Rethinking Total Cost of Ownership in Core Administration

Health plans often underestimate the full financial burden of their core administration systems. This episode shines a light on the hidden costs buried and spread throughout the lifecycle of a typical core admin vendor contract. We will discuss what total cost of ownership is, how to evaluate it, and what to do when costs are unexpectedly higher than you anticipated due to spread-out expenses, complex integrations, and recurring upgrades. Listeners will learn how to identify the operational “patchwork” that keeps plans tethered to legacy models and discover why taking a shorter, more honest view of long-term costs can reveal hidden savings. The conversation explores how integrated ecosystems provide stability, transparency, and scalability, positioning plans to invest in growth rather than wasting unoptimized resources. 

Host: Today’s episode is Rethinking Total Cost of Ownership in core admin. Our guest, Jerome Beard is a corporate consultant, startup investor, venture capital scout and executive advisor with over 30 years of experience in sales, sales management, strategy, competitor analysis, business development, product management, general management, M&A, OEM licensing, and divestitures. Welcome Jerome.  

Jerome: Thanks. Glad to talk to you. This is a topic I’m passionate about.

Host: Let’s start by dissecting a common challenge I’m hearing more and more about: a lot of health plans seem to be struggling with the actual, total cost of operating their core administration systems. We often see vendors touting a low sticker price, but when you dig a bit deeper, you find costs spread across multiple years, hidden fees tied to upgrades, integrations require special workarounds, and ongoing maintenance expenses never made it into the initial proposal. Could you walk us through why this problem persists and what makes it so hard for health plans to get a clear sense of their true total cost of ownership?

Guest: It’s an interesting phenomenon. The issue often stems from how the industry, for decades, has structured deals and relationships around core administrative technology. Traditionally, payers have approached this decision as if they’re buying a single piece of software or service rather than an ongoing operating model that will influence every corner of their organization for years to come. Legacy vendors understand that health plans make decisions under immense budget pressure, so they naturally try to make the initial entry point look as attractive as possible. That might mean a relatively low upfront fee or a competitive initial per-member-per-month rate, but if we look closely, that’s rarely the complete picture.

Over time, these too-good-to-be-true cost structures reveal their hidden complexities. The health plan might find that the system needs frequent, costly upgrades just to keep pace with regulatory changes or that integrating the claims engine with the enrollment system is trickier than expected, requiring either expensive custom coding or hiring a specialized integrator. Maintenance fees, security enhancements, compliance audits—all of these become line items that were not front and center in the sales pitch. The result is a creeping escalation of costs that unfold quietly over five, seven, even eight years, while the health plan’s leadership might still be operating under the assumption that the initial deal was a bargain.

Host: So from what you’re saying, it sounds like many plans are only looking at the tip of the iceberg when they sign these deals. They see the immediate price and maybe the first year’s operational costs, but they’re not examining what’s lurking just below the surface—costs that, when aggr  egated over time, turn their “good deal” into something far more expensive than anticipated.

Guest: Exactly. Total cost of ownership (TCO) isn’t just the price tag you see in the first proposal. It encompasses every cost your organization will incur to keep your core administration functional and efficient over the lifespan of that solution. Think about it in layers: there’s the hardware or cloud infrastructure costs, the software licensing fees, and the labor costs to maintain and operate it all. Then add on costs for integrations—since no health plan operates in a vacuum—plus ongoing training, security enhancements, regulatory compliance updates, disaster recovery measures, and the cost of error handling, such as when manual workarounds or reprocessing claims are required because your systems don’t talk to each other.

When vendors spread these expenses out over a long timeline, they often become less visible. Each incremental cost might look small in isolation—a contract renewal here, an integration patch there—but aggregated over time, it’s substantial. Plans end up paying more in the long run than if they had selected a model that is more transparent and integrated from the start, even if that model might look more expensive initially.

Host: That’s fascinating. It reminds me of buying a car. You might find a really cheap car upfront, but if it breaks down constantly, needs parts that are hard to find, and guzzles gas at a crazy rate, the total cost over five years could dwarf what you would’ve paid for a more reliable model. Is that analogy fitting here?

