Monthly Archives: November 2015

Your HR/Benefits/Payroll is Leaking – And Your Broker May be Causing Some Leaks

I live in the Northeast where the last winter was just brutal. We had so much snow that roofs were caving in. It seems like half the houses in my neighborhood had leaky roofs. The leaks always happen where rooflines meet or where pipes connect. The water gets in and then freezes, expanding the boards or pipes where they connect, and then when the ice melts the water flows into the house. The weakest points in the construction is where things connect. The same goes with technology. The weakest part of any technology solution is where systems “integrate” or connect. We consult employers on HR/Benefits/Payroll technology, and the most common problems, by far, result from systems that don’t integrate at all or more often are poorly integrated. Or from some service provider that is “disconnected” from the technology. I will get more into that later.

Anyone who has heard me speak before will know that I think “integration” is synonymous with fumble or problem. When someone says we “integrate with” and it is easy, I say run for the hills. They are lying to you. This week after dealing with even more of the same issues it made me think of the leaks in my house last winter. Where things connect there are leaks. In a relay race the baton is dropped. In football snaps and hand-offs are fumbled. And those football fans out there know turnovers kill you.

Let me give you some examples of what I am talking about.

Example 1

In one situation an employer had their payroll system integrating with their benefits system (two different vendors). Everything was going fine until the employer bought a new company. The employer added this new division to their payroll system thinking “integration” meant the new division would be added to their benefits system. Well, integration is a very loosely used term. So, for 30 days the employer was adding new employees to the payroll system that weren’t being added to the benefits systems. After that was fixed it was found out that the new employees weren’t going over to the carriers on their EDI files. Leaks were everywhere, and it created chaos. If the employer had one system that handled the payroll and benefits, there would not have been any problems.

Example 2

A benefits broker and one of his clients decided to come up with some unique employee contribution plan for medical insurance. It was creative. However, when they called their benefits enrollment vendor the vendor could not handle those contribution rules. These rules had already been communicated to employees. Their benefits system that had been in place for over year no longer worked. The broker blamed the vendor. I know benefits systems, and I don’t know of one benefits enrollment vendor that could handle this type of contribution calculation. The consulting process was “disconnected” from the technology. Fumble! The employer had to turn off the enrollment system and go back to paper enrollment. Had the broker and the employer engaged the technology vendor during their planning this could have been prevented?

These types of problems are everywhere. I can list 100 places where there can be possible “leaks” because things are not connected. In example 1 above the technology was not totally integrated. In example 2 the advisor did not connect the advice with the ability to administer the advice that was provided.

A few years ago I was flying from Chicago to Colorado Springs, and I sat next to a guy who was the VP of HR for an 1,800 person firm. After we got speaking he told me that in the HR area he had 17 different relationships. Between technology vendors and service providers he had 17 contracts, 17 places to call if there were an issue, 17 bills, and 17 logins. It was a mess. His mission was to eliminate as many systems and vendors as possible. There simply are too many moving parts. And this is a 1,800 person firm.

Think about the number of vendors an employer may have in the HR/Benefits/Payroll areas. I will give it a try.

(Technology Solutions: 1. Payroll Administrator/Technology 2. Time and Attendance Tech. 3. Benefits Enrollment Tech Vendor 4.  Recruitment Technology 5. Expense Management 6.  Performance Management 7. Training 8. Intranet provider)

(Advisors: 9. Benefits Broker 10. 401K Consultant 11. HR Consultant)

(Service Providers: 12. COBRA Administrator 13. FSA Administrator 14. Life Carrier 15. LTD 16.  STD, 17. Medical 18.  Dental 19. Vision, 20. Voluntary products 21. Wellness Vendor 22. EAP)

This is 22 different vendors, and I can think of more. Now we are seeing all kinds of additional products entering the market including financial wellness programs, employee discount programs, employee gifting programs, college planning services and many more types of companies hoping employers will offer their services to the employees. Many of the programs, when rolled out, fail, because the employers are already overwhelmed and for the employee there is information overload.

