Benefits Administration Outsourcing (BAO) Annual Report 2014: Benefits in Alternate Paths

1 May 2014
by Rajesh Ranjan



Benefits Administration Outsourcing (BAO), one of the largest and most mature markets in HRO, grew at a steady rate of ~6% to reach US$6.3 billion in annualized spend. Although the new deal activity was robust, the market witnessed significant turbulence, as numerous buyers switched providers due to several reasons. The H&W administration outsourcing market grew at a much faster pace of ~10% in 2013, driven primarily due to the U.S. healthcare reform. This growth was spurred both by traditional H&W outsourcing and private exchanges, which will continue to grow at a roaring pace. In this increasingly complex market, buyers are looking for value-added services such as advisory services, analytics, consumer-driven health plans, decision support tools, and improved communication services.

In this research study, we analyze the BAO market across various dimensions:

  • BAO market overview
  • Spotlight on H&W outsourcing market
  • Buyer adoption trends
  • Solution and transaction trends
  • Service provider landscape

BAO Market Size


  • Deals with at least one of the following core-benefits areas is included – Health and Welfare (H&W), Defined Benefits (DB), and Defined Contribution (DC), as a stand-alone outsourcing service
  • The buyer employee size is over 3,000 employees
  • All geographies and industries

Adoption in Private Health Exchanges


This research provides comprehensive coverage of the 2013 BAO market and analyzes it across various dimensions such as market overview, spotlight on H&W outsourcing market, buyer adoption trends, solution and transaction trends, and service provider landscape. Some of the findings in this report are:

  • The BAO market grew at a steady pace of over 6% to reach US$6.3 billion in annualized revenue in 2013
  • H&W outsourcing market, forming approximately one-third of the BAO market, is the fastest growing area within BAO space, albeit at a lower base
  • In H&W, increased adoption was seen from the upper-end of the mid-market (5,000 to 15,000 employees) as this segment entered the market in a big way post the result of the U. S. Presidential elections. We expect this momentum to continue during 2014-2015
  • Buyers continue to take a focused approach towards BAO and outsource individual benefits areas – H&W, DB, and DC with no significant uptick in TBO/TRO deals
  • The BAO market witnessed a continuous wave of acquisitions over the last two years. Several acquisitions were focused around gaining capability in the health exchange space (e.g., Towers Watson acquired Extend Health and Liazon Corporation to build its HIX capability)

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