Guest: It’s a very apt comparison. In your car analogy, the “cheap or low cost” purchase price is a distraction from what you really need: a reliable, cost-effective, and sustainable mode of transportation. In the world of health plan administration, what you really need is a stable, predictable, scalable operating environment for your core functions. Settling for the lowest-cost short-term deal often leads to ongoing maintenance headaches, compliance risks, and integration challenges. Over time, these become drains on staff time and financial resources. Ultimately, that cheap car costs you far more than a well-designed, well-built vehicle that might have had a slightly higher sticker price.

Host: Let’s talk about something you just mentioned: integration challenges. I’ve heard that one of the biggest drivers of unexpected costs is when health plans are forced to rely on a patchwork of vendors. One vendor might handle claims, another handles enrollment, yet another manages billing. Could you explain how this “vendor juggling act” contributes to hidden costs over time?

Guest: Certainly. Multiple vendors mean multiple distinct systems—each with its own data formats, update cycles, and quirks. At first glance, adopting a “best-of-breed” approach for each function seems logical. Why not choose the best claims engine, the best enrollment system, and piece them together? The intention is good, but the reality is that these systems often weren’t designed to work seamlessly together out of the box.

Let’s say your enrollment system and claims engine don’t share a common data language. You may need an integration layer or a custom interface that translates data from one system’s format to another. That costs money to build and maintain. Now, when regulations change, and you must update how claims are processed or how member eligibility is verified, you have to revisit these integrations. Each update can trigger a domino effect of modifications across multiple systems, and it costs time and money and potentially introduces risk—errors in data transfer, downtime during upgrades, or the need for specialized consultants to ensure everything keeps running smoothly.

Over the years, these small integration adjustments accumulate. Add in vendor coordination costs when you must negotiate terms, align timelines, or troubleshoot disputes over who’s responsible for a particular technical glitch. Before long, the plan realizes that a meaningful chunk of its operating budget is now earmarked just for keeping this patchwork stable. This wasn’t highlighted in the initial vendor pitches, but it’s now a reality the health plan must contend with and a tax that the health plan must pay with no end in sight.

Host: I can see how that would be a nightmare for a payer’s operations team and CFO. Nobody enjoys surprises on the balance sheet, especially ones that persist year after year. Let’s pivot toward solutions. Given these complexities, what does a more transparent and sustainable model look like? How can health plans avoid these hidden costs and set themselves up for success?

Guest: A sustainable model starts with acknowledging that core administration is not a one-and-done purchase but an ongoing relationship. Plans should look for solutions that are delivered as an integrated ecosystem rather than a patchwork quilt. Instead of multiple vendors that you assemble yourself, you should consider a platform model—one where claims, enrollment, billing, care management, and member engagement tools are already seamlessly connected and regularly updated as a cohesive whole.

Such ecosystems often operate in the cloud and leverage a subscription-based, or BPaaS (Business Process as a Service), model. This shifts costs from sporadic and unpredictable capital expenditures to a predictable operating expense. In this model, upgrades are included and occur regularly without extra fees, integration is handled by the ecosystem provider rather than your internal IT team, and compliance updates roll out behind the scenes. Because the ecosystem is built to scale and adapt, you avoid the expensive, time-consuming “lift and shift” projects that come every few years with legacy setups.

Granted, at first glance, an integrated platform might look slightly more expensive upfront. That’s because it’s honest about what’s included. You see the whole scope: stable run rates, built-in maintenance, and guaranteed upgrades. Over the long term, you save money because you’re not constantly writing checks for unforeseen integrations, emergency consulting engagements, or last-minute upgrades. The TCO is transparent and often significantly lower over a realistic horizon—say, three to five years instead of seven or eight.

Host: This brings up a crucial point: the timeline for evaluating TCO. You mentioned vendors who like to spread costs over seven or eight years. Why is that timeframe so beneficial for them, and how does a shorter evaluation period—like three to five years—allow plans to truly see what they’re paying?

Guest: Vendors that rely on complexity to mask costs love long horizons because it dilutes the impact of their hidden fees. Over seven or eight years, incremental charges look smaller when averaged out. A costly upgrade done in year three becomes just one line item among many in a long timeline. Gradually, the plan forgets how expensive that upgrade truly was in isolation.

