Category Archives: HR and Benefits Technology

Getting Handcuffed with Benefits Technology

Posted on March 19, 2015 | Leave a comment

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” (https://joemarkland.wordpress.com/2014/09/02/there-is-a-ghost-lurking-in-the-benefits-broker-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.” https://joemarkland.wordpress.com/2013/12/23/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.

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An Alternative Approach to Private Exchanges

Posted on March 10, 2015 | Leave a comment

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.

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

Posted on March 4, 2015 | 2 comments

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.

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Can Benefits Brokers Afford to Play Not to Lose?

Posted on February 1, 2015 | Leave a comment

I always considered myself an athlete though one can certainly make the case that putting an ex in front of athlete may be a more appropriate description today. As an athlete I always believed that it was the competition that made me better and the game better. Now as a business owner I still believe that it is also the competition that yields better results. As Mark Cuban says “If there is someone out there who can kick your butt by doing it better than it is your job as the owner to stay ahead of them.” That’s good advice.

The benefits brokerage business to date has not been faced with same competitive market forces other industries have had to endure. Typically, as markets mature and competitors enter, competitive pressure forces prices and often profit margins down. But not in the benefits business. Most markets have more than enough “broker capacity” (supply) to serve the markets yet the excess supply has not driven down fees. This is primarily due to the fact that most of the revenue received is via commission paid on a product (medical insurance) that for years has been growing at a rate much higher than inflation. With recurring revenue growing at medical inflation rates it is easier to grow a business. And in many cases the buyer has no idea what they are paying for the service.

This atypical market environment may have contributed to building a broker culture where many brokers are “playing not to lose” because growth could come from simply protecting one’s block of business. Much like the Packers in the last 5 minutes of their playoff game. They played not to drop or fumble the ball. They wanted to run out the clock. Not to over-generalize but most brokers are also playing it safe. Of course that is not you or I. That is the other guy.

Can a broker continue to play not to lose in this new benefits environment? With Obamacare threatening small group business; new competition from payroll, HR, and technology vendors; reducing commissions due to a move to higher deductible and self-funded plans; and expanded fee for service business; many brokers (not all) including the national firms admit they are now struggling with organic growth. The world is different. It is not business as usual.

Not only has this environment created a play not to lose culture but I think it may have impeded creativity and innovation. Peter Thiel in his book Zero to One made a good point about capitalism and competition. To paraphrase him, he stated that “most people view capitalism to be somewhat synonymous with competition. He says competition is the opposite of capitalism. Capitalism is about having the ability for some period of time to have a monopoly. It is in times when you monopolize a market that businesses generate higher profits. Competition yields lower profit. It is the ability to have a monopoly for some period of time that drives innovation.”

In the benefits brokerage business increased competition did not drive down profit margins for most. I think this environment may actually have resulted in less innovation because there was no need to try and create a monopoly, at least for some period of time, to maintain profit margins.

The benefits business is certainly under attack. It is also just one law away from being turned on its head. If an individually purchased medical insurance plan were made to be tax deductible from dollar one the benefits world would change overnight. With a Republican Congress this could happen. Other industries were one law, one innovation, one stock market slide away from changing forever. We all know the casualties: Blockbuster, Kodak, Travel Agents, Merrill Lynch, and Motorola are just a few. Others are struggling like McDonald’s, Yahoo, Dell, and even Microsoft.

So I think it is time to get on offense and innovate. This may not be easy when there is no culture of innovation or your producers have had years of developing the habit of playing not to lose. And is the benefits brokerage business an industry where there can be significant innovation? Or should a broker look to partner with others that are innovating? There are opportunities out there. There are new technologies, ACO’s, mobile health, and the opportunity to directly engage the consumer via web and mobile. But one needs to be sharp. Be creative. Willing to take risks. Play to win!

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Benefits Brokers Can Make a Difference with HR and Benefits Technology in 2015

Posted on January 3, 2015 | Leave a comment

I was in a meeting about a month ago with a broker and we were talking about business when he mentioned how he was always paying attention to outcomes. It got me thinking about how sometimes when you wander through life or business you tend to take your eye off the ball. You do things and go through the motions and forget about what the objective is to whatever action you are taking. What is the expected or desired outcome of your action?

In my business we help brokers and their customers find and implement technology to simplify the administration and communication of the HR and Benefits. What I am finding is that the utilization of technology in the HR area is not much different than in many other areas. The technology is under-utilized and the desired outcomes are often not met. There is an opportunity for a third-party to help these employers make a difference. And those that provide this type of results based support will reap the benefits.

Ask yourself these questions:

  • How many employees really understand their benefits?
  • Do employees know what products like critical illness or voluntary disability are?
  • How many employees are properly insured?
  • Should an employee pay off their credit card first or buy the right amount of Life Insurance?
  • Should an employee buy a lower deductible for health insurance before buying the right amount of disability?

