Monthly Archives: March 2015

Getting Handcuffed with Benefits Technology

Today I saw a presentation from a new HR-Benefits-Payroll technology vendor that I thought is pretty cool. It looked great. It is web, mobile, and social. It could even send text messages to employees. It has nice colors, pictures, and looked real user friendly. It is a true end to end solution. The system could manage all employee data from recruitment to retirement. Or some would say from hire to fire. Employers love it. At least some do. Yet I know that in a few months there will be something better in the market and in another 6 months something better again.

Today I also got two calls from benefits brokers asking about some benefits technology vendor they just saw wondering what I thought of them. I get these calls every day. For some I know their goal is to have some lead benefits enrollment system that will help them “tie their client to them” so that it would be more difficult to get fired. Or at a minimum they are looking to use technology as a competitive advantage. As I had written in my article titled “There is a Ghost Lurking in the Benefits World” ( these brokers are looking for that silver bullet. However, while the broker is trying to tie the clients to them what is really happening is the broker is getting handcuffed to some technology vendor. They get stuck in some long contract with some ongoing monthly expense only to find out the solution they are handcuffed to doesn’t generate new business and is very quickly yesterday’s idea.

There are a few things I know about benefits technology. First, all clients don’t buy the same solution. They don’t buy the same health insurance. They don’t buy the same computer equipment. And they don’t buy the same benefits enrollment system. In fact I see few employers buying stand-alone benefits enrollment systems at all. At HR Technology Advisors we recently did a survey and found that of the top 15 benefits enrollment systems being used today only 2 are stand-alone benefits enrollment systems. The other 13 are leading HR and Payroll vendors that have benefits enrollment as a part of their system. Only one vendor has more than 10% market share. See my article “The Coming Obsolescence of Stand-Alone Benefits Enrollment Systems.”

While not all brokers are looking to tie their clients to them with technology, most will admit that they are looking for a competitive advantage. The problem with this strategy is that the result is often the opposite. They actually leave themselves competitively vulnerable. I had one of my broker clients tell me the other day that their competitor just signed a contract with a specific technology vendor. My advice to him was to let the other broker be handcuffed to one vendor. While your competitor enters the race with the 8th fastest horse you can bring in the top 5 and increase your chance of winning. What producer wants to enter a prospect meeting with the 8th best anything?

I realize that just because a broker signs with one vendor does not necessarily mean they sell only that vendor. The problem though is that they often feel an obligation to “get their money’s worth” so they end up pushing that one solution and become blind to alternatives. They do seminars and webinars on that one solution. They train their staff on how to “sell” that one solution but don’t train them on how to become better at being a ‘trusted advisor” around technology to their clients. The producers bring this solution to clients and prospects with the belief that they have the best thing only to quickly find out there are many good solutions in the market. As we all know technology changes fast. Unless you bought your car, TV, cellphone, or computer in the last 12 months the odds are you aren’t using the best technology.

There are so many great technologies in the market and so many good things brokers can do for employers with technology there is no reason to limit yourself to one. We know all clients don’t want the same thing. Today’s technology will be yesterday’s technology in 6 months. No one vendor has cornered the market with some great idea though some vendors will certainly try to convince you that is the case. The good thing is you can be even more competitive by having more options. So be careful for what you wish for. While you seek that idea that will tie your clients to you, you may be the one that gets the handcuffs.

An Alternative Approach to Private Exchanges

Note: This was published in December 2012 but never on this blog.

It seems like there is not a day that goes by where one does not see a press release about some broker, technology company, or carrier, launching their version of a Private Health Insurance Exchange. As someone who regularly speaks with staff from these companies any discussion inevitably turns to Private Exchanges. What I have learned from these conversations is that there really is no clear definition of what a Private Exchange is. The term Private Exchange is so loosely used in the market that it seems anyone can put out some press release about a Private Exchange with no need to define what it really is or even more so, why it is something that is good for the customer. These press releases have created such a buzz in the market that many brokers feel a need to respond quickly with their version of a Private Exchange regardless of what it is or if it has any value. This article will give another perspective and ask some very pointed questions that I think the reader should contemplate. In the end I will suggest new ideas that may give you a marketable alternative position on Private Exchanges. Lastly, this article is my perspective on Private Exchanges. This does not represent the position of my company, HR Technology Advisors, at this time.

