Will Rubio’s Measure Undermining ACA Survive?

Republicans stated goal is to “repeal and replace” the Patient Protection and Affordable Care Act. That hasn’t happened and won’t at least through the remainder of President Barack Obama’s term. So a secondary line of attack is to undermine the ACA. And Senator Marco Rubio has had success in that regard.

As reported by The Hill, Senator Rubio accomplished this feat by weakening the ACA’s risk corridors program. Whether this is a long- or short-term victory is being determined in Washington now. We’ll know the answer by December 11th

President Obama and Congress recognized that, given the massive changes to the market imposed by the ACA, health plans would have difficulty accurately setting premiums. Without some protection against under-pricing risk, carriers’ inclinations would be to price conservatively. The result would be higher than necessary premiums.

To ease the transition to the new world of health care reform, they included three major market stabilization programs in the Affordable Care Act. One of them, the risk corridors program, as described by the Kaiser Family Foundation, “limits losses and gains beyond an allowable range.” Carriers experiencing claims less than 97% of a targeted amount pay into a fund; health plans with claims greater than 103% of that target receive funds.

The risk corridor began in 2014 and expires in 2016. As drafted, if payments into the fund by profitable insurers were insufficient to cover what was owed unprofitable carriers the Department of Health and Human Services could draw from other accounts to make up the difference.

Senator Rubio doesn’t like risk corridors. He considers them “taxpayer-funded bailouts of insurance companies at the Obama Administration’s sole discretion.” In 2014 he managed to insert a policy rider into a critical budget bill preventing HHS from transferring money from other accounts into the risk corridors program.

The impact of this rider has been profound.

In October HHS announced a major problem with the risk corridors program: insurers had submitted $2.87 billion in risk corridor claims for 2014, but the fund had taken in only $362 million. Subsequently, payments for 2014 losses would amount to just 12.6 cents on the dollar.

This risk corridor shortfall is a major reason so many of the health co-ops established under the ACA have failed and may be a factor in United Health Group to consider withdrawing from the law’s health insurance exchanges. (United Health was not owed any reimbursement from the fund, but likely would feel more confident if the subsidies were available).

The Obama Administration certainly sees this situation as undermining the Affordable Care Act. In announcing the shortfall, HHS promised to make carriers whole by, if possible, paying 2014 subsidies out of payments received in 2015 and 2016. However, their ability to do so is “subject to the availability of appropriations.” Which means Congress must cooperate.

Which brings us back to Senator Rubio’s policy rider. It needs to be part of the budget measure Congress must pass by December 11 to avoid a government shutdown. If the policy rider is not included in that legislation, HHS is free to transfer money into the risk corridor program fund from other sources.

Senator Rubio and other Republicans are pushing hard to assure HHS can’t rescue the risk corridors program claiming to have already saved the public $2.5 billion from a ‘crony capitalist bailout program.” Democrats and some insurers, seeing what’s occurred as promises broken, are working just as hard to have it removed.

By December 11th we’ll know whether the ACA is further undermined or bolstered.


The Affordable Care Act and Affordability

The official name of what some call Obamacare is the Patient Protection and Affordable Care Act. Most frequently it’s referred to as the Affordable Care Act or the ACA. There’s just one problem with this title: it’s questionable whether the new law is making health care — or health insurance — more affordable

When you ask politicians about bringing down the cost of medical care, they invariably pivot to discussing health insurance premiums. And the press lets them, no doubt because: 1) insurance companies are easier to beat up on than doctors and hospitals; and 2) controlling the cost of care is much more complex than addressing insurance premiums.

When it comes to “bending the curve” concerning premiums, the ACA is arguably working. While every broker can cite examples of clients receiving double-digit increases (often, many examples and north of 20%), overall, according to PolitiFact, “premiums have risen by about 5.8 percent a year since Obama took office, compared to 13.2 percent in the nine years before Obama.” This year, for example, the 2015 UBA Health Plan Survey indicates that the average annual health plan cost per employee in 2015 is increasing just 2.4 percent from the prior year.

One point for the ACA–for now. In some parts of the country, it should be noted, the second most affordable silver plan in the exchanges (a key benchmark) is increasing by 30% or more.While this development doesn’t mean all rates are going through the roof in all places, it’s a warning sign that needs monitoring moving forward.

For now, the rate of increase we’re seeing in health insurance premiums have stabilized. That, however, doesn’t mean that health care coverage is more affordable. Health insurance costs are like a teeter totter. On one side is fixed-costs known as premiums. On the opposite seat are variable costs represented by out-of-pocket expenses. The higher the fixed-costs, the lower the variable ones and vice versa. The laws of physics cannot be legislated away. So as the ACA helps keep premiums down, out-of-pocket costs are rising.

One driver of higher out-of-pocket costs is straightforward: High deductibles in health plans are increasingly common. Another less obvious reason is that carriers are narrowing their provider networks while increasing the cost of seeking treatment outside their networks. For example, according to the UBA study, family out-of-network deductibles increased 75% in the past five years.

For healthy consumers this is a net positive. Premiums are lower under the ACA and, since they don’t see providers, narrow networks aren’t a problem. For those who do need health care treatment, however, (and families are especially likely to have someone needing medical attention in a given year), this teeter totter is what’s making the Affordable Care Act not so, well, affordable.