The internet and use of mobile devices creates an opportunity for third-parties like insurance companies or benefits brokers to reach a large group of people in an easier way. The internet can effectively be used to educate people and provide information on demand. Yet, for the most part, this does not happen in the benefits industry because few carriers or brokers have recognized that this is their job and therefore have not developed the capability to engage the employee in an effective way via the web and mobile.

I am often told by brokers that they are not technologists. Any broker that has heard me speak about technology will have heard me say that technology is just a tool to solve a business problem. Benefits brokers have been in the business of helping employers enroll their employees in benefits and communicate benefits. Now that these things are done via the web does not absolve them of their responsibility.

I remind them that understanding the tools of your profession is your business. My analogy is that if I hire a realtor to sell my house that realtor needs to know how to take pictures of my house and upload those pictures to the web to sell my house. That does not make my realtor a technologist or a photographer. It makes my realtor a better realtor. The same goes for a benefits broker. Understanding the technologies impacting your business makes you a better broker. It doesn’t make you a technologist. In my opinion the failure of brokers to realize this has been a major part of the problem.

Many brokers are too focused on making themselves “sticky” with the client using technology. I have a broker a week looking for a technology solution where if the client were to fire them they could turn off the technology. In my opinion trying to “tie” the client to your firm with technology is not in the best interest of the client. It certainly does not pass the test of being a trusted advisor. Other brokers will point out your motives. I believe there is an opportunity is to do something special so your clients won’t leave you and it does not require you to tie them to you with some technology. This strategy often results in the broker being tied to some technology vendor with some big financial obligation.

I laid out a vision of what is possible by leveraging technology in my article titled, “What Would Steve Jobs Do If He Were a Benefits Broker Today?” See my article here: https://joemarkland.wordpress.com/2013/12/22/what-would-steve-jobs-do-if-he-were-a-benefits-broker-today/ . The technology is available today to make the administration and communication of HR and Benefits much better. The problem is that most employers either don’t have the capacity, capability, or the vision to deploy technology in a way where the outcomes are at a minimum desired, but at a maximum, awesome. They need help. Those that help the client in this area with the client’s best interests in mind will find that they will win more business. You can make a difference with technology in 2015.

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What Zenefits Tells Us about the Benefits Market

Posted on December 21, 2014 | Leave a comment

Maybe I should stop writing about Zenefits but Zenefits is not going to go away. Last weekend I was at a youth basketball game and I ran into a broker I knew who told me their firm lost a 110 person client to Zenefits. This was a Massachusetts broker. This weekend I got an email from a broker in Pennsylvania who needs help because they just lost a 75 person firm to Zenefits. I am sure with Zeneifts generating in excess of a million dollars in commissions a month these stories are a frequent event. While many brokers may think Zenefits is a fad I think Zenefits says a lot about the benefits business that few brokers are recognizing. If you want to learn a little about the Zenefits model you can read my other blog titled, “If You Want to Be like Zenefits You have to mow the Lawn”. https://joemarkland.wordpress.com/2014/10/15/if-you-want-results-like-zenefits-you-need-to-mow-the-lawn/.

I speak at many broker conferences and I often ask brokers how they are different. The most common answer I get is that they provide great service and have strong relationships. It is in this environment that Zenefits comes in and displaces more broker’s business faster than any company has ever done. And they do this with a different value proposition, extensive marketing, and no local service. So while most brokers think their service is a differentiator and of great value there are a large number of employers that don’t put the same value on the service. I think these employers are buying into Zenefits for one of two reasons:

  1. They think they have some new and great technology.
  2. They are looking for help administering their HR and Benefits and they see Zenefits as a firm that is offering this help.

Based on my experience the Zenefits technology and service offering on average has a street value of around $5-$10 per employee per month. This cost would vary based on the client size. They are displacing brokers that receive commissions of $20-$40 per employee per month for providing brokerage services. What this tells us is that the employer market values the Zenefits $5-$10 offering more than the brokers $20-$40 PEPM services. They may not know the street value of what Zenefits is delivering or know what their broker is getting compensated but is doesn’t matter. One is being sold against the other.

Many brokers have acknowledged that they believe they are highly compensated. For that reason they have been adding free “value-added” services to employers so that they can “give back” something. These value added services have ranged from benefits enrollment systems and HR call centers to wellness programs. The major difference between the average broker’s value-added services and what Zenefits is delivering is that Zenefits appears to be offering something that is in greater demand.

