Tag Archives: Benefits Enrollment Systems

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

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.

What Zenefits Tells Us about the Benefits Market

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.

The Benefits Technology Arms Race Continues

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.

Why the Utah Department of Insurance is Wrong About Zenefits

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.

Aetna buys bswift: Why benefit brokers must pay attention

More news from the technology front: Aetna acquires bswift. Last year, it was Towers Watson buying Liazon, now Aetna and bswift, and next year it will be someone else. Under the radar a little bit was the Oct. 16 Hodges-Mace announcement of their SmartBen acquisition. It doesn’t carry the cache of Aetna or Towers Watson, but it was still a market move. Is this just beginning of the dance where everyone needs to choose a partner? And what does this mean for the benefits market and the benefits broker?

For some, this acquisition may be strange. Aetna buys a company that provides technology used by their competitors. The bswift enrollment platform handles enrollment for many employers that don’t have Aetna insurance. Towers Watson bought a company distributed by their competitors, other brokers. What most people aren’t realizing is that the world has changed. In many industries companies that compete in one market segment may be partners in another. If you view this acquisition in the old world where competitors don’t work together you may see it one way, but in a new world it may look a little different.

My message to brokers on this is to start thinking differently. Those who don’t will get left behind. The rules of the game are changing and you don’t get to make all the rules.

I have been fortunate to have worked in some capacity with Mark Bertolini, CEO of Aetna, and Rich Gallun, CEO of bswift. Both are outside-the-box thinkers. Aetna has invested billions in technology preparing for what they view as a consumer-centric health care model. They want to reinvent the patient experience. To quote Bertolini, “We’re going to begin to change the health care industry by giving people tools they can put in the palm of their hand.”

Here is another quote from Bertolini that would make brokers pause. When asked about the future of health care, Bertolini responded: “There wouldn’t be plan designs. You wouldn’t need them. What you would do is invest in all those things that are necessary to keep people healthy.” You can see a full overview of the Aetna model by viewing this presentation from their 2013 Investor Conference.

More than a business move

Some may think this is an acquisition of a benefits enrollment platform by Aetna. But I see this as another step by Aetna to execute on a plan to compete effectively in a new health care world. A world where consumers are in more control. Where provider systems are engaged in a patients wellness and not just proving treatment after the fact. A world where health information and communication is moved via Web and mobile.

In this case, bswift made a strategic move into the consumer centric world through their private exchange technology with individual rating and decision support tools. Now it has paid off. This made them attractive to Aetna. Congratulations to bswift for a job well done.

So what does this mean for benefits brokers? A few weeks ago I wrote an article titled “Does Apple’s HealthKit signal the end of employer-based insurance?” Some may not relate Apple’s investment to the Aetna acquisition of bswift; however, I think they are related.

Apple is clearly one of the top consumer technology vendors in the market. Aetna is driving consumer centric health care. They are pieces of the same puzzle. It is a puzzle benefits brokers need to pay attention to because the market is changing around them. A carrier buying an enrollment vendor says one thing, Aetna’s and Apple’s investments mean something different. In a not-so-obvious way the health care world is changing in a way that most brokers are not recognizing. Consumer-centric; mobile; doctors as wellness facilitators; employers out of the risk business? Maybe. So get ready.

For the Record – The HR Technology Advisors Position with ADP

In today’s business world getting your message out is both easier and more difficult. With the internet, Smartphones, Twitter, Facebook, LinkedIn, blogs, and more, it is really easy to publish your message for the world to see. You type, hit a button, and it is available to the world. In that sense it is easy to get your message out. It also easier for your competitors to get their message out. The hard part is getting anyone to listen and getting someone to find your message in a world of information overload. Whether you like it or not you have to play the game. If you don’t spread your message and define yourself others will and not always in the way you want. When that happens you will have to respond. Just look at the “noise” created during a Presidential campaign. The candidates spend as much time trying to define or label their opponent as they do defining themselves.

That gets me to the purpose of this article. I am about to launch a marketing campaign that I know will be misinterpreted by the market. Maybe saying misinterpreted is the wrong word because those who directly hear my message will more likely understand what my message is. What I do anticipate is that there will be noise created by others who do not hear my message that will misrepresent my message in the market. Some simply don’t want to take the time to listen and others may have their own agenda. This article is intended to clearly state my message for those that want to understand my position as it relates to this issue with ADP.