This isn’t to say that the ACA is a failure. The uninsured rate in America dropped to 10% in 2014 from 18.2% in 2010–and will likely be lower in 2015. This means 15 more million Americans now have coverage than in 2010. Perhaps if we renamed the ACA the Health Insurance Access Act the description would be more accurate.

However, that’s not what it’s called and the ACA is failing to keep live up to its name. The reason, I believe, is because it does too little to address the cost of medical care. To be fair, the ACA includes provisions to reduce medical costs. Accountable Care Organizations and the Independent Payment Advisory Board are two elements of President Barack Obama’s health care reform plan that show promise.

At best, however, the ACA only lays the groundwork for controlling medical costs, and we need to do more. Because at the end of the day, to make coverage more affordable, we have to attack where the money is going. And in that regard, the facts are straightforward: health plans must spend 80% (individual and small group coverage) or 85% (large group plans) on claims. If health insurance is to become more affordable, health care must be more affordable.

That means changing the ACA something that will not happen during a presidential election year. That doesn’t mean, however, that we can’t begin pinning presidential candidates on what they would do to bring down medical costs. We’ve had a question  about fantasy football during the debates. Maybe the moderators could slip one in on concrete steps the candidates would take lower the cost of health care … and not let them pivot to the easy dodge of attacking health insurance premiums.

OK, that’s asking too much. Maybe they could ask them what they’d do to control insurance premiums and then ask about controlling medical costs. If nothing else it would be interesting to see how many of the candidates realize these are two different questions.

America’s Disappearing Common Ground

Everyone knows the reason so little gets done in Washington is that the two political parties have become ever more divided and uncooperative. We can see it on cable news programs. We can hear it on talk radio. And we experience it as the federal government generates more crises than solutions. We also experience it every Thanksgiving dinner when our crazy uncle starts spouting eye-roll inducing political nonsense.

For those of us engaged with health care reform, we witness this dynamic every time politicians on both sides of the aisle identify the same problem, but refuse to work together to resolve it.

Subjectively, we all know common ground is shrinking in this country. Turns out there’s objective evidence, too. The Pew Research Center tracked the distribution of political values held by Democrats and republicans between 1994 and 2014. As the graph below shows, the gap is widening.Pew Ideological Divide Graphic

There’s a couple of things to note in the graph. First, the gap between the center of each party is further apart now than 20 years ago. The second is the bulking up of the extremes. “92% of Republicans are to the right of the median Democrat, and 94% of Democrats are to the left of the median Republican”. This shows what we’ve all felt: the parties have moved apart and common ground is increasingly rare.

The Pew study was issued more than a year ago. However, anyone watching this year’s presidential debates will attest that ideological differences between the parties is definitely not diminishing.

America moves forward when reasonable people can disagree, find common ground, and compromise. Over the past 20 years, however, fewer partisans see the other side as reasonable; fewer are willing to compromise. Common ground is disappearing.

The Pew Study is pretty depressing for those of us who want less fighting between the parties and more problem solving. However, there is some good news in the report. While there’s movement towards the extremes, the majority of Americans remain neither uniformly liberal nor conservative. As the Pew Research Center notes, “more [Americans] believe their representatives in government should meet halfway to resolve contentious disputes rather than hold out for more of what they want.”

Politicians often claim to speak for the “silent majority.” This is usually not the case as it’s their next statement is often a pander to the most extreme elements of their party. The real silent majority are those who want their representatives to “meet halfway.”

The problem is, however, the silent majority is, well, silent. No one hears them. In a political context, silence equates to voting. If it’s the extremists who vote, then politicians listen to the extremists. When a majority of Americans stand up and insist that their representatives work together, politicians will find a way to work together. Maybe not right away, but eventually they’ll get the message.

Until the majority speaks up (votes), however, it’s the crazy uncles that are listened to–and not just on Thanksgiving. In fact, it seems the crazy uncles are part of the presidential debates now, too.

Zenefits’ Problems Real, Not Fatal

Zenefits has hit a rough patch. Given the insults the company’s CEO, Parker Conrad, has heaped upon brokers, the Schadenfreude percolating through the broker community is understandable. Yet declarations of Zenefits’ demise are premature.

Zenefits raised $500 million in May of this year at a valuation of $4.5 billion. At the time, Parker Conrad, Zenefits’ founder and CEO claimed the company was “on track to hit annual recurring revenue of $100 million by January 2016….” That was then.

Now the Wall Street Journal is reporting that Zenefits is falling short of its earlier revenue projection. According to the Journal and Business Insider, through August Zenefits’ revenues came in at closer to $45 million and the $100 million annual revenue figure is likely out-of-reach. In response, Zenefits is reportedly instituting a hiring freeze and imposing pay cuts. The latter step is cited as a reason at least eight executives left Zenefits.

In light of this news, in August or September Fidelity Investments reduced the value of its Zenefits investment by 48% estimating the company was now worth about $2.34 billion. That’s a seismic event: in May Fidelity thought Zenefits was worth $4.5 million. Just five months later Fidelity thinks this was being a tad optimistic … if by “a tad” we mean “$2.16 billion.”