As a consultant in the HR and Benefits technology space I believe this demand will stay strong until the majority of employers have automated their HR and Benefits. This will be for years to come. So while many brokers can hope that Zenefits will go away I believe the demand for what they are delivering will grow. And there will be others. The Zenefits model tells us the benefits market is changing. What employers have valued in the past may be of less value in the future.

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The Benefits Technology Arms Race Continues

Posted on December 15, 2014 | 1 comment

When I started in the benefits technology business in 1997 I was given some advice and that was, “You can’t win or stop a technology war.” It was only a few months later that I saw my first demonstration of an online benefits enrollment system on a 28.8 dial-up modem. It was a nice system but it was painfully slow. It was also the first time a sales rep gave me the pitch that if brokers would give their system away the brokers would have a competitive advantage. “Sign up with me and you will get business easily” was the claim. Here we are 17 years later and just the other day a broker told me how he was paying a technology vendor $1000/month for the right to sell their system only to find that it really was not a differentiator. In this article I will give benefits brokers advice on how to win the game by exiting the technology arms race and save some money too.

The arms race really picked up from 2001 – 2006 when benefit websites became the new thing to “give away”. Benefit websites were easier and cheaper so everyone could easily buy them and build them. Some brokers were paying in excess of $100,000/year for websites when similar solutions were available for less than $10,000. It didn’t matter. If a broker could save or win business with some solution it was worth it. It was easy so everyone did it, until everyone had them. And websites no longer helped brokers get new business.

Some vendors would make the pitch “if you don’t partner with me I will sign-up your competitor around the corner and you will lose”. Others promised to limit the number of brokers per market until the limit kept on growing and growing until every broker in the market had the same thing. So what the brokers thought they paid for, a competitive advantage, wasn’t different after all.

What was interesting about the whole benefit website trend was nobody was asking for benefit websites. And after the brokers built them few employees used them. The reason why is because few people use their benefits in a given year in a way where they would need to look up some information on the web. So the money was spent, the websites built, only to be taken down after years of payments and little utilization. Some brokers did get clients from a fancy website. Imagine losing a $30,000 revenue client to a website that nobody used that had a street value of $500/yr. It was an uneducated market back then.

The arms race continued though. Next in line were benefits enrollment systems that started taking off in 2006. The bar was raised. These systems are more expensive and more complex than content websites. They do have greater value and people do use them. But brokers were spending much more money and dedicating more internal resources to compete with other brokers. It has become expensive.

Last year there was a sprint to have Pay-or-Play calculators with brokers racing to get their press release out that they had one. Imagine a press release to announce that you essentially had a nice Excel Spreadsheet. And now we have Private Exchanges. Brokers are once again spending tens of thousands of dollars for something we aren’t sure many people want. Let me give you some advice here. You can get access to three private exchanges for less than $5000. I put in a Private Exchange for an employer in 48 hours with a few phone calls and no upfront spend on technology. I don’t really know what a Private Exchange is but I do have three of them.

Now you have a firm like Zenefits “giving away” what is essentially an HR and Benefits system with onboarding capabilities. They weren’t the first to give away something beyond benefits. But they are marketing this like crazy. And the technology arms race continues with brokers looking to offer what Zenefits is offering.

The vendors do make some big promises. I had one sales rep that said he had the best enrollment system in the market. I told him to look in my parking lot and tell me how many Ferraris were out there. Everyone doesn’t buy the best. And we all know that 6 months from now someone will be better.

So what should a broker do? I have a few guiding principles including:

  1. You need to understand the market so that you feel secure with your strategy and decisions. If you don’t know the market you will fall for some sales pitch that does not improve your position in the market.
  2. Understand you can’t win or stop the technology. Whatever you have today won’t be the leader in six months.
  3. The technology will be the commodity in the end. Enrollment systems are already all looking alike.
  4. You can make a difference by improving your services around the technology. You are there to help the client not some technology vendor.
  5. Recognize everybody doesn’t buy the best. So don’t keep looking for the diamond in the rough. You will find more rough than diamonds.
  6. Cheap is often cheap. So if you can afford to give it to everyone it probably isn’t that good.
  7. Don’t hitch your wagon to the wrong horse. I have had brokers tell me, “I have a 3-year contract with this vendor so I am all set.” The market doesn’t care what you bought or if you made a bad purchase decision. You don’t want to be going to the market with yesterday’s idea or a bad solution.
  8. Employers have different needs. They all don’t buy the same health insurance and they all won’t buy or want the same technology.

This benefits technology arms race is fueled by a benefits broker’s desire to have something different or the latest and greatest of something. Many are looking to buy a competitive advantage. The vendors know this and pit broker against broker. Don’t buy it. The vendors call on everybody. They have to or they won’t survive. There are better ways to differentiate your business from others but the technology deal from some vendor is not it. As I have stated in the past, if you want to be different and create something great, start looking on the inside and not out.