My firm, HR Technology Advisor (HRT), is launching a big marketing campaign highlighting how employee benefits brokers can leverage ADP to deliver a Private Exchange or Defined Contribution plan to the employer market. This concerns brokers because many see ADP as a competitor. Other technology firms who we do business with will not like it because ADP is a big competitor to them and I am promoting an idea based on a competitor. To many brokers, payroll companies, and HR and Benefits Technology vendors, ADP is arch-enemy number 1. As a consultant to benefits brokers and by extension an objective advisor to their clients when choosing technology, this “perceived” favoritism to ADP may not sit well. The key word is perceived. Let me get into the details.

At a high-level some people don’t understand the core purpose of my (our- Don Rowe is my partner) company, HR Technology Advisors. HRT is first and foremost a consultant to benefits brokers. Our job is to help benefits brokers understand how technology is impacting their business; how it will impact their clients HR and Benefits; know who the players are; and help position their firm competitively in the market. And then, as a paid representative of the brokers firm, we assist the brokers with direct client and prospect situations where we help them advise their clients on HR and Benefits technology and sometimes help them get prospects by participating in prospect presentations.

This is where ADP comes in. According to our statistics at HRT, employers are predominantly looking for technology that includes either HR and Benefits functionality or HR, Benefits, and Payroll in a single platform. Many have heard me say employers don’t want one system to track vacation days, sick days, and performance reviews; another to track benefits and enroll employees; and a third to process payroll. In fact, in 2013, close to 90% of the employers we assisted wanted a system that included HR and Benefits or HR-Benefits-Payroll all in one. And according to a recent market survey we did, ADP has a 46% market share of those employers using technology for Benefits Enrollment. Paychex was second with 29% and the next closest was 7%.  So whether a broker likes ADP or not the majority of any brokers’ clients are going to be using ADP as a tool to manage their benefits. It is not a broker’s choice as to what technology an employer wants to use to manage their HR-Benefits-Payroll. It is also not our choice at HR Technology Advisors. As a consultant to employers we work with ADP more than any other company because they have the largest market share. I equate this to the average benefits broker who may work with their local Blue Cross plan more than any other insurance company. They do so because in most markets Blue Cross has more than 50% market share. That does not mean the broker is solely a representative of Blue Cross nor are we only a representative of ADP.

As a consultant to brokers we use this knowledge to help our broker clients position their firm more competitively. While many brokers are running from ADP because they think they are a competitor (We addressed this in an article written in 2009 titled, “ADP – Friend or Foe” – download at www.joemarkland.wordpress.com ) we understand the value that brokers can bring their clients by having a service model to support those clients that have ADP or want ADP. Trust me, many clients need help with their technology and most brokers aren’t delivering the help. Here are a few questions I have asked brokers.

–          Have you ever helped your client test their ADP Benefits Enrollment System for accuracy?

–          Have you ever analyzed the pages employees would be accessing when enrolling in their benefits and see how well the benefits information is presented?

–          Have you ever uploaded a 2 minute video on the ADP platform that explains to an employee what Critical Illness Insurance is?

I have never had a broker answer yes to all of these questions. Helping clients with ADP is a service clients will value.

Now in 2013 Private Exchanges hit the market. Many brokers scrambled to sign-up with some benefits only technology vendors. At the same time we continue to engage clients who repeatedly tell us they want HR-Benefits-Payroll in one system. I found this conflict between what brokers were delivering  and what clients wanting to be very interesting so I wrote an article titled “An Alternative Approach to Private Exchanges” (also on my blog) and held webinars with the same title. In my article and on my webinar I predicted that ADP will be the largest Private Exchange technology vendor within 2 years. Not because I am going to make them but simply because more employers are using their system to manage their benefits than any other platform. So, as a consultant to brokers and employers I have helped employers figure out how to use their current ADP platform as a Private Exchange of Defined Contribution plan. Why? Because that is what employers wanted. They did not want to use another system simply to provide their employees with more medical options in a Private Exchange. So we worked hard with ADP to develop a model using third-party technologies, content from insurance companies, and internal programming resources to help employers leverage their ADP system as a Private Exchange. My marketing campaign is designed to bring our methodologies and message to the market so that employers can get what they want and the brokers that deliver this solution a competitive advantage.