Employers want to simplify. I put in a benefits enrollment system for an 11,000 person a few years ago who said she wanted the cheapest option because she will be replacing it in a few years anyway with a single HR/Benefits/Payroll systems. If larger employers with lots of staff want to simplify, then what would one imagine smaller employers with less staff will want to do.

It is not just the technology though, and this is a very important point. Disconnected service providers or advisors also create problems. I am going to pick on benefits brokers for a minute here because most of my reading audience is brokers. I have seen benefits brokers put benefits enrollment systems into employers that had already purchased but not deployed an enrollment system from their payroll company. I have seen voluntary products sold that don’t fit on most enrollment systems. Recently I had a broker put in an ACA solution for a client that did not know their existing Payroll/HR/Accounting vendor could provide the solution.  Brokers are regularly advising on technology without the knowledge to properly advise. Now we see brokers investing in HR and Payroll systems with little knowledge of how these things work. This will cause leaks. Leaks are problems that will get brokers fired.

These same stories apply to 401K consultants, HR Consultants, and many other service providers or advisors that don’t connect their advice to the technology. Let me ask this question. Should a broker that is advising a client to offer voluntary products understand the technology that the employer may already be using to administer their benefits? Should a 401K Consultant?

As this HR/Benefits/Payroll world gets more complex, operating in silos will contribute to the problem. The benefits consulting process cannot be independent of the client’s technology environment, payroll, and even other products an employer may be offering their employees. The opportunity exists for service companies to solve this problem for employers, but to do so will require a level of skill and knowledge that few companies have. Organizations running into this market without the knowledge, skills, or proper training are only contributing to the problem. As stated earlier, this can get you fired.

In my company we are building a program that I will call the “No More Leaks HR Program.” We are working with benefits brokers and HR Consultants to help them gain the knowledge, develop the skills, and train their staff to do this effectively. Someone needs to quarterback this whole HR/Benefits/Payroll technology and services world for employers. Someone needs to eliminate or connect the silos. This is not something you decide to do on a Monday and deliver on Friday. This is not a “value-added service.” It takes work, planning and training to do this right. But the rewards for being great at this can be tremendous.

My Bold Predictions About the Future of the Benefits Business – A Summary

In various articles in this blog, and in some of the webinars I have conducted, I have made some bold predictions about the future of the benefits technology business (as technology is my main area of expertise) and more broadly about the benefits business in general. I guess I am as qualified as anyone in this area having started in the business 30 years ago. As I have stated repeatedly, the reason I make these predictions is because for my business to survive and thrive I too need to predict, to some degree, the future so that I can make the right strategic decisions today in preparation for the years to come. The reason I am publishing these (again) is because I am looking for others in the benefits business to participate in my “think-tank” to talk about these issues and collectively formulate ideas that may be used to help our businesses thrive in the future. So this is somewhat my “call-to-arms” for anyone in the benefits business. Here is a summary of my predictions. I may be right and I may be wrong.

1. HRIS/Benefits Technologies without Payroll will become obsolete.

This is a prediction I made a few years ago and I am holding to it. As a technology consultant we help employers choose and implement HR / Benefits / Payroll technology solutions. The only demand I have for benefits only systems comes through benefits brokers. Outside of the benefits broker world I find few employers wanting stand alone Benefits or HR/Benefits systems. Yet those are the systems most brokers promote. Personally, I can think of few business reasons to have multiple systems. My company runs one system and all my employees have everything related to work through one app on their cell phone. And those that think integrating systems will work let me give you the names of a hundred employers who will debate you on that. The majority of technology issues that employers bring to me are caused by having multiple systems. Everything needs to be in one system with one database. Integration causes problems. I replace benefits enrollment systems that brokers put in for employers every day. The broker often causes the problem and now the employer wants to get rid of it. Here is my article on this prediction and the mistakes brokers are making.

2. The majority of employers with fewer than 100 employees will look for a single-source technology and services solution in the future.

Zenefits has exposed a pent-up demand in the market and that is to have some outside firm make an employer’s HR life easier. Small employers want to throw things over the wall and simply have someone else handle large parts of HR. The PEO’s, HR consulting firms, and many payroll firms already know this. Zenefits did not invent anything new here. I also believe Zenefits is really an outsourcing firm, not a technology vendor, but we can debate that somewhere else. My main point is that this demand will grow as more and more vendors enter the market. What does this mean for brokers? Brokers who do not provide such services will be replaced.