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Why the Utah Department of Insurance is Wrong About Zenefits

Posted on December 8, 2014 | Leave a comment

Some of you may have seen that the Utah Department of Insurance has issued a letter demanding that the new California based benefits broker/technology Company named Zenefits cease conducting their business as is or they will face major fines and need to return their commissions earned in Utah. Zenefits is providing a free HR/Benefits system in exchange for naming them the benefits broker. Zenefits claims they give their system away to any firm and don’t require the benefits business, but let’s stop pretending, we all know that nothing is free. To the best of my knowledge 100% of their revenue is from receiving commissions as a benefits broker. The State of Utah says that Zenefits is engaging in rebating through this practice. I believe the State of Utah is wrong but also believe the other interested parties are somewhat disingenuous with their arguments including those supporting Zenefits and those supporting the State.

Let’s start with the rebating issue. I am not going to get too technical with the legal ease. The Utah Insurance laws allow the free distribution of a benefits enrollment system but not a HR System. Their language is as follows:

According to R594-154-11. Electronic Platform and Application Systems – Producers or agencies may provide electronic platforms that provide directly related services of the insurance products to the employees. Fair market value must be charged for items such as human resources and legal services whether electronic or paper.

The State is saying Zenefits is giving away a HR system. They also add some other things to their letter to Zenefits such as it is illegal to require an upload of data before the purchase of benefits and the way Zenefits advertises is illegal, but it is all related to the HR system. Zenefits can be back in business and avoid fines if they charge fair market value for the system. The main issue is the free HR system. In my opinion all other claims are secondary.

Here is why the State of Utah is wrong. Benefits enrollment systems, HR systems, and Payroll systems are becoming one system. At my company, HR Technology Advisors, we recently conducted a national survey that found that over 80% of the employer market is looking for a single technology platform that manages HR and Benefits and sometimes Payroll in a single system. Zenefits and almost all the leading HR and Payroll vendors including ADP, Paychex, Ultimate Software, Workday, Oracle, and many more are responding to this market demand by delivering these more robust platforms. When they sell their systems many don’t draw the lines between HR and Benefits the way the State of Utah has. They are different parts of the same body. If I buy the system I get the HR and benefits parts whether I use them or not. One of the leading systems I know charges $5 PEPM for their system. Without the HR it is $5. With the HR it is $5. The Utah Insurance laws treat these systems like they are different systems when they are not. The vendors don’t make a distinction. In fact some brokers give away Private Exchange technology that cost $6 PEPM when some HR systems with benefits enrollment systems costs $5 or less. This is why the State of Utah is wrong. They are assuming these systems come in pieces and that a fair market value for the HR part can be pieced out. The world has changed and the Utah State laws have not.

Think of this for a minute. If the market is moving to single systems for HR and benefits then many of the benefit system provider will need to add HR functionality to compete with Zenefits and others. What happens if you are a broker providing a free benefits enrollment system within Utah law and the vendor adds some HR functions in their next product release? They do this with an update on a weekend overnight. Do you have to send a bill to all your Utah customers for the fair market value? What if the vendor does not charge for this new feature? Is there a fair market value? Also, how many brokers give away HR Libraries, HR Call Centers or Compliance Alerts, that aren’t just benefits? I looked at the websites of other benefits firms in Utah and they promote other HR type systems. Zenefits is definitely more open about what they are giving away but I guarantee they aren’t the only benefits firm that may in some way be breaking the Utah rebating laws as currently defined.

Here is another reason why the State of Utah is wrong. Rebating laws would imply that the buyers are making their purchase decision based on the free offering. I don’t think the Zenefits buyers are choosing Zenefits because of a free $5 PEPM HR system. They aren’t attracted to the incentive/rebate as the State implies. They are buying Zenefits because Zenefits is promising to make their HR/Benefits lives easier. You don’t get 2000 new clients in two years because of a free $5 PEPM system. You get 2000 new clients because you are solving a big problem. If in fact Zenefits is getting the business because of a free $5 PEPM system then that doesn’t say much for the value of a benefits broker. It would imply the benefits broker is highly over-compensated which should then be a bigger issue for the State Insurance Department.

Let’s also not pretend what Zenefits is and isn’t. I saw one article with the title, “Utah Gov. Herbert: Don’t Shut Down Zenefits; Stand Up for Innovation and Online Competition”. To me Zenefits is neither real innovation nor online competition. For the most part they are a benefits broker using a large marketing budget to do what others are already doing. Their technology is not unique as there are many vendors that do the same thing. In fairness to Zenefits they aren’t claiming to have invented something new. They are saying that they are helping employers with a problem by leveraging technology. Any broker can do this in 48 hours if they wanted to. In my opinion what Zenefits really is is a disruptive business model. Is Uber a great technology or a disruptive business model? How about Orbitz and Amazon? Many brokers have a business model similar to Zenefits. What most brokers don’t have is the $66 million to market this model across the country and disrupt the market as Zenefits is doing.