I want to finish this by addressing the other technology vendors we have worked with at HRT. As I have stated we represent the brokers interest and by extension their clients. We have sold and implemented solutions from many vendors and there are many great solutions in the market. Yes, ADP has 46% market share, but they don’t have the other 54%. That being said I had one vendor ask me why I am doing this with ADP and not them. My simple response is because nobody asked. If a HR-Benefits Technology vendor does not offer the ability to administer a Private Exchange simply ask and I will show you how.

The Coming Obsolescence of Stand-alone Benefits Enrollment Systems

Let me start by saying that I realize the title of this article alone is going to be met with objections and criticism from many in the benefits technology business, some of who are my friends. It is also not something that I wish upon the industry. But as a consultant to the industry I have seen the trends for some time and the time has come to declare that the demise of stand-alone benefits enrollment systems is in sight. And it is time for all who either own such a system, sell such a system, or use such a system to prepare for the inevitable.

The beginning of the end started in 2006 when ADP acquired Employease, which at the time was one of the largest benefits enrollment vendors in the space. This was followed in 2007 by the acquisition of Benetrac by Paychex. These leading payroll firms made these acquisitions not because they wanted to be in the benefits enrollment business, but because they recognized the opportunity and the increasing market demand by the employer market for a single system to manage HR-Benefits-Payroll. Since that time they have quickly become the leading benefits enrollment companies in the U.S. with ADP controlling approximately 45% of the market and Paychex 26%. [i]

While I recognized this trend as early as 2002 I first wrote about it in an article published in Employee Benefit Advisors magazine in September 2009 titled, “Payroll Firm, PEO’s, and BPO’s Have Got it Right”. (See this in the Article Section in my blog at https://joemarkland.wordpress.com/past-articles/) In this article I pointed out that employers would be looking for a “single system that stores all HR, benefits and payroll information”.  Many employers don’t want one system to track someone’s pay, another to track benefits, and a third to track someone’s vacation days, performance, and other data that an employer may track on an employee. Employers don’t want to makes changes to 3, 4 or 5 systems if an employee simply changes their address. And “for employee self-service, accessing one system to see all pay, benefits and time-off information is much more user-friendly”. I often compare this merging of systems to the iPhone. At one time I had an iPod, a camera, and a cell phone. Now the iPhone and the rest of the smart phone market has all three features in one.

At the time I had written the article and on many occasions since I have claimed that the transition to a single platform would occur in about 5 years. We are now a little over three years since the article and based on recent market activity and my assessment of that activity, I still believe this to be true. My belief is based on statistics gathered from my own company’s customer base. As an HR and Benefits technology advisor to benefits brokers, and by extension their clients, we conduct needs assessments and recommend HR-Benefit-Payroll solutions to employers. They use this analysis to make purchase decisions. We work with anywhere from 20-40 employers per month and have been doing so for about 10 years. Over the last 36 months we have seen a huge shift in demand with stand-alone benefits enrollment systems moving from 55% down to 10% of our activity. The following chart shows our data as to the type of systems employers have been requesting in our assessments.

Benefits Enrollment Only











The HR-Benefits-Payroll column in the above chart may represent systems that either are HR and Benefits or HR-Benefits-Payroll. Keep in mind that we are introduced to these employers by benefits brokers, so one would think the statistics would lean more to benefits enrollment only systems. That is not the case. Employers, by a 9-1 ratio, are predominantly looking for a single system. This statistic not only plays out for new customers. We are also witnessing a significant migration of existing clients that use benefits enrollment systems convert to a single HR-Benefits-Payroll solution. Over 95% of those that have changed systems have transitioned to a single platform.

Other than the obvious, which is the employer’s desire for a single system, I attribute this rapid conversion to the following:

  1. Increase in number of vendors – Any competitor to ADP or Paychex has had to develop similar capabilities. While some are still evolving, the number of vendors offering these capabilities has grown tremendously creating a greater awareness in the market while giving employers more options
  2. Reduction of HR Staff – Employers want to the reduce costs related to corporate overhead. HR is one area. Therefore efficiency in HR by leveraging technology is a goal for many employers.
  3. Compliance – HR and Benefits is getting more complex. Employers need to organize their data to stay compliant. The reporting needed for the Accountable Care Act is an example of this. Payroll Companies have led the way here with this type of reporting.
  4. Employee Self-service – Employers do want to expand employee self-service in an easy to use way. A single point of entry to all HR-Benefits-Payroll information provides a better and easier employee experience while reflecting well on the company.