In an interview with Business Insider, Mr. Conrad admits Zenefits is unlikely to keep his promise of earning $100 million this year. However, he claims Zenefits continues to hire (although not as fast as in the past) and is happy with its revenue growth–“more than $80 million of revenue under contract” (which, it should be noted, is not the same as saying “we’ve taken in $80 million so far this year,” but maybe that’s what he meant). Mr. Conrad also asserts Zenefits is getting “closer and closer” to being cash flow-positive, although he doesn’t expect them to get there until 2017 at the earliest.

Missing his $100 million commitment and having to address the subsequent fallout is no doubt adding to Mr. Conrad’s stress levels. Since Mr. Conrad went out of his way to insult community-based benefit brokers on Zenefits way up, the joy brokers are taking in his discomfort now is to be expected—and is arguably earned.

Should brokers assume Zenefits is no longer a threat, however? No. They are still bringing in tens of millions of dollars in revenue. According to what I’ve heard, only about 60% of this revenue comes from commissions. An ever-increasing portion of their revenue flows from fees earned by selling third-party services or their own non-commissioned services. Zenefits launched their own payroll service today so their non-commission revenue will continue to climb. Zenefits may not be worth $4.5 billion any more, but it is still valued at over $2 billion. And while no CEO is happy when a serious investor marks down his company by nearly 50%, Mr. Conrad says Zenefits won’t be out raising money anytime soon. As a practical matter, the impact of the devaluation on Zenefits is minimal.

In short, Zenefits is sticking around.

But I predict Zenefits is in for a rough time. Direct competitors like Namely and Gusto are raising money and stepping up. Community-based brokers are increasingly leveraging technology. Full disclosure: I’m co-founder of the company launching NextAgency, software that will help brokers level the playing field against Zenefits, so I’m delighted to point out this trend.

While new initiatives like their payroll offering will create new revenue streams, they also carry significant risk. Current partners will view Zenefits as a potential competitor. Management will be distracted from the company’s core business. New skills and expertise need to be acquired. There’s something to be said for focus and Zenefits may be losing theirs.

Schadenfreude is German for deriving pleasure from the misfortunes of others. That Zenefits’ current problems generates this impulse in the brokers they’ve insulted should surprise no one. That Zenefits will face challenges, problems and set-backs moving forward is inevitable. That community-based brokers should continue to take the threat Zenefits represents is seriously is wise.

The Open Enrollment Convergence: Scope and Resources

To state the obvious, there are 12 months in the year. Unfortunately for health insurance companies, brokers, exchanges and those they serve, various health care coverage open enrollments for most Americans are crammed into less than four of those months. The scope and challenge of this Open Enrollment Convergence is mind-boggling.

Open Enrollments by the Numbers

Medicare’s open enrollment period is October 15th through December 7th of each year. Open enrollment for individuals runs from November 1, 2015 through January 31, 2016. The majority of small and large group plans renew on either December 1st (because last year employers wanted to put off coming into the ACA market for as long as possible) or January 1st (so benefit years coincide with calendar years).

Cramming all these open enrollments and renewals into a 15 week period impacts most Americans. The US Census Bureau estimates that in 2014 enrollment was:

  • 50 million in Medicare
  • 60 million in Medicaid
  • 45 million in medical policies they purchased themselves (primarily individual and family coverage)
  • 175 million in private group health coverage

Renewing any one of these cohorts in a two-or-three months is a Herculean challenge. Deal with all of them at once and you’ll find the Demigod in a fetal position off in a corner somewhere muttering about ACA compliance reports. Yet, all at once is when they’re happening.


Alcohol is not a resource. Nor will it help get brokers through the Open Enrollment Convergence. Avoid it until February 1st. The three sources, however, will help. This blog’s Health Care Reform Resources page lists additional useful sites.

The National Association of Health Underwriters, the preeminent organization for health insurance brokers, consultants and benefit professionals, publishes a lot of extremely useful material. The NAHU Compliance Cornered Blog is accessible to everyone. Tools and information in the association’s Compliance Corner are available only to members, but well worth the dues. One feature allows members to pose detailed questions to experts and quickly receive a personalized response. The breadth and depth of the compliance expertise available through this service is impressive and invaluable.

The Henry J. Kaiser Family Foundation is an outstanding resource for dependable information on health policy and parsing the Affordable Care Act. (The Foundation is unrelated to Kaiser Permanente health plans). The Foundation’s Health Reform FAQs recently updated 300 items on a broad range of ACA topics. If you’re into Twitter, you’ll benefit from following the Kaiser Family Foundation. (Of course, if you’re into Twitter I hope you’ll follow me as well, he shamelessly plugged).

The Department of Health and Human Services is the government’s lead agency on the ACA. The HHS Health Care site serves up extremely helpful data, forms and explanations along with a bit of not unexpected ACA cheer leading.

Go Team

I wish I had a pithy message to help get you through the fourth quarter renewals; some poster-worthy motivation you could hang on your wall. However, in the accurate words of the folks at Despair.com, “If a pretty poster and a cute saying are all it takes to motivate you, you probably have a very easy job. The kind robots will be doing soon.”

Robots will not be handling an Open Enrollment Convergence anytime soon (the stress would rupture their … whatever robots rupture). New tools are on their way to help benefit brokers manage the workload. These, however, will amplify the high-touch service and expertise benefit brokers deliver, not replace agents.

Because there’s nothing easy about helping consumers find and use the health care coverage they need. Fortunately, professional benefit brokers are really good at doing just that.

This may not be a motivational statement, but it is factual.