Over the past 14 months I have attended two conferences where there have been panel discussions about Private Exchanges. On these panels were representatives of a carrier Private Exchange company, technology vendors, actuaries, brokers, and consultants. The audience consisted of close to 100 insurance brokers. The purpose of the panel was to discuss and conclude where we think the Private Exchange market was going. On both occasions one of the first questions asked was:

“Do you consider a single medical carrier with multiple options and Exchange?”

The universal answer was No. One medical carrier with multiple options sold in conjunction with other coverages each with multiple options is what we called a cafeteria or flex plan in 1988. Such a plan would have a defined contribution from the employer in which the employee can spend as they wish to purchase various benefits. The difference between now and then is that technology is available today to help guide the employees through their decision process and enroll employees online.

From an underwriting standpoint giving people options to choose plans that fit them just invites the same problem it did in 1988, adverse selection. I remember back then we sometimes would worry about adverse selection when there were hired enrollers who could help the individual choose the best plans for them. Today, the online decision support tools provide the same assistance. The problem with both is that if everyone chose what was best for them there would be adverse selection which generally worked against the goal of the employer which was to reduce costs or keep them from growing too quickly. This is all assuming the client is experience rated.

Some Private Changes may be underwritten as multiple employer groups. If this is the case then it is the insurer that needs to worry more about adverse selection. Such pools would need to include large populations in order to spread the risk of adverse selection. In these types of insurance pools employers would not be able to self-insure. Ultimately the price of such plans will reflect the experience of the group preventing people from “gaming” the system for too long. In states like my home state of Massachusetts laws already exist that require insurers to pool their risks for the less than 100 employee marketplace. In these states Exchanges can be more easily created because the insurance products are already underwritten in bigger pools.

Other Private Exchnages are created for larger employers (2000+ employees). These Exchanges may have multiple medical carriers with multiple options each. In these situations employers are often self-insuring and therefore need to once again pay attention to the spread of the risk.

Regardless of how the risk pool is created there doesn’t appear to be any real cost savings from Private Exchanges other than cost shifting back to the employee. The idea being sold in this model is that the employer could pass on future insurance rate increases to the employee. From a pure insurance perspective the game of trying to find a better risk pool continues with Private Exchanges. In today’s market most Private Exchanges have only one medical carrier and most are underwritten on the single employer level or large pools for small group in existing small group reform markets.

Exchange Technology

Another conclusion from our two panel discussions was that for employer sponsored plans the technology used to purchase products from an insurance exchange should be viewed separately from the actual insurance products. Most of today’s Private Exchanges package the technology with the insurance products in advance. In my opinion this is not a good solution for the employer or the employee for several reasons. They are as follows:

  1. Current Private Exchanges appear to be charging excessive fees for the technology. While the average benefits enrollment system costs $2.00 – $4.00 PEPM Exchange technologies have been seen to charge $6 – $10 PEPM. In the short term these higher prices may be sustainable but I believe within the next 12 months these prices will come down substantially. Wouldn’t it be better if the employer could shop the insurance plans separate from the technology to keep them both competitive?
  2. This practice of packaging technology with the insurance products is also not “employer friendly” from an administrative standpoint. If I am an employer and I am already using some enrollment system or maybe even a more robust system that integrates HR, Benefits, and Payroll would I have to stop using my existing system to buy into one of these Exchanges? How would I now automate payroll deductions? As an employee would I now have to log into one system to see my payroll and request a vacation day and now another to enroll in benefits? From my perspective this would be moving employers in the exact opposite direction of where they are trying to go with their internal HR- Benefits – Payroll technologies.
  3. What happens if I want to switch my carriers? Do I lose my technology and therefore have to go through the whole process of setting up a new system. Employers change insurance more frequently than they change technology. Changing technology is a much more difficult process. To put the two together only creates more problems for the employer. Employers are already understaffed in their HR Departments. To add more of a burden administratively at this time is not a good idea.