Many benefits brokers and benefits enrollment companies will debate these statistics. Around the industry benefits enrollment vendors are having an outstanding year in 2013. I expect 2014 to be just as promising. I believe this can be attributed to several reasons. The first reason is that many benefits enrollment systems are either fully funded or partially funded by benefit brokers and/or insurance companies. Brokers and carriers continue to use technology and what I call “giveaways” as a differentiator or to sell product. In the past it was benefit websites. Today it is benefits enrollment systems and HR Call Centers. These free or discounted systems and services creates a false perception of market demand. Many of these systems were implemented without ever having gone through an analysis to determine employer needs. Why should they, in many of these situations the employer is not making a purchase decision. It is the brokers, carriers, or whoever is funding it that is the customer of the benefits technology vendor. I would estimate that close to 50% of the stand-alone benefits enrollment systems are funded by some third-party.  Of systems my firm has implemented that number is closer to 75%. Competition in the benefits brokerage business has increased the number of “free” enrollment systems but this does not represent a real increase in employer demand for such systems. Give away anything for free for a day and I will show you an increase in demand.

Now along comes health care reform and the threat of reduced compensation from medical insurance. How many stories have you read about how a broker can make up for lost medical commission by selling more voluntary and worksite products? This push has resulted in an even greater funding of benefits enrollment technology by insurance companies that sell voluntary and worksite products.

For a while I thought the development of Private Exchanges would give the benefits enrollment companies some reprieve. I still think it may for a year or two. With Private Exchanges the technology bar has been raised and the enrollment technology vendors have had to add functionality to handle defined contribution plans and provide decision support tools to help employees make better insurance purchase decisions. In my opinion this technology edge will be short-lived as all other vendors will have to add these capabilities. In my short experience with Private Exchanges I still have found the majority of employers wanting to run their Defined Contribution Plan or Private Exchange within their existing HR-Benefits-Payroll technology. Using third-party tools I can Private Exchange-ize almost any HR-Benefits-Payroll system. With all these new employee contribution methods and the increase in voluntary products I still find the ease of making the payroll deductions a primary requirement of the employer. This once again puts the single system vendors in the driver’s seat.

My predictions come in a year when benefits enrollment company Benefit Focus went public and raised around $75 million in their IPO after showing a previous 6 month operating loss of $15.2 million[ii] . More recently Towers Watson acquired benefits enrollment company Liazon for $215 million. I think both may disagree with my labeling them as benefits enrollment technology companies but that is how I see them. That is the goal isn’t it – to enroll people in their benefits? As for the money aspect of these transactions I say “good for them”. They capitalized on the opportunity. However, neither of these events changes my opinion as to where the market is going.

If broker competition, health care reform, the push to sell more voluntary products, and the advance of Private Exchanges is creating more demand what is going to stop the advance of benefits enrollment only solutions? The answer is two-fold and includes increased employer demand on one side and the ever-growing vendor market providing the supply. In the end logic will prevail and employers will get what they want which is a single system; and the army of payroll vendors, HRIS vendors, HR Consultants, and even some benefits brokers will educate the market and deliver the solutions. I guarantee that brokers who work with me will be delivering such systems. Think of this for a minute, ADP has around 800 sales people calling on employers every day and they are just one company. Collectively there are thousands of sales people calling on employers to deliver these solutions. They will move the market.

The transformation has begun but will still take some time. In the near future mergers will happen between enrollment vendors, payroll vendors, and HR vendors to meet the market demand. Some stand-alone enrollment systems will survive to meet the needs of those clients with very complex benefits or those who want best in class solutions. This will more likely be in the 1000+ employee market, even though many larger companies such as Nokia with 50,000 employees are implementing a single system. (See http://www.computerweekly.com/news/2240210585/Nokia-Solutions-Networks-HR-rejects-best-of-breed-for-best-of-platform ) In the less than 1000 employee marketplace I predict that by the end of 2015 you will see an even larger percentage of the market convert to a single system for HR-Benefits-Payroll. If you are in the benefits business then you will have
to make some changes to prepare for this market change. Or, I could be wrong. I presented my facts so that you may decide.