A Technology Checklist for Benefit Brokers

The need for benefit brokers to leverage their high-touch value with technology has never been more important. Customers are pulling and competitors like Zenefits are pushing brokers in this direction. Resistance is futile.

This was the message of yesterday’s post, which, like this one, is based on my talk at the California Association of Health Underwriters’ TechSummit in late-September. This second post describes why choosing the right technology is critical and offers a checklist to help benefit brokers find that right technology.

Shopping for technology can be confusing and frustrating. Having a plan to help you assess your options, however, can minimize the pain.The first step to stress-free (or at least stress-reduced) tech shopping is to know what you’re looking at: a mere device or a whole product? When buying the technology upon which you’ll build and maintain your business, you want a product, not just a device.

Devices versus Whole Products

The problem is it’s sometimes hard to tell one from the other unless you know what to look for.

Geoffrey A. Moore discusses the difference between devices and products in his book Crossing the Chasm (although what I call devices he labels “generic products”). A device is the core hardware or software being sold—and only that core. A product is that device and, in Mr. Moore’s words, “whatever else the customers need in order to achieve their compelling reason to buy.” (Here’s a graphic from my CAHU talk on the difference between devices and products).

Looking at a smartphone? What you hold in your hand is the device. The product is that equipment plus the data plan plus the warranty plus the operating system (e.g., Apple, Android or Windows) plus the apps available plus the cool-looking case and so on. The phone itself is a device; the other elements make it a product.

Most of us lack the expertise to make devices productive. We need products. To make sure the technology you’re contemplating is the complete package ask the vendor questions about their training, service, peripherals, compatibility and so on. And keep asking until you’re satisfied you know what you’re getting.

The Checklist

Once you’ve established you’re buying a product, a checklist can help you sort through important issues. The checklist that follows concentrates on four considerations: choice; cost; confidence; and comfort. With some issues, the “wrong” answer is a deal-breaker. Others simply raise factors you should consider. If, for example, the technology vendor is liable to use your data to steal your clients, I’m thinking “deal-breaker.” Whether it’s critical that the software makes it easy to port your data over to an alternative depends on how difficult and important it is to recreate your database.

Also, remember: no technology is perfect. That’s why manufacturers are constantly issuing updates and new versions. The key is to look for a solid solution, not an unattainable ideal. Remember, the worst technology is the one you need, but don’t use.


Technology is just a tool, a means to an end. And it may not always be the means you need. When evaluating tech, ask “Do I need this technology to achieve my goals?” or “Do I need this technology to achieve my goals more quickly and efficiently?” (This assumes you know your goals and what it takes to achieve them. The importance of having a business plan is something I address in detail in Trailblazed: Proven Paths to Sales Success).”  If you can’t articulate how the technology is going to help you take your business where you want to go, then you can probably pass on it.

Probably, but not until you ask “Do my clients need this technology to achieve their goals or to achieve them more quickly and efficiently?” If the product benefits your clients, then it’s invariably worth considering.


Technology can be expensive and it always costs much more than the sticker price. There’s also the time it takes to learn to use the product or to teach your clients to use it. Resources may be required to set up and maintain the tools. New hires need to learn how it works. Then there’s the lost productivity as everyone adapts to upgraded versions (just ask anyone transitioning to Windows 10). All of this time, energy and resources add to the true price of the product.

So ask, “Can my clients and I afford the technology?” and “Can we afford to use it?” For example, when buying a printer you need to know how much the machine costs. However, you’ll also want to know the cost of replacement ink. A cheap printer needing costly ink may be a worse deal than a more costly printer using less expensive ink.


More than cash is on the line when adopting technology. You’re also risking your business and reputation. (Of course, not adopting technology poses a risk as well). If that great new software doesn’t perform as promised it’s you and your team who will be distracted, inefficient and, to use the technical term, pissed—none of which will grow your business.

Then there’s security. Your client will blame you if the technology you brought to them releases their personal and financial data into the wild. Any technology you buy must be HIPAA compliant. More, the product needs to keep your and your clients’ data encrypted, safe and secure.

When teaming up with a vendor you need to be confident they won’t use the data you provide them against you. Some HR admin companies started out competing with benefit brokers before deciding to work with them. What’s to stop these companies from reversing course again, but this time armed with your client data? Still other companies offer their products to brokers and compete with them for clients. Really? Is that where you want to entrust your data?

Which means you should ask: “Will the technology perform as promised?” “Will my and my clients’ data be protected?” and “Will they compete with me?”


Technology should fit your business, not require you to change what you do in order to use the product. Too many vendors, especially those whose leadership have only technology or investing backgrounds, don’t get this concept.They believe they know what’s best for their customers. They design their product to dominant (they’d say “instruct”), not serve, their customers. Avoid this hubris. It rarely turns out well.

There are risks involved with any technology. No product works perfectly all the time; some just work perfectly more often than others. You need to assess where you are on the adoption curve, which graphs how much risk a user is willing to accept in order to get access to a product. Geoffrey Moore’s book, Crossing the Chasm, explores in detail who is ready to adopt technology and when. (As summarized in this slide describing his adoption curve from my CAHU TechSummit presentation).

