Tag Archives: Private Exchanges

If You Want Results Like Zenefits You Need to Mow the Lawn

Some of you have heard about this new company from California that is disrupting the benefits brokerage market not just in California but across the U.S. I have heard from brokers in many states that lost business to this company named Zenefits. These brokers claim to have had good relationships with their clients yet those clients left them to move their business to Zenefits, who in many cases the employer most likely never met. According to some accounts Zenefits has added around 2000 employer clients with close to 50,000 employees in 2 years. Now these numbers may be exaggerated, I don’t know, but imagine if they were just half that. What broker in America has added 1000 new clients in 2 years?

So what is it that Zenefits is doing that would motivate an employer to fire their current broker and hire Zenefits? Many benefits brokers conclude by looking at their website that it is because they are giving away free Payroll with some HR and Benefits technology. While this may sound plausible I don’t think that is the case. One does not get 2000 new clients in two years because they give something away for free that could cost $5-$10 per employee per month. If “free” is the reason then that says even more about what these employers think about the value of a broker as a benefits advisor. I would contend that the reason that Zenefits is getting so many new clients is because they are delivering a value proposition that solves a big problem for employers that few other brokers are delivering.

This is where I get to the “mowing the lawn” stuff I referenced in the title. The Zenefits value proposition is clearly stated in an interview that the president conducted on Bloomberg News. In response to a question where the interviewer asked how his technology was different he answered as follows” “We handle everything else – employment agreements, compliance, getting them on payroll, getting them on benefits, all that stuff from soup to nuts. That’s the way I would have wanted it to work so that’s the way we built it.” Most of the brokers I speak to believe Zenefits are getting business because they give away some free technology. As you hear in the presidents response he is clearly stating that they provide services. Brokers think they are giving away lawn tractors when what they are really doing is mowing the lawn. I have had many brokers ask me if there is technology to compete with Zenefits. If you were to hire someone to mow your lawn do you ask to see their lawn tractor? Most brokers are missing the point.

As a business owner myself with 20 employees I can relate to the value proposition that Zenefits provides. I don’t have a HR person on staff and I wish someone would come in and offer to take care of all my HR, Benefits, and Payroll issues. I have a job to do; I don’t want to worry about these things. The other day an employee came into my office and asked about our 401k. My answer was “I don’t know.” As a small business owner I want someone else to worry about answering employee questions. I know what I want. I want “worry free”. If a company like Zenefits called me and said they would take care of all HR, Benefits, and Payroll and make me worry free I would say sign me up. I did have a company call me one day that did offer all this. That company was Paychex, not a traditional benefits broker.

So if you are a broker and want to generate new business like Zenefits you need to change your business and offer similar services. And remember, the employers attracted to their value propositions aren’t looking for lawn tractors. They are looking for someone to mow their lawn.

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?

Private Exchanges – Technology is Not the Differentiator

I was talking to a benefits broker the other day about benefits related technology, more specifically about Private Exchange technology and health insurance Decision Support Tools, and the broker made the claim that “such and such vendor (I won’t name names) had the best decision support tools on the market. It is powerful technology, he said.” I thought this was odd and wondered how this broker drew that conclusion. He then proceeded to say that Decision Support Tools will be the big difference in the Private Exchange market.  Now that claim stopped me in my tracks and I immediately had to disagree.  

One thing I know about technology is that it is always changing. Just think of your car, your cell phone, and your TV. Has that technology changed over the last 3-5 years? For anyone to think that one vendor is going to perpetually have the best of anything is, in my world, crazy.  And a tool that can help employees decide which of three or five health plans they should choose is not powerful technology. The Space Shuttle is powerful technology. A website that takes someone through some fancy screens that has some back end logic is not. Such screens (I can’t get myself to say technology) with back-end logic is easily duplicated in months if not weeks.

Let’s look at this another way. Let’s assume you have the best technology. What percent of the market buys the best? Does McDonald’s have the best hamburgers? Does Taco Bell have the best Taco’s? Are there more people driving Ferraris or Toyota Camry’s. Do more people shop at Walmart or …..? You get it. There is often a price difference between the best and what the majority of the market can afford or are willing to buy. And for the record, I don’t know too many benefits brokers whose strategy is to sell the highest priced products.

So if you are a benefits broker and think you have found that silver bullet, that powerful technology, that is going to separate you from the pack, give me a call and I will show you a long list of companies who are going to make sure that one company does not rule the day.  And if you want to see powerful technology go out at night in a dark place and look to the sky and watch all the satellites fly by. Then I may agree you are looking at powerful technology.