How will the industry evolve over the next 20 years?
January 21, 2022
In the 1990’s, one evening in September around 3am, I found myself standing on top of a cafeteria table in Tampa; I was enveloped in a haze of cigar smoke, at an Open Enrollment meeting, discussing/barking about group disability, AD&D and life insurance at the Hav-A-Tampa plant with approx. 100 cigar factory workers. It was a super nice group of folks, asking me all sorts of entertaining 3am benefit scenario-like questions such as “so, if I go skydiving, and land on a blimp, and the blimp explodes, can I still file an AD&D claim?”….To which I would respond “Well if you think about it, post-blimp explosion, you wouldn’t be alive to file a claim …but your beneficiary would be allowed to file a claim and continue your skydiving/blimp tradition if that helps”. Everyone would chuckle. OE humor. Never gets old.
At the conclusion of a typical OE meeting back then, I would hand out paper application forms, employees momentarily stopped smoking their cigars, jotted down their demographic info, SSNs, benefit elections and returned their forms to me. (Yes, I get it...HIPAA attorneys are fainting...but it was a different world back then...). Myself and many others like me in employee benefits led numerous meetings in a similar manner across the country during the mid-late 1990’s.
Similar events as the above led to the creation of the Benefit Administration market +/- 20 some odd years ago, with the goal of removing paper from the system via online benefits enrollment, and transmission of data to the carriers, and payroll systems. And, in many regards, the fundamental aims of Benefit Administration have remained very much the same for the last 2+ decades….there has been expansion of services, such as the inclusion of COBRA, HSA/FSA/HRA administration, ACA reporting, and TBD on Covid reporting….but otherwise, for the majority of companies in the Benefit Administration market focused on the self insured, +/- 1,000+ employer market, it’s been business as usual re: their core, fundamental product, the past 2 decades.
A lot has changed in technology the last twenty two years. To put this in perspective, the most common phones in 2000 looked like this:
The primary on-ramp to access the internet was:
And backing up data included items like these:
So, as we look ahead to 2042, the next 20 years of the Benefit Administration industry, will the business continue its focus on the core elements of enroll, manage, and exchange data, as it has the past 2 decades? Or, are there opportunities, as other forms of technology and online commerce have evolved the last 20+ years, to expand the reach of Benefit Admin companies, via a combination of stopping particular services they are doing today and expanding into new ones? I’ve jotted down some themes below re: how the industry may evolve.
Perpetual engagement -
For as long as I can remember, an ongoing desire of this industry is “how can we interact with employees and their family members outside of Open Enrollment?....how can we provide additional value, continuing to decrease the HR/Benefit team’s workload throughout the year, while becoming a true partner of an employer, broker and carrier”? Now is a unique time to try something new and in doing so, create more value. Following is a suggestion of some things to consider for companies focused on large, self insured employers -
1) A number of large Ben Admin companies now maintain health and Rx claims. This info, combined with existing demographic and benefit election information, could be utilized not only to drive a much richer, personalized employee experience during OE but also ongoing perpetual engagement. Benefits don’t end at OE. Using ongoing medical and Rx data to inform, instruct, assist and/or guide employees in an industry (healthcare) which most view as confusing would bring incredible value.
2) Alight acquired Compass PHS and Consumer Medical, bringing healthcare navigation and clinical advocacy to Benefit Administration. Navigation solves for perpetual engagement above and beyond new hires, qualified life events and/or open enrollment. Now, one may say “Oldham, c’mon….shouldn’t navigation be a ‘health plan’ issue” vs Benefit Administration?” And the funny thing is, I would argue, a Benefit Administration company has a greater opportunity and far more data to drive a more holistic experience for an individual…because Ben Admin has a lot of data: contact information, family info/relationships, address, work location, occupation, heck who their boss is, historical wellness, medical and/or Rx claims data. This is more data (currently) than Amazon. Again, Benefit Administration companies are very interested in getting closer to the employee, providing more value to the employer, and getting out of the “race to the bottom” PEPM game. True value added services, particularly when positively impacting an employer’s second or third largest budget item - healthcare spend, places Benefit Administration companies into a new value added relationship with their customers.
3) Financial wellness - many conversations have occurred in virtual conference and benefit-related articles re: “financial wellness is a 365 day need for US workers”….and this is very true. In the interim, 401k investments are at an all time low. Yet Benefit Administration companies can provide guidance throughout the year. A couple of good, first steps occurred in this regard, with Businessolver and Benefitfocus integrating with Transamerica to offer Retirement benefits, paired with Employee Benefits. The opportunity to alert employees “before you take a deduction from your 401k, let me recommend you an emergency loan alternative”....or “you referenced during OE that one of your goals was to increase your retirement savings, the raise you just received (or the bonus you just obtained) would allow you to finally increase your 401k to hit your employer match!”, etc is a good first step. More Ben Admin companies need to incorporate retirement to allow employees to obtain a holistic view of their total benefits and retirement plans, while also embracing other consumer financial Apps such as Mint, Quin, Shoeboxed or Qapital to help employees reduce expenses and save money. Imagine if a Ben Admin App was the starting point for employees to access and integrate both B2B and B2C services? Lastly, companies like Alaffia Health can continually look for opportunities to save employees money by monitoring health claim costs. These tangible opportunities to save employees money would both drive perpetual engagement and produce greater street cred. with employees for the industry.