For example, Early Adopters embrace the promise of technology and accept the risk inherent in something new. What Mr. Moore labels the “Late Majority” are reluctant to embrace technology until it’s established and proven. Neither position is “right.” And you may be on a different part of the adoption curve for different technologies. What matters is knowing where you are on the curve for the technology you’re looking at. Asking others already using the product about its dependability and usefulness is a good way to assess if you’re ready to embrace it.

Sometimes you don’t realize a product is a bad fit until you’ve used it for a while. Some vendors purposefully make it hard to leave them. This is being “sticky” and Silicon Valley loves sticky. Unless you’re an investor, however, remember that it’s your content, not theirs. If you can’t fire the vendor, be careful about hiring them.

So ask: “Where am I on the adoption curve for this technology?” “What have others experienced?” and “What’s my escape plan?”

A little credit for selflessness here: As disclosed, below, I’m helping bring NextAgency to market. As a new technology we lack a track record. If that’s too risky for you, well, that’s my loss. But I still encourage you to ask these comfort questions.


As noted earlier, not every question is do-or-die nor will any single vendor have perfect answers to each question. However, this checklist will help you narrow the field so you can zero in on the best technology for your business.

Here’s a downloadable version of the Technology Checklist.for Benefit Brokers. I hope you find it useful. And please, leave a comment with any questions you think should be added to the list.

Full Disclosure: I’m a co-founder of Take 44, Inc. In early 2016 we plan to launch NextAgency, a platform helping benefit brokers leverage technology to deliver their high-touch value. NextAgency also helps brokers level the playing field in competition with Zenefits, Namely and other high-tech disruptors because we believe, on a level field, community-based brokers will win

Clients Pull, Zenefits Pushes Benefit Brokers to Adopt Tech

“The question is not if benefit agencies will go digital. The question is when. The answer … 2016.”

That’s how I began my technology talk at the California Association of Health Underwriters’ TechSummit on September 29th in Universal City. Several in attendance  asked for the presentation. Since the slides are mostly key words and graphs, I thought sharing the content here over a couple of posts would be more helpful.

I’ve been engaged in sales technology since the 1980’s (yes, Millennials, we had technology back then). However, the need for successful producers to embrace technology has never been greater. This first post explains why. Tomorrow I’ll offer a checklist brokers can use when selecting technology.


Consumers Pull, Competitors Push

Going digital is inevitable. Customers want it. Competitors make it necessary.

Customers are increasingly running their businesses with technology. They use digital tools to keep their teams informed and aligned, preserve and transfer documents, reach customers and track sales. Even traditionally low-tech companies—plumbers, barbers, dry cleaners—use technology to schedule appointments, process payments, track invoices and speed work flows.

Or consider this: in 2013, nearly half of Staples sales were over the Internet. This makes Staples the nation’s third largest online retailer behind Amazon and Apple and ahead of Walmart. The same survey found Office Depot was the ninth largest online retailer. That’s a lot of businesses, both large and small, using technology to buy something as prosaic as office supplies.

Digital activity by clients is creating a gravitational force pulling more-and-more benefit brokers into the tech orbit. After all, if your clients are using technology and conducting business online, shouldn’t you?

If customers are pulling brokers to go digital, competitors are pushing them in the same direction. In poker, if you look around the table and don’t see the sucker, you’re the sucker. Similarly, if you’re not using technology to grow your business, someone else is using technology to take your business.

Zenefits and Others Push Brokers Toward Tech

Exhibit A: Zenefits—the Donald Trump of benefit brokers. Like Mr. Trump, Zenefits can behave like a rich, arrogant bully. Yet, either because of or in spite of this character flaw, Mr. Trump and Zenefits have shaken up their worlds and highlighted weaknesses in established players.

Like Mr. Trump, Zenefits’ strategy seems to embrace trash talking competitors. Zenefits CEO Parker Conrad has promised that “If you’re an insurance broker, we’re going to drink your milkshake.” (At minute 1:30 of the linked-to video). He claims competing brokers “barely know how to use email.” (At minute 38 of the video). Mr. Conrad’s prognostication concerning today’s professional benefit brokers? “All of the existing brokers today are all f**ked.”  OK, even Mr. Trump doesn’t drop the f-bomb on his opponents in public, but that’s most likely just a generational difference in styles.

Some brokers complain that Zenefits is using its riches (the company has raised over $500 million dollars in capital) to post arguably misleading comparisons between itself and specific independent brokers—a tactic Mr. Trump might applaud. As I’ve written before, even though I find the comparisons unfair, this isn’t a new marketing tactic nor outside the norm in America.

Yet, for all his bombast and bullying, Mr. Trump has forced other Republican presidential candidates to step up their game (a task at which many are failing). They may not like him, but his opponents need to adapt to his presence. Zenefits and similar companies like Namely and Gusto are forcing brokers to adapt to new realities. In this new world, simply delivering value is no longer enough. Clients now need to perceive that value.

It’s Perceived Value that Matters

Benefit brokers have long provided considerable value to their clients. They shop the market and find the right solution for clients’ unique needs. They answer questions and resolve problems. They provide informed, personalized, professional counseling and advocacy on behalf of their clients before and after the sale. Simply put: they earn their commissions.

Yet, for too long, too many brokers have been hesitant to highlight their value. In fact, they often undermine how clients perceive their worth by claiming their services are free. This is both inaccurate (health insurance premiums include brokers’ commissions) and diminishing (consumers tend to undervalue what they don’t pay for).