3. There will be dozens of Zenefits-like companies in the market within 6 months.

This HR/Benefits/Payroll technology and services market is no secret. The fact that employers will change brokers to move to a solution that combines HR/Benefits/Payroll technology with benefits services is also not a secret. There is a ton of money being invested into this space and vendors will be popping up everywhere. New technology vendors will arrive and get into the benefits business, but more competition will come from existing businesses offering some product or service in this market already. This will include payroll companies getting into the benefits business as brokers and HR Consultants expanding into the benefits and payroll business. I spoke to a payroll company owner this week that is getting into the benefits business. Why? Because that is where the money is. And everyone knows it. They also won’t partner with brokers. At least not the ones doing this right. Competitive pressures will require anyone in this space to leverage the benefits commission to compete. Even if the commissions is half of what it is today.

4. Small group health insurance commissions will be 50% of what they are today by 2017.

Do you know that small group commissions in Massachusetts are almost half of what they are in California? Yet, there is no shortage of brokers in MA. The carriers know this and they are getting squeezed by ObamaCare. Firms like Aetna are already cutting commissions and others will follow. One is because they can, but the other reason is because they will have to find every dime to compete. The small group market may even go to 100% fee for service. Here is an article about this here.

5. Employers will be out of the health risk business within 3-5 years.

This prediction, along with the next two, are somewhat related. I covered this in an article I wrote titled, “The Coming End to the Health Insurance Business as We Know It.”  The key term in this prediction is the “health risk” business. When I spoke at a conference on Private Exchanges I asked the employers in the audience why they would be interested in a Private Exchange. The answer was not what most brokers would think. One may think that employers want to give employees more options. Others will say they want to reduce health care costs. The answer I got was they thought that a Private Exchange would get them out of the health care business. Employers don’t want the hassle of worrying about high claimants, wellness programs, disease management, and that annual dreadful renewal meeting. They want out. That doesn’t mean they mind giving employees money to pay for part of their health care. They just want out of the risk business. And I think the market will comply. What does this mean for brokers? No more underwriting. No more claims analysis tools. No more catastrophic claims management tools. Employer based wellness to try and control health care costs will go away. For most brokers these are their core skill sets. These skills won’t be needed. Wow! This changes the world of most national benefits firms or any firm that focuses just on large group.

6. Most health insurance will be individually purchased within 3-5 years.

Think about this for a second. There is no law that would prohibit a traditional insurance company from offering all their small group pooled products to larger employers. Can an Aetna offer all the same products in the public exchanges to an  employer at the same rates as on the public exchanges? I don’t believe there is a law that says they couldn’t. It could still be a group plan but just be pool rated and with more options. Employees who leave an employer can move to a public exchange into the same plan. I think carriers may do this because the market wants it. This will get employers “out of the risk business” as I indicated in my previous prediction.

7. Provider systems will dominate the health insurance market in 5-10 years.

The largest hospital system in Massachusetts got into the health insurance business a few years ago. According to my neighbor, who was a consultant for them, said the reason they did this is because with ObamaCare the providers are getting less and less money from government programs that are adding more and more people. In order to survive the hospital system needs money from the healthy people not just less and less money from the sick people. As my neighbor said, there will be no Blue Cross version of them in 5 years. Keep these comments in mind when you read about the recent Obama/Boehner deal to lift the debt ceiling. In that deal Medicare reimbursements are getting cut 2.5%. So 5-10 years from now employees will be choosing between provider systems not health insurance companies. The providers and insurers will be one in the same.


Many who may read this blog or who have listened to my webinars may think I am nuts or at least way off base with some of these predictions. Many will hope I am wrong. What has really amazed me most is how slow people are to change. I wrote about the coming of a Zenefits in 2009 yet few acted. I have seen brokers lose well over a hundred thousand dollars in commission yet still not act. Or worse, they take action but it is the cheap and often wrong solution creating a false sense of security. Now I am predicting a much different future that requires further and even more profound action. I am not willing to risk my business on hope so I am taking action in my business. What am I doing? Well, stay tuned, but I am not going to tell all my secrets. Or give me a call to possibly join my think-tank. Either way, take action.

