How out-of-network fees erode backup care

• Key insight: See why employer-provided back-up daycares don’t deliver the promised value.
• What’s at stake: Employers risk losing thousands of dollars per employee to hidden administrative fees.
• Support data: 91% of childcare backups at one large employer went to out-of-network providers
  Source: AI generated bullets with editorial review

Employer-sponsored childcare programs are in high demand, but offerings are often cut short or hidden fees erode the benefit’s value.
These programs are designed to provide access to certified care when it exceeds an employee’s regular arrangements.

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But a recent study of a large employer with a centralized 9-5 workforce showed that 91 percent of child care coverage utilization involved out-of-network providers, according to Upwards, a national care benefits platform. Of the 9,000 days that workers needed child care, 8,100 used a caregiver found by relatives, friends, neighbors, or the family themselves.

The discovery also emerged as a common theme in 30 requests for proposals handled by Upwards, said Greg Crisci, the company’s head of corporate programs. When that happens, he explained, the vendors charge employers “half the credit” (about $175 to $200), but only pass $100 to the employee. They keep $75 to $100 to process a receipt, which is a whopping 75% to 100% fee on a $100 employee benefit.

Charging a processing fee that pales in comparison to a financial services platform like Stripe, which charges just 2.9% or fractions of a cent to move money, he said, highlighting the inefficiencies of the structured credit model found in the backup vein.

That’s why benefit brokers and consultants should ask their employer clients if they know where their care dollars are going, Crisci advised, noting that vendors aren’t just incentivized to solve the problem, they make money.

The high hidden cost of out-of-network use extends to senior care and even pet care programs, she added. To help ease the hassle of finding affordable care, her company offers a care navigation platform for employees that includes childcare, elder care, backup and pet care (coming in 2026). The benefit starts at $12.95 per employee for small businesses.

Caregiving has emerged as a critical issue across the workplace, even garnering the attention of the Employee Benefits Research Institute, which recently announced a multi-year national initiative with Greenwald Research to examine how family caregiving affects workers, employers and the employee benefits system.

Crisci cited a number of reasons why someone might leave the network, including access and availability, quality and trust, specialized needs, continuity and relationships, and flexibility and customization.

Backup care, however, is only part of the family’s concerns and can be the tip of the iceberg. For example, he stated that people returning to work from maternity leave do not need a single day of childcare; they may take five days in a row.

In the right direction

Crisci suggested a multifaceted strategy for benefits advisors to avoid overpaying employer clients for out-of-network coverage. The first step, of course, is a review of out-of-network care claims. If the number is high, it is important to determine the root cause of this usage and ask the seller what they are doing to close the gap.

It is also essential to examine the contract’s out-of-network reimbursement provisions and, if necessary, replace the credit model with a dollar-to-dollar approach. The goal is to reduce any large delta between the reimbursement of benefits received by an employee and that charged by the employer. This will ensure that there is no leakage of employee benefit dollars.

“So if the employer says, ‘I’m willing to pay $350,’ then $350 should go to the employee who needs the protective care,” he explained.

Ensuring that a backup care network can adequately cover a customer’s employees is usually done through a coverage report that identifies the number of providers within a certain mile radius that includes local ZIP codes, he said.

While it makes sense for a credit model to have fixed costs, Crisci says a dollar-to-dollar strategy is far more effective given that the cost of living and income vary significantly from state to state. Someone in Iowa might make $20 an hour, while in New York it’s double that.

“Most workers with preventive care programs will provide 10 credits worth $350,” he explains. “So basically the employer is saying, ‘I’m willing to pay $3,500 a year,’ and that’s why we said instead of doing this credit model, give $3,500 to go toward care, but do it at the market rate that needs to be done.”