So the State of Utah should understand that benefits enrollment systems and HR systems are one system. They are two arms on the same body and can’t be disconnected. They need to get with the times. Benefits brokers also need to adapt and stop filing complaints against Zenefits with the State Insurance Bureaus. Many are delivering HR things for free already and they can deliver a Zenefits-like model but it takes work. And Zenefits should almost stop pretending they aren’t a benefits broker. Sure they have a nice technology and they have a lot of money to disrupt the benefits distribution channel. But they are what they are. They are knowingly giving away technology in exchange for benefits commission. That’s OK because they are helping employers by solving problems. All parties are somewhat twisting the story but in my opinion this is just noise created when change happens.

One final thought. If benefits commission is so lucrative that it can fund the development of HR software that many companies often spend tens of millions of dollars to build, then don’t expect the rest of the world sit on the sidelines. Paychex is already a broker. Will other firms that compete with the Zenefits technology jump into the benefits brokerage business? How does a HR technology vendor compete with free? They have to access the revenue source that funds free. The world will change. Let the games begin.

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The Coming End to the Health Insurance Business as We Know It – And What Brokers Can Do About It

Posted on December 2, 2014 | 11 comments

I want to start by saying that I am knowingly writing an article that is going to throw fuel on a fire. Being from New England this would be like writing an article in the Denver Post that says Brady is better than Manning. Letters will be written. Darts will be thrown. I know it so I will make sure I put on my steel vest before I publish. In fact I already started writing on this topic in a recent article titled, “Apple HealthKit – The Next Step to the End of Employer Based Health Insurance” that generated an emotional response from many. In this article I will provide a more detailed analysis of why the premise presented in my first article may come true. My core belief is that within 5-10 years employers will be out of the health risk business. I will then provide a plan for what I think benefit brokers should do to prepare for this possible change in the market. Taking action may be the difference between those that survive and thrive in this new health insurance world versus those that may struggle or even fail.

What do I mean when I say employers will be out of the health risk business? To repeat what I said in my last article, “by health risk I mean the cost of the employee’s health insurance will not be priced by employer. It won’t be a function of average age of the employee population, claims experience, or any of the standard underwriting/pricing rules today.” In fact, health insurance will most likely become an individually purchased product and the insurers of the future may not be the companies that dominate the market today. The players and the structure of the market will be vastly different.

As a consultant to benefits brokers, I educate them on technology and advise them on how they can maintain a competitive position. My own future is dependent upon brokers remaining significant so I am as concerned about their future as any broker would be. So for my own benefit and the benefit of my customers I am constantly “taking the pulse of the market” so that I can make the right business decisions. I do this by watching what I call “significant market moves”. Such a move is a company making an acquisition for $200 million, whereas a press release or one-sided market study I simply consider noise. Companies don’t make acquisitions for hundreds of millions of dollars because it would be a nice thing to do. Press releases are easy. If you study the significant market events over the past few years it begins to paint a picture of what the future may be like. While many may think ObamaCare is the big market change I believe that the story goes well beyond healthcare reform. The health insurance market is going to change much more dramatically and while the government may be nudging things along it will be competitive market forces that will be responsible for the change.

So let’s get to the point. I believe that within 5-10 years health insurance will be delivered primarily through staff model HMO’s. These will be Kaiser-like plans where the providers of care will also be the risk takers/insurers. Individuals will pay a fee directly to a healthcare system that will be responsible for the health, wellness, and treatment of the person. Employers may still give employees money to pay for some of the cost but they won’t be in the “risk” business. We are beginning to see this evolution today through the expansion of what people are calling Accountable Care Organizations (ACOs). However, the future will go well beyond the limited risk sharing of today’s ACOs.

Four Catalysts to Change

If you had been in the health insurance business in the 80s you would say we tried this before and it didn’t work. Well today things are different. There are 4 major differences between now and then that will be the catalysts for the coming changes. They are as follows:

Change in Consumer Buying behavior

In the 80s, employers often paid for 100% of an employee’s health insurance and a large part of the family. When cost wasn’t an issue for employees they looked at provider access as the number one variable. So all the HMOs and PPOs tried to expand their networks to appease more people. Today cost is the number one issue. As a result we are seeing shrinking networks to save cost.

 Expansion of Government Health Insurance Programs combined with the reduction in Medicare and Medicaid reimbursements to providers.

