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.


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.

Brokers Object to Zenefits’ Comparison for Wrong Reason

Zenefits recently launched a new marketing campaign and some brokers are going ballistic. What’s interesting is that brokers are angry for the wrong reason.

Zenefits is not an innovative company. Take its sales proposition: make us your employee benefits broker of record and we’ll give you free HR software. Clearly the folks behind Zenefits eat a lot of Cracker Jack—a company that has been offering a prize in every box since 1912. Or maybe one of their parent’s got a free toaster for opening a checking account. Free toasters for consumers opening a checking account was considered cutting-edge marketing back in the day–the day being some time in the 1960s. That Zenefits has applied this technique to employee benefits is hardly the innovation their cheerleading investors claim.

No surprise then to see Zenefits reach back into the dusty advertising time capsule for another “new” idea. This time they emerged with the ageless and oft-seen “direct competitor comparison” technique. This is where one company compares their services against those of a particular rival. Car companies, satellite TV providers, car insurers, aspirin manufacturers and dozens of others have been doing this for years. Now Zenefits has jumped on board this ageless bandwagon. Again, not what I would call innovative. And in this case, not very effective, but, as we’ll see, clever.

Successful competitor comparisons depend on carefully selecting the comparison criteria. For example, Zenefits doesn’t compare themselves to community-based brokers based on knowledge of the local market or availability for face-to-face meetings (because Zenefits would look bad). Nor does Zenefits address obtaining an employer’s payroll company log-in information providing access to what your typical identity thief would sell a parental unit to see (hint: that would be Zenefits being creepy).

No, Zenefits stacked the comparison in their favor and some of those being compared are claiming foul. Yet, I believe they’re missing the point of what Zenefits is doing. In reality, I don’t think brokers have much to fear by Zenefits’ latest marketing scheme.

First, most consumers know these kinds of comparisons tilt in favor of the one doing the comparison. Shoppers will likely discount the credibility of what they see. Second, clients are not going to leave a particular broker because of a comparison buried deep inside Zenefits’ web site. If a broker loses a client because the employer miraculously stumbles across this comparison, that client was heading for the door anyway.

Zenefits knows this … and they don’t care. I don’t believe they created these hundreds of comparison pages (maybe thousands, I got tired of counting) to steal business away from these agencies. They created the comparison pages to improve their search results (known as search engine optimization or SEO).

The exact algorithms used by Google, Bing, Yahoo, DuckDuckGo and other search engines to determine the order in which sites appear on their results pages are secret, but the general ideas are well understood. One popular technique is to provide legitimate links to multiple sites all focusing on a relevant subject matter. When shoppers use key words associated with that subject matter the search engines associate the linking site and move them up the results page.

That’s why each Zenefits comparison page includes the web address of each compared agency. That’s hundreds (or thousands) of legitimate links to sites that address health insurance and other employee benefits. From an SEO-perspective, this a tsunami of positive associations.

An added benefit for Zenefits, although not nearly as significant, is that eventually they may appear on the first result page when shoppers search these agencies by name. Will shoppers see this link and choose Zenefits over the broker they were searching for? Not often, if ever, but it can’t hurt. And that this will royally piss-off (to use the technical marketing term) those brokers may warm the cockles of Zenefits’ management’s heart – a group who has demonstrated little respect for traditional brokers.

Some of the brokers on the Zenefits web site complain that the comparison is unfair and violates some code of ethics.True, the comparisons are blatantly unfair and cheesy, but seem within the bounds of generally accepted advertising techniques (or tricks, if you prefer).

Many of these complaining brokers are strong advocates for a free market. Zenefits’ management are capitalists taking advantage of that free market. Big deal. Even Zenefits probably doesn’t think this latest marketing ploy will take much business away from the agencies they’ve picked on. I believe its the improvement to their search results that made the effort involved worthwhile to them.

So what should independent brokers do? Offer your clients the kind of HR software Zenefits offers. (Full disclosure, my company, Take44, will be launching NextAgency soon – a platform that allows brokers to provide clients with free HR administration similar to what Zenefits does).

While waiting for NextAgency, fight fire with fire (or, in this case, unfair comparisons with unfair comparisons). Do your own competitive comparison and post it on your web site. This comparison should focus on your strengths and Zenefits’ many weaknesses. Remember, as Zenefits has demonstrated, a neutral comparison is optional. Posting this comparison will not only make you feel better, it will help your own search engine optimization.

You can help your SEO even more by publishing articles online that link back to your web sites. Or by creating an agency site on LinkedIn or the like. The more sites that link to your site, the less likely Zenefits will make an appearance on your results page.

In short, don’t get upset with Zenefits for playing an old-fashioned advertising card. Trump them with your own marketing. That, after all, is how free markets work.

HHS to Pay Brokers for Enrolling Consumers in Federal High Risk Pool

Should brokers be compensated for helping consumers to enroll in government programs like the Pre-Existing Condition Insurance Plan (PCIP) created by the new health care reform law? Until now, the federal government’s answer has been “no.” That changed today and a significant precedent is being set.

The National Association of Health Underwriters announced today that, beginning no later than October 1st, licensed agents and brokers will be paid a flat fee of $100 per enrolled applicant. (Payments could begin sooner if the changes to the application can be done more quickly).

