health insurance benefits for an employee. But what happens if an employee enrolls in a plan or experiences a life event change that you fail to send to the carrier?
It’s not a hard cost, but it is a headache for the employee which can impact their employee satisfaction, especially if the employee is denied treatment because of an employee error. Your people are your most important resource. With the average cost of replacing an employee anywhere from half to two times that person’s salary, employee turnover has significant costs. The headaches associated with benefit errors could be a contributing factor to an employee looking for other employment. Failing to automate benefits reconciliation can hurt employee satisfaction and retention.
An opportunity cost is exactly what it sounds like: Because your team is spending time on one activity, they don’t have time to spend on other activities. That alternative may have the potential to return larger gains than the activity the employee is currently performing.
You’ve definitely got more strategic activities your HR and benefits team could be pursuing than staring at spreadsheets and lists for hours every month. The costs of failing to do more strategic activities than manual benefit reconciliation can be high.
So what’s the alternative to manual reconciliation? There are several solutions on the market — including Certifi’s benefits billing and payment solution — that can help integrate your data sources like your enrollment platform or benefits administration system to deliver benefit payment accuracy. These solutions can help eliminate both the hard costs and softer costs — like employee satisfaction — associated with benefit billing and payment errors.
Certifi’s William is automated premium billing and payment software that streamlines benefits billing and payment solutions for employers.