Zenefits takes advantage of brokers’ modesty. They offer businesses free HR and benefit administration software in exchange for being named the employers’ broker-of-record. That’s an attractive deal when the software has perceived value and the services of the incumbent broker is hidden.

Technology can help put brokers’ value on display by providing greater insight into what brokers deliver. Increased transparency can lead to greater perceived value.

Significantly, Zenefits’ leadership knows this. When asked about the company’s competitors, Sam Blond, head of sales at Zenefits, claimed they had none. He grudgingly acknowledged that professional brokers could fill that role, but “what you get with a traditional health insurance broker is no technology.(At about 28:30 in the video).

Zenefits and new firms like them have seized on this digital gap to tilt the playing field in their favor. When your competitor points a neon arrow at your problem, it’s smart to pay attention. Many brokers are and that’s what’s pushing them toward increased use of technology.

Successful Brokers Leverage Tech

Competition from well-funded technology firms has never been greater, but there’s nothing new about the role technology plays in helping brokers get ahead. My book, Trailblazed: Proven Paths to Sales Success, grew out of a study of 200 health insurance brokers in six states. The study sought to identify what practices, processes and perspectives fast-growing sales professionals shared that their less successful colleagues did not.

Among our findings was that high-growth producers were significantly more likely to incorporate technology into their business than the others. They were more likely to use technology across a broader range of functions, too. Brokers whose business was declining were the least likely to have incorporated technology into their practice.

When I led individual and small group sales at WellPoint (now Anthem) I championed the 1999 launch of AgentConnect, which enabled our agents to sell individual coverage online through their own websites. While competitors (think PacifiCare) were trying to displace brokers using the Internet, we used it to empower brokers. The result: WellPoint increased our market share while hundreds (and eventually thousands) of independent agents launched online sales initiatives. Many of them ranked among WellPoint’s top producers.

WellPoint’s AgentConnect launched 16 years ago, but was not the first sales technology adopted by successful benefit brokers. I was helping program the quoting system for Multiple Services (the small group general agency my father, Sam Katz, founded in Los Angeles) in 1983. And there were digital sales tools available before then.

Not If, When

Technology has been a part of the employee benefit world for a very long time. The increased pull of clients and push of competitors just makes the need to leverage tech tools more pressing ever before. As noted at the start of this post, the question is when will brokers will go digital. I believe the answer is early next year.

Many brokers have already adopted innovative technologies. The majority, however, have not and now face a dilemma. Do they deploy new digital tools—or ask their clients to deploy new technology—in the middle of open enrollments, ACA calculations and the host of other time-consuming, business-threatening challenges all happening between now and the end of the year? Or, do they wait until 2016 to leverage the tools available to them?

I have a stake in the answer (as disclosed, below), but even if I didn’t, I’d bet most brokers will fight their way through the rest of 2015 with the tools they have before transforming their agencies with new technologies.

Being thoughtful about the technology you embrace is important, because the decision is critical. Not only are you entrusting your livelihood to the technology, you’re entrusting your reputation and your clients’ well-being to the platform you choose. Adopting technology costs more than money, there’s a host of hidden expenses as well. I’ll discuss these and other factors, as well as offer a checklist to help you evaluate your technology options, in tomorrow’s post.

Full Disclosure: I’m a co-founder and CEO of Take 44, Inc., a technology company which, in early 2016, will launch NextAgency. The NextAgency platform will integrate quoting, CRM and enrollment tools to help brokers sell more with powerful HR and benefit administration tools they can give to clients for free. This is in pursuit of our mission: to help benefit brokers level the playing field against high-tech disruptors like Zenefits while spotlighting their high-touch value.


ACA Co-op Troubles Not Surprising

Strong support emerged during the Congressional deliberations that led to the Patient Protection and Affordable Care Act behind a government-run health plan to compete with private carriers. The “public option” failed, but did create political space for the concept of consumer-owned, non-profit health insurance co-operatives. The co-ops found their way into the ACA, but now, as a group, are in big trouble. Eight of the nation’s 23 health co-ops are going out-of-business and more may follow.

The Case for Health Co-ops

Then Senator Kent Conrad championed health co-operatives during the health care reform debate. Modeled after the electrical co-ops in his home state of North Dakota, he saw them as health plans owned by local residents and businesses. They would receive start-up money from the federal government, but otherwise would compete against private carriers on a level playing field.

Co-op advocates hoped they would bring competition to markets dominated by too few private carriers. In addition, they expected these non-profits to provide individual consumers and small businesses additional affordable health insurance choices. With focus on the first goal, health co-ops might be in a better place today. Unfortunately, too often they sprung up in states where competition was already strong.

The ACA set-up a roughly $6 billion fund to help get “Consumer Operated and Oriented Plans” up-and-running. The long-term financial viability of health co-ops was to flow from premiums paid by those they insured and the “Three Rs”—programs established by the ACA “to assist insurers through the transition period, and to create a stable, competitive and fair market for health insurance.” Specifically these were the ACA’s reinsurance, risk adjustment and risk corridor programs.

It’s Tough Being New

A (not so) funny thing happened on the way to the health co-ops’ solvency. Starting a health insurance plan is difficult and failure always an option. (I know. I was executive vice president at start-up SeeChange Health, an insurer that failed last year.) New carriers, by definition, have no track record, no data concerning pricing, provider reimbursements, claim trends, and the like. Their first foray into the market is an educated guess. Worse, new plans usually have a small membership base. This provides little cushion against the impact of miscalculations or unwelcome surprises.