4) Greater health and PBM integration - bswift is owned by Aetna/CVS. As a result, they are in a great position to continue to push the envelope in driving greater employee health and PBM integration via Aetna and CVS. Imagine, if I’m an employee of an employer using bswift for Benefit Administration, and Aetna for medical, and CVS as the PBM, my entire medical and Rx ecosystem should be radically different and far more personalized than others. However, why should this unique form of integration be limited to one company? I would encourage other Benefit Administration companies to work more closely to incorporate ongoing medical, Rx and digital health integrations (vs requiring employees to download a # of different Apps). This is possible. All of these data elements are available via APIs.
Speaking of APIs…if you were to look at the costs associated with each aspect of Benefit Administration, one may assume that the greatest drivers of expense are Product, Innovation, Artificial Intelligence and/or perhaps Call Center. However, data exchange (obtaining eligibility files from employers, or case set up data from carriers, sending enrollment data, post-enrollment to carriers and deduction data to payroll companies/HCMs) is crazy expensive. Why? Well, while the American Banking Association created a single file format in their industry back in 1911, alas, this hasn’t occurred in employee benefits. The 834 file format (e.g. a HIPAA protected format to send health plans enrollment data) was created in 1991, yet anyone in the business will tell you, every health plan, TPA and/or carrier utilizes different variations of this file format. Why? Because, up until recently, the majority of membership systems of plans were older, mainframe platforms…very inflexible. As a result, this requires a lot of humans testing, sending, fixing and clearing lots of data. However, there are recent changes that have occurred wherein there is hope that the Benefit Administration industry may be able to significantly reduce the amount of revenue spent on data exchange.
1) LIMRA’s recent release of LDEx file standards created by a large committee of ancillary, voluntary benefits, consultants, health plans, payroll companies etc laid the groundwork in providing a uniform way for carriers and Benefit Administration companies to exchange ancillary product data. It’s a great first step in solving non-medical data transmissions and formats. Further enhancements and updates into quoting, rates, EOI, etc will also be occurring in the next 4-8 quarters. All good stuff.
2) With companies such as Vericred and Noyo, everyone involved in the benefit ecosystem (carriers, health plans, Benefit Administration companies, payroll companies, etc) has the opportunity to outsource data exchange. Now, before you say “c’mon Jeff…that’s impossible! Data exchange has been a core part of Benefit Administration since day one, how can we possibly outsource this responsibility to a third party”? Well, can we reevaluate this approach in 2022? For example, the next time you are shopping, ask yourself “what other retail or online companies manage their own data transmissions?” When I go into a Home Depot and purchase a product, HD doesn't have a team of engineers sending my product data to credit card companies….brick and mortar retail and online companies utilize middleware such as Mulesoft, Square, Plaid etc responsible for managing these complex data exchanges via APIs. This exact responsibility is what Vericred and Noyo can provide for the benefits industry. So why should Benefit Administration companies continue to be in the data exchange business when they could instead invest this money into….
Modernizing the core Benefit Administration product
Everyone in our industry has read the statistics….for most workers, wages are stagnant and inflation is eating into salary increases. Healthcare premiums have increased at a rate of 2x vs salary. And we are all aware of the statistics re: student loans and consumer debt. Combine these economic factors with the workforce, for the first time, representing five generations, and as an industry, Benefit Administration can either maintain doing business as they have done the previous 20 years, or look to make significant changes in modernizing their core product and making it more consumer centric.
1) If Benefit Administration companies take the leap into navigation to drive meaningful employee engagement while increasing customer value, and by reducing their spend on data exchange, there remains a massive opportunity to make significant changes to their core product….becoming a true, employee marketplace.
2) The majority of employees do not have a financial counselor. Instead, U.S. employers serve as the financial “home” of their employees. From their compensation, to their health and ancillary related benefits, of the 325M Americans, 164M receive healthcare via their employers (the rest is Medicaid, Medicare, individual, military and uninsured). What other opportunities exist for an employer to offer more/different types of products to help their employees save money via their Benefit Administration partner?
Down payments on homes - companies like Homefundit, allow employers (and others) to contribute to a first time buyer’s home. What a meaningful benefit this would provide workers.
Auto insurance - yes, I realize that “group auto” has been around for a long time. However, let’s face it, it hasn’t been effective…primarily because the administration has been so difficult. Now is a great time for the Benefit Administration industry to work with P&C carriers to make auto insurance both an easier group benefit to administer, and with the advent of companies like Venmo (or heck, good old fashion direct deposit), when the employee leaves the company, one can move an employee from payroll deduction to another form of payment.
