There’s No Such Thing as Free: The Hidden Cost of “Free” Benefits Administration Systems

By BeneRe
January 30, 2024

Benefits providers may offer a “free” benefits administration system to entice you to work with them. But beware the hidden costs and other dangers.

Key Takeaways

  • Free” benefits administration systems likely mean that your employees are paying for suboptimal technology in the form of higher policy costs
  • The motivation behind hooking you into a “free” benefits administration system is mainly about control of the employer relationship
  • What to look for in a better benefits administration system:
    1. Vendor experience
    2. Ability to scale
    3. Automation features
    4. Functionality
    5. Employee communication
    6. Cost

Many benefits providers offer “free” benefits administration systems in exchange for buying policies through them. While free always sounds great, remember that there really is no such thing as free, and those costs are passed on to your employees. 

This article will explain why you should avoid these “free” benefits administration platforms and what to look for in a better system.

Why you shouldn’t use a free benefits administration system

So, you decide to work with a benefits provider who advertises a free admin system as part of the deal. It sounds great – you can get everything from one vendor, and you don’t have to pay for the system. However, there really is no such thing as free. The providers likely won’t communicate to you what the actual hidden costs are, and the fees you would be paying are just passed on to your employees in the form of higher costs.

These systems also tend to be inexpensive versions of more robust systems or represent outdated technology, so they likely won’t be programs you actually want to use. For example, the wrong benefits technology may not integrate with other platforms, the interface may be clunky and hard to use, or there may be little opportunity for employee self-service.

Providers will also have a lot more control over these free systems, and the control you have is very limited. This means you may not be able to use the platform for what you really need. Once you’re on the platform, it becomes hard to extricate your business from it, even if it isn’t right for you. If you decide to change admin solutions, consultants, or carriers in the future, you may lose all of your benefits and employee data if the vendor owns the technology you’ve been using. Even if you don’t lose the data, transferring it to another system is likely to be difficult and time-consuming.

In the world of social media, if the product is free, you are the product. Well, in the benefits world, if the benefits administration system is free, your employees are the product. The vendor is potentially collecting their data to use for something else. And, if you don’t have to pay for it, your employees are paying more for the benefits they get. The cost of the system will be included with the policies you’re offering them. All of this happens without you getting any visibility into how the economics work behind the temptation of the “free” system.

To combat this danger, ask a vendor what the cost would be without that free system in the mix. Remember that the hidden costs of a free benefits administration system could create bigger problems for your company and employees.

6 things to look for in a benefits administration system

So, what should you look for instead of accepting these free systems? There are some important factors that will ensure you’re choosing an established, trustworthy benefits administration system. It’s an important choice: in a SHRM article featuring a 2022-2023 study by technology vendor isolved, 64 percent of respondents said a poor enrollment experience would cause them to look for new employment.

The good news? Technology continues to improve, so it’s not too hard to implement a solid, affordable option. Here’s what to look for:

1. Vendor experience

First, look for a vendor that has significant years of experience. Read reviews and testimonials. Taking these simple steps helps you assess their credibility. It’s best to work with a company that has served businesses in your industry or similar to you in size. Ask about challenges you face and how they’ve addressed similar issues with the right solutions in the past.

2. Ability to scale

Remember that your benefits administration needs will likely change in the future, especially if the business grows or employee priorities change. Pay close attention to a vendor’s ability to scale if needed and to adapt to changes in the market.

3. Automation features

One of the biggest benefits of implementing a new system is that workflows are sped up and automated. Assess how effective each platform is at automating and streamlining processes for administrators and users.

4. Functionality

The platform you choose needs to be functional for everyone who will use it, especially employees. The interface should be intuitive and straightforward, otherwise, there could be pushback and confusion. A benefits solution shouldn’t make any processes more cumbersome or challenging – quite the opposite, it needs to make everything easier. Ask for a demo so you can see how it works in real-time.

5. Employee communication

The open enrollment process needs to be smooth with your system, but you also need to evaluate whether the platform has the capability to effectively communicate benefits information to employees. This feature will help you integrate automation and notifications to speed up your processes and keep people in the know.

6. Cost

Of course, the cost of your benefits administration system is an important factor when making a decision. Weigh the features and benefits against the price. Remember that, as with the free system offerings, a very low cost means you may not get everything your company and employees need to really be worth it.

Work with BeneRe when you want transparency

“Free” benefits administration systems may seem enticing but remember that you won’t be fully in control. You also won’t have visibility into hidden costs that will end up impacting your employees. 

At BeneRe, we offer voluntary benefits that are financed the way they should be, with efficiency and clear visibility of all transactions. Since 2018 we have operated a first-of-its-kind group captive insurance solution for Accident, Critical Illness and Hospital Indemnity coverage. BeneRe maximizes value for employees while providing a welcome dose of transparency regarding claims, commissions and expenses.

Reach out to BeneRe today for a complimentary financial analysis of in-force programs.