A new health plan launching in the midst of the industry’s transition to a post-ACA world faced added exponentially greater difficulties. In 2013, when most of the health co-ops launched, no one knew what the market would look like in 2014. Exchanges, metallic plan requirements, guarantee issue of individual coverage and more were all happening at once. Were employers going to stop offering coverage? How were competitors going to price their offerings? Would provider networks be broad or narrow? The questions were endless; the answers at the time scarce. In a speech during the lead-up to 2014 I described the situation as carriers “playing chicken on tractors without headlights in a dark cave while blindfolded–at night.”

This is the world into which ACA-seeded health co-ops were born. That they now face  serious financial problems should surprise no one. They saw themselves as “low-cost alternatives” in their markets. If they were going to err in setting prices it was not going to be by setting premiums too high.

Besides, if they priced too low they were protected by the risk corridor program. As described by the Centers for Medicare & Medicaid Services, which manages the ACA’s financial safety net, the “risk corridors program provides payments to insurance companies depending on how closely the premiums they charge cover their consumers’ medical costs. Issuers whose premiums exceed claims and other costs by more than a certain amount pay into the program, and insurers whose claims exceed premiums by a certain amount receive payments for their shortfall.”

The majority of the nation’s health co-operatives saw claims exceeding premiums. Being on the “shortfall” side of the equation, the government was to come to their rescue like the proverbial cavalry with the money needed to keep them going.

Except the cavalry is a no-show. Too few carriers had too little claims surpluses to cover the too large losses of too many health plans. Only 12.6 cents on the dollar due under the risk corridor program is expected to make it to plans on the shortfall side of the equation the CMS announced on October 1st.

The Math Always Wins

Several of the health co-ops were in financial trouble before this news. Losing millions of dollars in expected relief doomed more. As of today, the dollars-and-cents have failed to add up for CoOportunity Health (the co-op in Iowa and Nebraska), the Kentucky Health Cooperative (which also served West Virginians), Louisiana Health Cooperative, Health Republic Insurance of New York, Health Republic Insurance of Oregon, the Nevada Health CO-OP, Community Health Alliance (a Tennessee co-op), and the Colorado HealthOP. Just to use the Colorado situation as an example, the Colorado HealthOp needed $16.2 million; they expect to receive $2 million.

Do these failures mean health insurance co-ops are a bad idea? Not necessarily. What they point to is that health co-ops may have been better off focusing on bringing competition to markets where there were too few plans, not joining a pack where there were enough. Even then, the collapse of the risk corridor program may have doomed them, but they’d have stood a better chance.

As noted above, Senator Conrad modeled the health co-operatives on electrical co-ops found in some rural communities. Where too few customers make it unprofitable for traditional utilities to invest in the infrastructure required, consumers, seeking electricity, not profits, come together to extend the grid.

Those implementing the ACA should have followed this model. Instead of funding 23 health co-operatives, the Administration should have offered seed money to fewer co-ops located where they would be the alternative in the market, not just another one. This may have allowed them to extend financial support long enough to at least partially offset the risk corridor shortfall. Then, just maybe, we could have avoided the “surprise” of failing health co-ops.

Zenefits’ Agents Should Be in NAHU

Zenefits is enrolling hundreds of their in-house agents with the National Association of Health Underwriters and some NAHU members are freaking out. They shouldn’t.

At the end of the day, Zenefits engagement with the association will benefit both the company and NAHU’s membership. After all, the purpose of any professional organization is not to become best buds with your competitors (although that often happens in NAHU). The purpose is to work together on common issues toward shared goals in an ethical manner. So long as Zenefits and their employee-agents share the goals of NAHU and act with integrity they should be members.

A Fan of NAHU, Not Zenefits

I’ve been active in NAHU for over 25 years. I’ve served as president of my state chapter and the National organization. Currently I’m president of my local chapter. I’ve testified on NAHU’s behalf before Congress and helped lead the association’s legislative efforts nationally and in California. I’ve even helped rewrite the national and state associations’ by-laws. (Now that’s commitment … and boring as hell).

I say this not to brag (or complain), but to demonstrate that I care deeply about NAHU, its mission, purpose and, above all, its members. I’m a fan of NAHU. If I thought the association was in danger, I’d be among the first at the barricades. However, having Zenefits’ in-house agents in NAHU is no danger.

To be clear, I am not a Zenefits fan. I’ve made this clear repeatedly and will continue to do so. I consider the way Zenefits’ leadership talks about what they call “traditional agents” as arrogant and wrong. I don’t like their business model or some of their practices. And I do more than criticize Zenefits. I’m co-founder of Take 44, a start-up bringing NextAgency to brokers. NextAgency does many things, but for purposes of this post it’s most salient feature is helping community-based agents beat Zenefits and its ilk in the marketplace.

Even though I don’t like Zenefits, I’m pleased Zenefits’ in-house agents are joining NAHU. I believe the result will be positive for Zenefits and, more importantly, for NAHU members.

Wins All Around

Zenefits will gain credibility when they publicize that their in-house agents are members of the nation’s preeminent organization for benefit professionals. However, that means Zenefits will be widely promoting the reality that working with NAHU members is good for consumers—a message benefiting all NAHU members.