If I am a healthcare provider and I am getting less money to perform services on what is becoming a larger population then I need to do things different. I need to get the money from the healthy people and the people needing less care to make up for lost revenues. I would also then make more money by keeping people healthy or providing care in more cost effective settings.

Advancing Mobile Technology

With advancing technology it will be easier for providers to have real-time access to a patient’s medical information. Things like weight, blood pressure, blood glucose levels, and soon to be other health metrics can be measured in the home, via Bluetooth sent to a mobile device, and immediately be available to the primary care physician in the individual’s web-based medical/wellness record. The smart online systems can automatically notify the responsible physician of any changes in the metrics that would warrant attention. Information will be powerful in providing proper treatment in a timely manner.

Change in tax laws allowing personally purchased insurance on pre-tax basis

With Republicans taking over Congress the idea of making an individually purchased insurance policy tax deductible is now on the table. While this is not a necessary catalyst for change it certainly would put the nail in the coffin of getting employers out of the health risk business.

Not only is there a “perfect storm” forming for the coming changes but I believe the majority of the participants in today’s health care market will welcome this change. We have all heard the saying that “health care should be between the doctor and his/her patient”. We know the government wants this. I think employers, employees, and health care providers would want this too. It is the insurers and by extension benefits brokers that may not want this. However, as we all know, there is little sympathy for the insurance companies.

Employers would want this because I don’t think employers got into the health insurance business after World War II to be in the position they are in today. While I don’t think they mind giving employees money to pay for health insurance they don’t want their profit margins impacted by the health of their employees. Bad claims experience and their profits go down. Every year they agonize over the health insurance renewal deciding whether to charge their employees more or make plan changes (delivering bad news either way) or make changes to absorb increases in the business. I don’t think they want to be in the wellness business either. They may want to provide wellness programs to make people feel better, be more productive at work, or boost morale, but not to control or reduce health care costs.

Employees want this too. Do employees want their employers asking for things like health risk assessments? My health should not be my employers business. To me this is a slippery slope as it is. I do want my physician to care about my health. I want my doctor to know my weight, blood tests, and care whether I got a colonoscopy when I turned 50. I often joke that I get an email from Jiffy Lube saying that my car is due for an oil change but my doctor never sends me an email to get a check-up, test, or whatever is needed to keep my engine running the right way.

I believe doctors and other providers want this too. They want to practice health care. This would include helping their patients make the right lifestyle decisions and keeping them informed what is good for them versus what is not. They don’t want the paperwork. They don’t want third-parties telling them what to do and they are getting tired of reduced reimbursements from the government.

The Market Reacting

I am not the only one using the term “Kaiser-like”. Emanuel Ezekiel, one of Obama’s health care advisors, expects insurers to be obsolete by 2025. According to Ezekiel, “ACOs and hospital systems will become integrated delivery systems like Kaiser or Group Health of Puget Sound. Then they will cut out the insurance company middle man—and keep the insurance company profits for themselves.” (Source: new Republic – March 2014)

Now I am not going to just listen to Ezekiel Emanuel as my source. I am listening to the market. Hospital systems have been acquiring physician practices and entering the insurance business across the country. In my own backyard there was this acquisition highlighted in the Boston Globe.

State insurance regulators Friday signed off on Partners HealthCare System Inc.’s acquisition of Neighborhood Health Plan, a transaction that will put the state’s largest hospital and physician organization into the health insurance business for the first time.” (Source: Boston Globe September 2012)

In Massachusetts this is very big news. Partners HealthCare owns some of the leading hospitals in the country including Mass General and Brigham and Women’s Hospital.

Hospital systems getting into the health insurance business is not limited to Massachusetts. In NY, NJ, PA, MD, MI, and all across the country hospitals are getting into the health insurance business. (See Kaiser Health News at http://kaiserhealthnews.org/news/hospital-insurers/)

Concurrently insurance companies are getting into the health care business. According to Hospital and Health Networks Magazine January 2012 the following insurers have made health care acquisitions:

  • WellPoint bought CareMore
  • Optum bought Orange County’s Monarch HealthCare and two smaller IPAs
  • United Healthcare acquired a multispecialty group in Nevada in 2008
  • Humana purchased Concentra, which provides occupational care and other medical services

Aetna Making Moves

What I have find most interesting is the acquisitions by Aetna and some of the comments by their CEO Mark Bertolini. Let’s first look at some of the comments Bertolini has been making over the past few years.

“The end is near for profit driven health insurance companies. “The system doesn’t work, it’s broke today. The end of insurance companies, the way we’ve run the business in the past, is here.”

“We need to move the system from underwriting risk to managing populations,” he said. “We want to have a different relationship with the providers, physicians and the hospitals we do business with.”