The financial industry and insurance carriers have the chance to create new products, given the unique financial situations of our workforce. Group annuities, new investment vehicles, promotions of ICHRAs, and greater 529 adoption are all examples of meaningful products that would benefit employees and be administered via Benefit Administration companies.
3) Ensure your core product is flexible to make the change from a “paper enrollment to carrier” company to a true consumer company. There are a number of Benefit Administration companies sitting on 20 years of “tech debt”. Now is the time to look at companies like Sagitec or Unqork to shift to a No/Low Code platform, heavier incorporation of APIs, so that companies can make faster consumer changes to keep up with the demands of employees. Consumer companies are not using platforms that were created in the year 2000….to bring ultimate value to the consumer, it requires modern flexibility vs limited to quarterly releases.
4) Employees have new expectations about their employers’ charitable donations, and employees want the ability to donate to companies of their choice. Companies like Benevity offer this service - allowing an employee to make that decision vs solely being restricted to one company (e.g. one’s local United Way). Benevity and similar companies' business model is to go direct to employers, because the Benefit Administration world doesn’t support this benefit. Again, allowing employees to individually contribute to their own charitable interests is, again, a series of APIs. As the aforementioned Axios article reflects, giving employees the power to contribute to interests that matter to them is a big deal to Millennials and Gen Z.
5) Last but not least, look to integration with consumer companies to drive a greater employee experience. For example, Benefit Administration is one of the last industries to adopt some form of gamification related decision support. There are great examples of individual gamification for financial wellness, such as Zogo. If companies like AMEX recognize that you can’t teach financial wellness to Millennials and GenZ in a similar fashion as your grandparents, Benefit Administration needs to take a similar step.
It’s time to evolve
Consumers have expectations….when they log into their favorite sites online, irregardless of the industry (shopping, entertainment, news, etc) that I, as a consumer, will share a little information about myself and the site will then provide me with personal value in exchange. As a result, I’ll return to these sites as they grow and learn via my interactions. Adding a multitude of new benefits and products will require personalized, consumer level Artificial Intelligence in the Ben Admin industry. It takes a combination of external data sets beyond the four walls of Ben Admin companies to also include personal/family data, and “others like me” to ensure that the right benefit recommendations are being made. Companies like Nayya utilize AI and Machine Learning, and even private label this service to Benefit Administration companies today for a fraction of what it would take to hire a team of data scientists (and/or how long it would take for Benefit Administration companies to build true consumer driven recommendation services).
Speaking of AI, there was a decision made in Benefit Administration some 20 years ago, which continues today for most companies, wherein employers wanted “one throat to choke” and, as a result, decided that it was important that services such as COBRA, HSA and FSA and call center should be managed via Ben Admin companies. In many regards, this resulted in technology companies quickly turning into pseudo-BPOs. From an investment and financial value perspective, the dilution of taking SaaS companies and layering in a massive amount of services significantly devalues this industry. The inclusion of ongoing services such as HSA, FSA, Cobra and call center may have been the right decision in the late 1990’s and early 2000’s. However, today, with conversational AI companies managing such complex benefit related items such as primary care via Curai Health, or ongoing chronic condition management via AI with Lark, and/or Wysa managing behavioral health through AI, benefit admin-related conversations, call center and ongoing support can also be supported by AI for a fraction of the cost it takes to manage a call center or administer Cobra. Further, your average consumer’s expectations are now geared towards interacting with AI. When was the last time you called Amazon? Delta’s AI has become incredibly good over the past 5 years in an industry that once demanded that you speak to a human being. Now is a great time for the Ben Admin industry to make these changes. Employees are ready. The industry offers the tech to support consumer expectations.
It’s really amazing….while almost 20% of GDP is healthcare, if you do the math, the amount of premium associated with Ben Admin enrollment is approx. 5-6% of GDP. It’s a massive number that this industry owns. Yet, when you look at the annual revenue vs valuations and/or revenue multiples associated with this industry, it’s a fraction of other B2B SaaS companies. Benefit Administration and the impact it provides should be valued as much as B2B companies like CRM and SFDC, or an employee communication service like Slack, and/or an HCM like Workday. But in order to do so, Benefit Administration has to increase its consumer value, while decreasing non-software related services and replacing it with meaningful perpetual engagement and AI. An OE-only service for most employees, hindered by low margin services, won’t ever be valued at the same multiple as other SaaS companies. My fear is that if Benefit Administration doesn’t change in the next 20 years, this industry will either be incorporated into other B2B SaaS companies such as SFDC or Microsoft, or endure a great deal of M&A. Now is the time to make radical changes to drive meaningful results to change the industry for the better for all of its constituents - employees, employers, brokers, health plans, ancillary/VB carriers, retirement companies and digital health organizations. The opportunity is there and the upside is meaningful.
Next blog post will focus on the impact digital health companies are having on ancillary carriers in improving customer service while lowering operational costs.