Some of Zenefits’ agents will attend NAHU meetings and participate in the association’s outstanding educational programs. There they’ll meet hundreds of professional, experienced brokers providing real and substantial value to their clients. They’ll understand that there’s more to being a worthy health insurance agent than simply delivering HR and benefits software. (Although there’s nothing wrong with delivering HR and benefits software, he wrote while wearing his NextAgency hat). What they learn may make them better agents and that’s good for their clients and for the profession. Bad agents hurt everyone, including good ones.

The dues from Zenefits is the least important benefit to NAHU, but still meaningful. These dollars will help NAHU and its local and state chapters positively influence legislation, expand educational programs, better assist consumers, support more community organizations and more powerfully deliver our message to the public. Again, something that benefits all members.

We Don’t Have to Like One Another to Share a Goal

NAHU membership is open to all health professionals who abide by the association’s code of ethics. In a big-tent association like NAHU we’re not all going to like every fellow member. I’ve met thousands of wonderful people during my time in Health Underwriters. They’re individuals of tremendous professionalism and integrity. I’ve also come across a few folks I don’t particularly like or respect and not every fellow member likes me. That doesn’t matter. We’re a professional association, not a college fraternity.

What matters is our commonality of purpose. NAHU members are benefit specialists adhering to a high ethical standard while seeking to do what’s best for our profession, our industry and, especially, for our clients. Any benefits specialist who shares this commitment and acts with integrity is welcome in NAHU. This is what makes the association strong: acceptance without regard to personal feelings, but in the pursuit of common interest.

I don’t like Zenefits. If the company and its agents seek to do what’s best for their clients, our industry, and our profession and acts ethically, however, then I accept them. Indeed, I welcome them to Health Underwriters.

Outside the association, I look forward to helping community-based benefit brokers like those in NAHU drink Zenefits’ milkshake. That, however, is a topic for another post.

Health Care Reform Absent from Democratic Debate

Two hours of policy-heavy dialogue and, unless I missed it, not one of the five Democratic candidates for President uttered the words “Obamacare,” “Affordable Care Act” or “health care reform.” True, Senator Bernie Sanders brought up “Medicare for all” and declared that health care coverage is a right of citizenship. However, there was no mention of his remarks by the other candidates, former Senator Lincoln Chafee, former Secretary of State Hillary Clinton, former Governor Martin O’Malley, and former Senator Jim Webb.

Update: October 14, 2015: Oops. There was a brief discussion of allowing undocumented immigrants eligible for coverage under the ACA. The focus of this segment was immigration and the candidates mention of health care was incidental. I don’t think this undermines the point of this post, but they did mention it. My bad.

Ignoring health care reform is a s pretty amazing development when you think about it. Health care reform was a big part of the Democratic presidential primary campaign in 2008. The passage of the Patient Protection and Affordable Care Act in 2010 turned American politics upside down adding copious amounts of fuel to the Tea Party movement. Yet, in the CNN/Facebook debate from Las Vegas … not a word.

I’m not saying CNN should have made health care reform the primary topic of Tuesday night’s Democratic debate. However, a short simple question soliciting short simple answers would have, I believe, highlighted some differences among the candidates. At the very least it would have contrasted the Democrats running for president from the Republicans seeking the office.

My hoped for question: “What changes to the Affordable Care Act, if any, would you seek if elected President?”

We know Senator Sanders’ response: he’d scrap the Affordable Care Act for a single payer system. Would any of the others join him? Maybe. Would any of them defend the health care reform law as is? Possibly. Quizzing the candidates on legalizing marijuana was of interest to some, no doubt, but, in my mind at least, finding out what they’d change in the ACA is both a more important and fascinating topic.Of course, given the topic of this blog, I am a bit biased.

Jeb Bush Reveals Health Care Reform Plan

Ironically, this is the day former Republican presidential candidate, Governor Jeb Bush, detailed his health care reform proposal. Calling the ACA a “monstrosity,” Governor Bush said the government should help Americans obtain catastrophic coverage (albeit with a preventive care component) to protect them from financial ruin, but not force individuals to buy and businesses to offer comprehensive coverage.He would require carriers to cover insured’s pre-existing conditions for individuals who maintain continuous coverage.

Under Governor Bush’s proposal, individuals without employer coverage would receive tax credits allowing them to buy coverage against “high cost medical events.” Governor Bush also called for raising the contributions limits allowed on health savings accounts.

Significantly, Governor Bush recognizes that the ACA can’t simply be repealed without serious adverse impacts on what he calls “the 17 million Americans entangled in Obamacare.” He calls for a transition plan to help them move from the ACA to the Governor’s system.

Governor Bush’s health care reform plan also calls for restoring state regulation of insurance markets, promotion of health information technology adoption, wellness rewards and innovation in care delivery models. An interesting, and maybe wishful, provision of his proposal is “an app on your smart phone that calls your doctor to your front door, just as it does for a car to come pick you up.”

Maybe Next Time

Health care reform in general and the Affordable Care Act will no doubt be a big part of the general election. Governor Bush has laid out one approach for Republicans. It would be nice to learn a bit more about what Democrats would do. CBS hosts the next one on November 14th. Maybe the issue will come up then.

Is requesting one straightforward health care reform question asking for too much?