[i] HR Technology Advisors 2011 Study

[ii] Street Insider August 14, 2013

The Unintended Consequences of Private Exchanges for Employers

As I was preparing a presentation that I will be giving about Private Exchanges to an employer group in Charlotte and I had somewhat of an Ah Ha moment. I had been reading so much about Private Exchanges and had seen so many demos of Private Exchange technology that all the noise was kind of getting in the way of my own independent thoughts. I had to give an audience my view of Private Exchanges and I came up with several ideas one if which is my AH HA moment thought. So here it is:

“Private Exchange Technology and their Decision Support Tools may result in too many people choosing the wrong solution relative to what an employer may be trying to accomplish.”   

This is one of my thoughts so let me explain. One of the big benefits of moving to a Private Exchange is that employees will get more health insurance options. Rather than the employer choosing a one size fits all approach they will give employees a menu of options and let them choose from the menu.  And with those options they will provide technology to guide employees through the decision process and direct them to the solution that best meets their specific needs. The idea is that the low utilizers or healthy people will more than likely choose lower cost options while the older, higher utilizers will choose the higher cost options. This obviously assumes the lower cost options have higher deductibles, co-insurance and copays and maybe a limited provider network while higher cost plans will have lower deductibles and co-insurance and a broader network of providers. Thinking of it this way one needs to ask “Is this the employer’s goal.” It may not be. There may be unintended consequences associated with Private Exchanges.

There is a statistic by Dave Ramsey, the personal financial guru that says, “40% of employees admit that stress over money significantly impacts their work productivity”. There have been times in my life where that was true for me personally and I am sure I have employees who work for me today that would say the same for them. When it comes to employee benefits what do I want to give my employees? I would say one thing is “peace of mind.” Isn’t that what insurance is supposed to be? Try driving around in your new car without insurance and see how you change your driving habits. From my perspective an insurance policy is intended to protect a person or family from financial harm or ruin that could result from an unanticipated large expense.” The key word is “unanticipated”.

The other thing I want to do is protect them and their family from financial stress or ruin in the event of an unanticipated event. I buy them Life Insurance to help their family in the event of death. Disability to protect them from financial ruin if they are disabled. And I don’t want them to go bankrupt or become financially stressed from an unanticipated health event for themselves or a family member. Sure paying for office visits or dental is something in the insurance policies that I provide, but do I lose sleep because an employee may have to pay 50% for their kid’s braces on some 3 year payment plan. No. Or what if they have to pay $20 for an office visit. No. A couple going to the movies is more than $20.

One of the problems with Private Exchanges and or Public Exchanges is the focus on the little stuff. Look at all the chatter about ObamaCare. All we heard about was getting physicals paid and oral contraceptives paid for. Now that people are signing up for Public Exchanges we are beginning to hear about deductibles in to $4000 – $5000 range and out of pocket maximums in the $10,000 – $15,000 range. Is that what people need – free oral contraceptives and $10,000 Out-of-pocket maximums?

So now along comes Private Exchanges whose purpose is to give employees more options. These Private Exchanges come with Decision Support tools to help employees choose the right plan. They all ask employees questions like, “How many office visits do you expect in the next year”? Or “how many ER visits do you expect”? Are you kidding me? Who can predict the number of office visits or ER visits in the next 12 months? As consumers are we supposed to “time the market”.  And is “timing the market” what insurance is really all about? I recently saw a study from Intermountain Healthcare that says 90% of their highest claims from one year to the next are different people. I have personal experience where last year I had some issues to address where I did exceed my deductible but this year I hardly spent anything on health care at all. Who knows what next year will bring?

That gets me to the title of this article. Will offering more health care options with decision support tools result in employees “taking their eye off the ball”? Will employees take on risks they can’t afford? We are in an economic environment where a large percent of our population are living pay check to pay check. And we all know that many of the younger people don’t have the money in their banks to fund the costs of higher deductibles and co-insurance associated with lower cost plans.

Now I hear the naysayers already, “our decision support tool will not suggest that someone to take on a risk they can’t absorb”. However I have not seen any decision support tools ask questions like “Do you have $5000 in savings to pay for the costs of your deductible?” Most start with “How many office visits do you expect in the next 12 months?”

Now I realize health insurance is too expensive for many. Helping those with little money to save some money on health insurance is a good idea. That’s not the point of this article. My main point is that a possible unintended consequence of more employee health care options is exposing employees to financial risks they simply can’t afford. Is that what employers want when they provide insurance for their employees?