In his presentation titled “The Creative Destruction of HealthCare” he states:

“Not too far away from now – in the next 6-7 years – 75 million Americans will be retail buyers of healthcare. And they’ll come to the marketplace with their own money and either a subsidy from their employer or a subsidy from their government. And it doesn’t much matter – they’ll be spending their money.”

Below are pictures of Bertolini with his current versus future health care relationships.

Bertolini 1

Bertolini 2

Where did the Employer circle go?

The whole Forbes article can be seen here. http://www.forbes.com/sites/danmunro/2014/02/24/aetna-ceo-bertolini-outlines-creative-destruction-of-healthcare-at-himss14/

Aetna is not just talking. If you look at Aetna’s acquisitions and partnerships over the past few years you can see that Aetna is preparing for a future that Bertolini describes in his presentation. They have spent billions of dollars acquiring technologies that can be critical to the future in managing health care and health care information including:

iTriage – Mobile App for employee to check symptoms – Find doctor – Make Appointment

ActiveHealth – View and Update PHR – Personalized Alerts and Content – Communicate with Doc

Medicity – Promotes Coordination of Care – Real-time Patient Data

(Source: Aetna 2013 Investor Presentation)

Most of these technologies and services are housed under their company Healthagen. According to Aetna’s website Aetna was ranked #52 on InformationWeek’s 2013 list of the 500 leading technology innovators, surging ahead of many of the top names associated with technological innovation. Aetna ranked first among health insurers.

To move to this new model health care providers will need to add capabilities that insurance companies presently have. For example, hospitals provide care but they don’t have the actuarial skills to price their patient population in the event they were to get into the risk business. Many also don’t have the capital to assume risk. Those with enough capital can simply buy an insurance company. Others will have to partner with an insurance company that has the capital and reserves to share risk and provide the needed services. In the slides below I show the current and future division of services.

Current Model

Future model

So if I am an insurance company I can either buy providers to stay viable or provide some products, services, or capital that the new health care systems will need. Buying hospitals or physician groups across the country can be very expensive. So it may appear that a company like Aetna is setting itself up to be the technology, actuarial, reinsurer, and other service provider for these future health care systems. I won’t claim to know if Aetna thinks the market will move as far as I am saying, which is to a Kaiser-like model, but they certainly are preparing for a different health care model.

Some may think that this is somewhat what insurance companies are doing today. Here is the critical difference though. Today the risk sharing arrangements are still in a fee for service environment. In the future a hospital system may be in close to a 100% capitation environment. Provider systems that purchase these services and/or develops a risk sharing relationship with an insurance company in such an environment can’t have two such relationships. They will need a single risk pool to properly manage the population and risk. There won’t be a Blue Cross version, a United HealthCare version, and an Aetna version of a local ACO/Staff Model system.

A good example of healthcare financing is my own healthcare. Since I moved back to Massachusetts 16 years ago I have had the same primary care physician and used the same hospital facility on a number of occasions over that time. Yet I have had 7 different health insurance programs. Assuming an average insurance premium of $10,000 per year for my family, over the 16 past years I have paid $160,000 in premiums. I understand insurance, spreading the risk, and all the other insurance arguments about where that money goes, but think of how it could be different if all $160,000 went to the system that was actually providing me and my family care.

What Benefit Brokers Can Do

Ok, so the world may change. What would I do if I were a broker today to prepare for this change? First, change does not happen easily and overnight. The whole country of health care consumers, distributors, providers will need to adapt. As a benefits broker your buyer may no longer be the employer but the employee. If this is the case then some existing services may not be needed.

  • No more risk analysis/actuary and underwriting
  • No more claims analysis tools
  • No more wellness programs to reduce health care costs
  • No more Disease Management Programs
  • No more company medical renewals

Before someone points out the obvious to me I will say that I do know most groups with less than 100 employees are community rated and those over 100 employees are experience rated. Small employers are still faced with balancing budgets based on their health care renewal. This anxiety will go away.

Most of these types of services are a core competency of many of the national and larger independent benefits brokerage organizations. These services are viewed as key differentiators. For these firms change may be even more dramatic because providing these types of analytical skills is part of their culture.

So let’s talk about the things brokers can do. I am going to break this down to a list of tasks.