Market Disruption is Coming to the Benefits Business and at it will Come from the Outside Not In

According to a report released by the Department of Health and Human Services on October 26th health insurance premiums for 2016 will increase an average of 7.5%. This is in a market where inflation and interest rates are close to zero. It is no secret that the cost of health care is one of the biggest issues impacting the U.S. economy in the coming decade. With a $19 trillion deficit the cost of health care is a problem that is waiting for, and desperately needing, a solution. And if solutions don’t come then the solutions may be imposed on the industry as we have seen with Obamacare. Hillary Clinton, if elected, would certainly try to finish the job. Just last week she included health insurance companies and pharmaceutical companies on her short list of enemies along with the NRA and Republicans. Back in 1993 when Bill Clinton was pushing his health care plan Hillary, when asked what insurance brokers would do if the Government took over health care responded, “They can get another job”. The industry has a target on its back and the target is getting bigger. I think changes are coming. But it won’t be the government taking action this time. While some see the target on their backs others see the same target as an opportunity.

The opportunity to fix the health care cost problem in the U.S. is no secret. According to CB Insights “$14 billion of venture capital has gone to the insurance tech space since the beginning of 2014, with health insurance-related investments getting more than all other insurance sectors combined”. I have personally spoken to several Venture Capital firms who are studying the market looking to invest in companies that will disrupt the status quo of the current health care industry along with the employee benefits distribution business. Yes, there are many companies looking to put the current providers out of business. It is often easier for outsiders to disrupt the markets instead of the insiders. A taxi company did not create UBER, Blockbuster did not create Netflix, and Barnes and Nobles did not create Amazon. It may be because the current market leaders would have to step back before moving forward. It would be a very bold move to disrupt your own business model, often at a huge expense, based on the chance that your new idea would eventually pay greater dividends than the present model.

Those in the health insurance business know that it is the underlying costs of health care that drive health insurance costs. The outsiders do too. You can eliminate the insurance companies but not reduce health care costs to any significant degree. So these changes that I am referring to will attack the costs of health care. This will trickle down to benefits brokers because the majority of a benefits broker’s revenue is selling health insurance. These outsiders may or may not see the broker as a valuable resource in their future world.

While some benefits brokers are trying to be a part of this coming change, for the most part they are going to be spectators. Firms like Zenefits, Gusto, and Namely are disrupting benefits distribution by offering technology and other HR type services with benefits advisory services, and some brokers are pushing Private Exchanges like they are some new form of health insurance, but neither bend the health care cost curve. To paraphrase Peter Thiel from his book Zero to One, “Innovation must be something new not a slightly different version of something that already exists….and that innovation must be at least 10 times better than its closest substitute”. Private Exchanges, payroll/HR tech companies giving away free technology, and most of the other technology solutions in the benefits business that I have seen do not meet this definition of innovation. In fact, these companies too may be disrupted by those that bend the health care cost curve.

The true disruptors are going to impact the market in ways many of us may not yet even imagine. But they will come, because there are many people interested in bending the cost curve including the government, employers, employees, and any individual paying an insurance premium. And of course those investors who are spending billions of dollars. Those less interested are those protecting the status quo.

So who are these disruptors? Firms like Google and Apple are hoping to play a major role in the mobile health market. Apple’s HealthKit is designed to manage ones heart rate, blood pressure, cholesterol, take a temperature, and make that information immediately available to one’s physician. Google also happens to be an investor in the new health insurer called Oscar Health. Evolent is helping hospital systems enter the health insurance business. Theranos can do over 120 blood tests with the prick of a finger and substantially reduces the time and costs for such testing. There are hundreds of others on the horizon.

The health care marketplace is ripe for change. The political environment, expanding web and mobile technologies, and a cash rich, highly motivated investment community, are all aligned and ready disrupt the status quo. And the prize for success is very lucrative. That future has yet to be defined but change is coming. Benefits brokers will have a choice to fight the change or start looking for those outsiders that will need help bringing their new solutions to market. But there will be no choice. The winds of change are already blowing.