One question I would ask any carrier that is offering products in a Private Exchange is whether they would offer the same products on some other technology platform. Are insurance companies going to limit their distribution to a single technology vendor? This may make sense for the less than 50 employee market but does not make sense for the 50+ market. Think of this for a moment. Two companies, ADP and Paychex, control close to 75% of the benefits enrollment technology market that integrates with their payroll. Are medical carriers going to ignore these companies when they have such a presence in the market? If I am ADP and you start replacing my benefits enrollment business I am going to take action.

As a broker do you think selling a Private Exchange to an employer and requiring they use the Exchanges technology is good advice? A unique position in the market would be to help employers use either existing technology or offer a more robust technology (with HR and maybe Payroll) rather than force them into either a new or limited capability system. This does not mean an employer will never purchase a Private Exchange with proprietary technology. If they want one, call then vendor up and see what they have. Employers simply should be aware of all the options and any implications resulting from their purchase.

One final thought about this concept of a Private Exchange really has to do more with where the market is going. I would imagine every insurance company is in the process of developing their plans on how to participate in a Public Exchange. We are just months away from every company having to have some solution if they are going to participate in insuring this large number of new customers that President Obama has promised. Health Care Systems are also making plans for this new health care world. Would it be wise for a small to mid-sized employer to move into a Private Exchange at this time when within the next 6-12 months there may be a wide range of new products available? It will be interesting to see who is encouraging a move now versus waiting to see what the insurance world will bring.

In summary, while many in the business are running around creating Private Exchanges I suggest there may be a better alternative position. First, separate the technology from the products. Ask insurance companies if you can use their products on other technologies. Second, advise clients about what is really going on in the market. Do you advise an employer to make a change now? Do you understand the technology they are using to manage benefits today? Would a change be disruptive? Third, understand the technologies that have the capabilities to manage these exchange offerings. Can they manage a defined contribution plan? Do they have Decision Support tools? Do you know the capabilities of firms like ADP and Paychex? What other solutions are in the market and what do they cost? In the end a more educated approach to the market should make any broker a more valuable resource to their clients.

An “Arms-Length” May Be the Distance Between Winning and Losing

The benefits world, much like many other industries, is constantly changing. You don’t have to look far to see other industries that have been impacted by new technologies (cell phone business) disruptive distribution models (Uber in the “taxi” business), or sometimes simply changes in buyer preferences (healthier food – Whole Foods). In the benefits brokerage business you have firms expanding services into HR and Wellness, payroll firms like Paychex entering the benefits business, and new entrants like Zenefits disrupting the market providing free technology and services in the HR and Benefits areas. The thing about competitive markets is that you don’t get to vote on what the market wants or what your competition may do. You have to recognize the market changes and make strategic business decisions on how to position your firm for this new environment.

Change is tough and not everyone wants to change. Some move forward with a strategy of “hope” that the changes are only temporary and the world will return to normal sometime soon. Others simply sell-out. Then there is the broker that reacts to the market by creating all kinds of partnerships. As one broker told me, “I really don’t want touch this HR and Payroll stuff. I prefer to stay an arms-length away.” To me arms-length sounded like he really did not want to “own it”. If things got messed up he can blame the other guy. Arms-length is a safe position.

The thing about arms-length is that clients and prospects recognize this lack of ownership. There is a difference between “we” and “they”. I was on a sales call with one broker who was talking technology to his client and he kept on saying “they” when referring to the vendor. You can tell the employer was thinking “why don’t I just do business directly with “they” and why do I need you”. Needless to say this broker did not get the business. This arms-length position resulted in a loss.

I had one of these new brokers call me one day soliciting my benefits business. She promised to provide free technology and offered to handle all my employee questions if I were to make her firm my broker. This made me recall a conversation I had with another broker about providing an employee benefits call center. He basically said he did not want to provide such a service because he did not want the liability. I thought to myself that as an employer I did not want the liability either. My employees come into me asking questions about their benefits and I wish they could just pick up a phone and call someone else, maybe a benefits professional.  I provide benefits but don’t ask me the details.

As your business world changes sometimes it may take you places that are out of your comfort zone. You can choose to go there or not. If you don’t want to go there then you can’t expect those companies that want such products or services to be your prospects. And while there may be some things you can bring to the market at an arms-length there may come the time when “they” needs to become a “we” simply to remain competitive. An arms-length may be the distance between winning and losing.