Evaluating TCO over a shorter period—three to five years—makes it much harder to hide these costs. If there’s a major upgrade charge or a surge in vendor integration fees in year two, that spike becomes glaringly obvious over a shorter timeframe. You can compare the total spend in a more apples-to-apples way. With a transparent ecosystem model, where costs are stable and known, it’s easier to demonstrate clear savings by year three. By then, you’ve avoided multiple rounds of integration chaos and upgrade fees that would have plagued a more fragmented approach.

Host: Let’s try to bring this concept to life with an example. Can you walk me through a hypothetical scenario? Like, let’s imagine a mid-sized regional health plan that currently runs on a legacy system and works with multiple vendors. They’re considering two options: one, either staying with their existing vendor arrangement and facing periodic upgrades and integrations, or, two, switching to an integrated ecosystem that seems more expensive in year one. How might this play out over a few years?

Guest: Sure, let’s take a hypothetical health plan with about 300,000 members. Currently, they use a legacy claims system, a separate enrollment solution, a different platform for billing, and a handful of vendors providing point solutions for care management and member engagement. On paper, their current run rate might look decent month-to-month—let’s say a certain per-member-per-month cost that appears reasonable.

However, the legacy vendor has just announced that to comply with a major regulatory change coming in 18 months, the plan must upgrade to the latest software version. That upgrade will take 18-24 months and involve extensive testing, custom integration to ensure it still plays nicely with the enrollment and billing systems, and will likely require hiring external consultants. The cost of this massive upgrade is spread out, but it’s not insubstantial. In parallel, the plan must also update their care management vendor interface, which introduces another set of costs. Over five years, they find themselves paying not just the baseline PMPM but also a series of incremental charges: integration customizations, consultant fees for regulatory updates, system downtime costs when transitions don’t go smoothly, and specialized labor for troubleshooting.

Now imagine they switch to a fully integrated ecosystem from day one. The upfront fee might look higher at a glance, but this model includes ongoing upgrades as part of the subscription, seamless data flow between claims, enrollment, billing, and care management functions, and a stable, compliant environment that evolves with regulatory changes automatically. By the end of year one, they’ve completed the transition and are operating smoothly. By year three, they haven’t paid a single penny for “surprise” upgrades or emergency integration work. Their run rate is predictable and stable, and they’ve avoided downtime and the internal disruption caused by massive upgrade projects. When they compare total spend at year three, the integrated ecosystem shows a clear savings. By year five, the difference is even starker: the legacy route might have looked cheaper on a monthly invoice in year one, but by year five, the integrated model wins by a substantial margin when all indirect costs are accounted for.

Host: That’s a powerful illustration. It really underscores the importance of looking beyond the initial quote and focusing on the entire lifecycle. Another angle to consider is flexibility. The healthcare market is dynamic—new regulatory requirements surface, member expectations shift, and payers might need to add new lines of business or scale quickly. How does a stable, integrated ecosystem help plans remain adaptable compared to a legacy, multi-vendor environment?

Guest: Flexibility is crucial. In a multi-vendor environment, any significant change—like adding a new product line, merging with another plan, or responding to a regulatory update—can set off a chain reaction. You must coordinate multiple vendors, potentially renegotiate contracts, and implement changes in each system separately. Every modification risks destabilizing some part of the ecosystem because it was never designed to move in lockstep.

An integrated ecosystem, by contrast, is purposely built for agility. Because all core functions—claims, billing, enrollment, care management—are interconnected and regularly updated as a whole, changes ripple through seamlessly. Scaling up or down due to membership fluctuations becomes simpler. Incorporating a new regulatory rule often involves a single coordinated update rather than half a dozen. This reduces not just cost, but time-to-market for new products and services. The ability to react quickly to emerging trends or compliance requirements without launching yet another costly project is a huge advantage in a marketplace where delays and inefficiencies can directly impact member satisfaction and financial outcomes.

Host: Speaking of member satisfaction, let’s not forget that all these internal costs and complexities eventually impact the end user—the member. How do hidden costs and complicated integrations affect the member experience?

Guest: Well, ultimately, everything trickles down to the member experience. When a plan is bogged down by complex integrations and manual workarounds, claims processing can slow, errors may slip through, and updates to member data can take longer to reflect in all systems. This can lead to confusion for members, longer wait times for claim resolutions, and a frustrating experience if their information or coverage details aren’t synced across channels. For example, a member might get different answers depending on whether they talk to customer support, check the member portal, or receive printed documents. Simply because the back-end systems aren’t harmonized.