  1. Understand What the Players in Your Market Are Doing – Brokers should start analyzing their local medical market and see what the providers are doing in this area. Have they made acquisitions? Have they created new partnerships? What is their leadership saying publicly? Whatever they say or do, believe them.
  2. Add Employee Call Center – Employers will welcome the support in helping employees move to a new environment. Provider systems will welcome and pay for the support in helping those same employees navigate the market.
  3. Add Personal Financial Consulting – It is estimated that close to 40% of employees lose some productivity at work due to financial stress. The health care insurance purchase is going to be a major decision for an employee and it should be made in the context of an employee’s entire financial position.
  4. Understand the New Technologies – How many of you that have read this up to this point understand what Aetna’s technologies for the consumer are? Do you know how to Bluetooth your weight from a scale to a smartphone? The place of employment can also be a great place to help employees with technology to track health information. Could an employer have a scale at work that is Bluetooth enabled to send a person’s weight to their Smartphone? Could the employer have a blood pressure machine at work? How about setting up a private room with teleconferencing capabilities so an employee can consult a doctor face to face via the web without leaving the place of employment? Could a broker make themselves available to consult employees one on one as to how this whole system will work?
  5. Develop Technology Engagement and Education Strategy – After you learn what you need to know in number 4 above are you ready to deliver. I believe the provider systems (the new Kaisers) will welcome the opportunity to educate the population through the employer. At the employer level you can reach a large amount of people fairly easily. And the employers will care that their employees understand this new health care delivery system. Employers don’t want stressed employees because stressed employees are not as productive. I believe employers and these new provider systems will pay to help and automate these individual consumers.
  6. Invest in New Internal Technology and Processes – If your entire infrastructure is geared around engaging the employer then things will need to change. Can you record a phone call? Can you engage in online chat with an employee? Are you prepared to sell individual insurance? To sell a high volume of individual policies and service employees you will need extremely efficient internal operations.
  7. Start Thinking About Helping Employers Exit the Risk Business – Rather than advise employers how to control costs and mitigate risk should they start advising them on how to get out of the risk business? I guess Private Exchanges and defined contribution plans are the start. However, if the health care market changes then this will also change fast because there will be more options for the employer to get out.
  8. Engage New Providers – Carrier reps are always calling on brokers, but these new organizations may not call on brokers in the same way. You may need to reach out to them. If you have something of value for the new provider system such as some of the things listed above would they have an interest in paying you for your services? You will need to engage them.

Numbers 1 through 7 may sound fine but getting there is the tough part. To move to this new model it will require brokers to invest in technology and people. To attract the provider systems by providing some value benefits firms will need to have the services, size, and scale to deliver. Most independent benefits firms either don’t have the capacity or capital to move to this model. They will either have to sell to a larger firm or join forces with their peers who share the same vision and are willing to collectively invest in preparing for the future. The national firms and larger independent firms with the capital and resources will need to have the will to change.

In today’s environment many brokers may not feel the need to make these changes. Other firms have already started preparing for a much different future. For example several of the national firms have opened call centers for employees. Whether that is for a future market I have described or simply to service employees today I don’t know, however it is a sign the benefits game is changing.

I may not end up being right with my market predictions, but my advice is to pay close attention. There is change going on out there and I think a picture of the future is being drawn that looks much different from the health care market today.

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It’s Time to Ban the Term “Value Added Service” from the Benefits Broker Business

Posted on October 23, 2014 | Leave a comment

I hear the term “value added service” used in the benefits world all the time. Brokers always tell me about their value added services. What does value added service mean anyway? For most it implies “free”. We all know that nothing is free. I think it is time to bury this term. In fact I think it actually has negative implications in many ways so let me tell you why.

I googled the term “value- added service” to see how firms would define it. One definition I found came from a website www.wisegeek.com. They defined the term as “options that complement a core service offering from a company but are not as vital, necessary or important.” I guess that sounds right. For most benefits firms “value-added service” means, “I am going to give you something for free that I generally don’t do.” And I agree with the above definition that says it is not as necessary or important. The problem with what I see many benefits brokers doing is putting this label on things employers feel are important. If I am an employer and have something important to me who would I get it from, a vendor that makes it a core service or one that labels it a “value-added service”? If it is important then I would hope whoever I buy such a product or service from is good at it.

Value-added services for most brokers are listed on the last pages of their proposals. It is the fifth tab from the left on their website. It is the final 5 minutes of a sales presentation. It is presented with a level of importance that is, well, not important. To me value added service is like buying a hamburger at a Chinese restaurant. They don’t really want to sell hamburgers but for those adults with kids that don’t like Chinese food they do have something for them. If I wanted a hamburger I would go to Five Guys and not a Chinese restaurant.

In the benefits world some things that many brokers have labeled as value-added services are really becoming core to what a benefits broker should be doing. I won’t get into what I think all these services are but if the employer feels the services are vital then they will dismiss the firm that labels the service as “value added”. It will appear as unimportant. If a broker can’t make it a core service then maybe they shouldn’t be providing such a service at all. And if another broker is offering such a service as a core service then your labeling it as “value-added” may be detrimental to making a sale.

So there you go. The term “value-added service” shall be forever banned in the benefits world. And I will add that as a consultant to brokers this advice is not a value added service. It is what I do all day.

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