If the idea is to use Procurement to drive the lowest possible costs in negotiating these HR contracts, that's missing the mark when it comes to the bigger picture.
Every business knows that talented procurement officers are invaluable for their skills at negotiating the best prices for the highest quality parts and supplies. But how transferable are those skills to HR and negotiating broker relationships and healthcare contracts?
Very. But it takes work to make the fit comfortable.
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A growing number of employers, particularly larger organizations with 1,000 or more employees, believe Procurement's traditional, commodity-based negotiating skills can help to infuse more disciplined oversight into HR's process of negotiating the "best" contracts with brokers and health care plans.
The thinking is rooted in concerns over the ongoing pressures of unrelenting health plan cost increases, combined with unclear expectations on how to extract the most value from their employee benefits program.
But if the idea is to use Procurement to drive the lowest possible costs in negotiating these HR contracts, that's missing the mark when it comes to the bigger picture; an automatic default to the lowest-cost bid can create big compliance issues. The U.S. Department of Labor has repeatedly warned that such an approach could violate a benefits plan's ERISA fiduciary duties; "lowest cost" can never compliantly stand for a plan sponsor's sole consideration.
HR teams being encouraged to integrate Procurement members to their contract deliberations can avoid such issues. Their challenge is to lean in and find ways to make the partnership work.
It may require a mindset shift: HR can benefit from viewing this as an effort to partner with, not around Procurement. That may mean initiating a preliminary "courtship" phase where the HR and Procurement teams learn each other's strengths and where each can deliver the most value for the maximum impact.
From there, HR should develop and share the optimal selection criteria for purchasing HR services. This will help the Procurement team understand the importance of partnership engagement and expectations of the broker relationship, like service guarantees.
HR also needs to establish and share the objectives that need to be covered in contract negotiations, like:
- The expertise and experience that the broker's client relationship team, especially the lead consultant, can offer – not just in terms of industry knowledge, but in terms of their depth of understanding about your company, and your needs.
- The broker's network of specialty advisors in areas like compliance, medical/pharmacy, communications, etc., and their availability for targeted support and solutions. Cheaper, but not necessarily better, proposals may omit them.
- Plan guidance that reflects both quality thinking and strategic depth.
- Client management protocols.
- Understanding and use of analytics to customize benefits packages that are effective and relevant.
- Meaningful service fee guarantees.
- Experience and capabilities to deliver results-oriented virtual open enrollment programs, a must-have as we recover from the COVID pandemic.
Another point to consider is that Procurement can add tremendous value in anticipation of the contract being signed and executed. Contract requirements must be managed from both a cost and service perspective moving forward, and Procurement is ideally positioned for the job.
We're seeing some good outcomes from HR and Procurement marriages where the particular talents and capabilities of each are phased in at different stages of the contracting process. In one instance, the HR team managed the front end of the broker RFP process. This included setting expectations on deliverables and how the relationship would be structured. The second phase required Procurement's expertise, to drive the financial elements of the contract and internal compliance needs, like confidentiality agreements.
Everyone benefits when the HR/Procurement partnership works. It takes work to balance Procurement's perspective – one that's rooted in pricing – with HR's need to find advisory partners that meet broader value considerations. And in so doing, optimizes the likelihood that defined, shared objectives can be achieved.
Joseph Torella serves as president of the employee benefits division at HUB International Northeast, a leading insurance brokerage firm, and part of HUB International Limited. A 23-year industry veteran, he is responsible for the overall management of the Employee Benefits operations throughout HUB Northeast's regional offices in New York, New Jersey, Connecticut and Pennsylvania.
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