In contrast, a unified ecosystem ensures data consistency. When the plan updates a member’s information, that update is reflected everywhere simultaneously. Claims processing can be more efficient, with fewer manual interventions. As a result, members experience faster resolutions, more accurate communications, and a feeling that their health plan truly knows and understands their needs. Improving operational efficiency directly elevates the member’s journey, and that leads to higher retention and better ratings for the plan.

Host: So, beyond just saving money, getting this TCO analysis right and choosing a more transparent, integrated model can help plans differentiate themselves in this crowded marketplace. When members have a frictionless experience, they’re more likely to stay, and the plan can focus on strategic initiatives like value-based care or enhancing digital engagement rather than constantly playing defense on the technology front.

Guest: Exactly. The health plan industry is becoming more competitive, and simply providing coverage isn’t enough. Plans need to stand out through superior service, innovation, and reliability. If your technology stack is holding you back, forcing you to invest in maintenance rather than progress, you’re at a strategic disadvantage. On the other hand, if your ecosystem supports quick adaptation, transparent costs, and efficient operations, you can invest in proactive improvements—things like advanced analytics to predict member needs, personalized communication, or targeted care management programs that truly make a difference.

Host: Let’s shift into actionable advice. Suppose a health plan leader listens to this and thinks, “We might be caught in one of these high TCO traps. How do we break out? Where do we start?”

Guest: The first step is clarity. You need to conduct a thorough audit of your current total cost of ownership. Look at every contract, every vendor relationship, and every system’s upgrade or maintenance schedule. Identify direct costs for licensing, maintenance, consulting, and indirect costs—staff hours spent on manual tasks, downtime incidents, and productivity lost to poor integration. Get a baseline that reveals how much you’re really spending.

Once you have that baseline, start exploring integrated solutions that present pricing and services more transparently. Ask vendors hard questions about how upgrades are handled, what’s included in their subscription models, and how they manage compliance changes. Run scenarios: what happens if your membership doubles? What if a major regulatory update hits next year? How quickly can they adapt, and what will it cost?

Finally, consider the long-term strategy rather than short-term gains. Don’t let a marginally lower first-year cost sway you if the five-year picture shows greater stability and savings with another option. Present these findings to your executive team, highlighting the long-term financial and strategic advantages, and use that to guide an informed decision that prioritizes true TCO over surface-level bargains.

Host: That is very practical and actionable. I imagine it also helps to engage frontline IT and operations staff who might have intimate knowledge of these pain points. They can provide valuable input on where hidden costs are.

Guest: Absolutely. Your IT and operations teams are often very aware of inefficiencies and hidden costs. They know the pain of trying to update a claims platform that relies on ten different data feeds from six vendors. They know how often they have to manually manipulate data to meet a reporting requirement. Tapping into their insights helps create a more accurate TCO assessment and builds internal alignment that leads to transformation.

Also, involve finance and compliance teams early. Finance can help you model the long-term cost scenarios and reveal opportunities for savings. Compliance teams can point out potential risk. The more cross-functional your approach, the clearer your path forward.

Host: We’ve covered a lot of ground—hidden costs, integration challenges, long-term vs. short-term analysis, and member experience. If you had to distill one key takeaway for a health plan executive, what would it be?

Guest: Focus on the big picture. Don’t be dazzled by a low upfront price if it means tolerating unpredictable costs, frequent disruptions, and limited agility down the line. Total cost of ownership should guide your decision, and that means looking at everything—technical, operational, regulatory, and strategic factors—across a realistic timeframe. By choosing an integrated, transparent model, you set the stage not only for cost savings but also for operational excellence and a member experience that can be differentiated in a competitive marketplace. In other words, think beyond the immediate invoice and consider the full lifecycle value you’ll unlock by investing in a solution that’s built to serve your needs now and as you grow.

Host: Thanks for shedding light on the hidden costs behind TCO and offering a clear vision for how payers can move toward a more sustainable operating model.  

Guest: It’s been great talking with you. Hopefully, this conversation helps health plan leaders.  

Host: Absolutely. To our listeners, if you liked this episode, follow on Apple or Spotify and share with your colleagues on LinkedIn.