This fee will only apply to the high risk pools set up by the federal government for the 23 states who declined or were unable to do so plus the District of Columbia. Many, if not most, state-run exchanges already pay brokers for assisting their citizens in enrolling in their pools. According to NAHU the average state-based fee is $85 per enrolled applicant.

In announcing the change, the Department of Health and Human Services noted the greater enrollment success achieved in states pools that compensate brokers for their work. As stated in the Department’s press release: “This step will help reach those who are eligible but un-enrolled. Several States have experimented with such payments with good success.,”

The decision to support and work with brokers is part of the Department’s efforts to increase enrollment in the PCIP high risk plans by removing administrative hurdles and lowering premiums. In fact,  in 18 of the states, premiums will be coming down as much as 40 percent according to a press release from HHS.

The PCIP was designed to provide coverage to individuals unable to obtain health insurance in the private market due to existing health conditions. 18,313 Americans have enrolled in the federal high risk pool through March 31st, a fraction of the 5 million consumers expected to enroll in the program (fraction as in “0.4%).

Progress usually comes in small steps, not giant leaps. The significance of HHS recognizing the value brokers bring to America’s health care system—and their willingness to pay for that value—should not be underestimated. For example, the House of Representatives will soon conduct a hearing on HR 1206, the legislation to remove broker compensation from the medical loss ratio calculations required by the Patient Protection and Affordable Care Act. Proponents of this law will be able to point to the recruitment efforts of HHS in support of the federal Pre-Existing Condition Insurance Plan to reinforce the need to keep brokers in their role as consumer counselors and advocates in the new health insurance world being created by the PPACA.

NAHU and other agent organizations worked hard to achieve this recognition. No doubt, however, some brokers will protest that the HHS program pays brokers only a one-time fee. This complaint is misplaced. Enrollment in the PCIP is fundamentally different than working with consumers shopping for coverage in the commercial market. The PCIP is, after all, a government health plan, more similar to Medicaid than to plans available on the open market. Further, enrollees in the high risk plan, by definition, cannot obtain traditional coverage. What’s significant is not the details of the compensation (although it is worth pointing out that HHS is setting the fee higher than the average paid by states), but the existence of compensation for enrolling Americans into a federal health plan.  When it comes to precedents, this is one that can aptly be described as “significant.”

Catching Up on Health Care Reform

Hello. It’s been awhile. Hope you’re all well. To all who have inquired, my thanks for your concern, but all’s good. Hectic, but good. Lot’s going on (more on that later) and an awful lot of travel. I’ve had a chance to meet and talk with brokers in various parts of the country, including a few places I’ve never been before or haven’t been to for years: Boise, Omaha, Denver, Nashville. It’s been a great time to learn, recharge and stay a bit too busy to write any meaningful posts. While staying busy appears to be the new constant, I’ll try to find something worthy to share on a more regular basis. For now, however, let’s play some catch-up:

We’ll start with some (relatively) good news. One of the more popular elements of the Patient Protection and Affordable Care Act is the ability for children up to age 26 to remain on their parents’ medical insurance. The Department of Health and Human Services estimated 1.2 million young adults would take advantage of this opportunity. A story at Kaiser Health News indicates the actual number may be much higher: at least 600,000 young adults have already obtained coverage under their parents’ health plans. While most of the growth has apparently been in self-insured groups, fully insured plans are experiencing the same upsurge in membership. WellPoint, for example, reports adding 280,000 young adult dependents nationwide and the federal government added a similar number (although the article didn’t state what percentage of these were in fully-insured plans).

Of course, when it comes to health care reform every silver cloud has a gray lining. The Kaiser Health News article quotes Helen Darling, CEO of the National Business Group on Health, as noting “I don’t think anyone is eager to spend more money. This is not something employers would have done on their own.” She further cites the unfairness of asking employers to cover adult children who may be employed elsewhere. And businesses (and their employees) will pay a bit more due to this expansion of coverage to young adults – about one percent more according to estimates. And while its unclear how many of these individuals would not be able to obtain coverage elsewhere, but the general thinking is that a large majority of these young adults would be uninsured or underinsured, but for this provision of the PPACA.

Next let’s pause to note how rate regulation can be big business for consumer groups. In some states, regulators must approve health plan rate increases before they take effect. In others carriers may need to file their rate changes with regulators, but so long as the rate increases are actuarially sound they move forward. California, where rate increases tend to generate national news, is in the latter camp. The state’s Insurance Commissioner, Dave Jones would like to change that. (Actually he’d like to put health insurance companies out-of-business by implementing a single-payer system, but that’s another matter). However, he and others are pushing to change that. Assembly Bill 52, authored by Assemblymen Mike Feuer and Jared Huffman. This legislation would give the Department of Insurance (which regulates insurers in the state) and the Department of Managed Care (which regulates HMOs) to reject rate or benefit changes the agencies determine to be “excessive, inadequate, or unfairly discriminatory.”

In the findings section of the bill (which are the “whereas” clauses justifying the bill), the legislation cites rising premiums and the need for the state to “have the authority to minimize families’ loss of health insurance coverage as a result of steeply rising premiums costs” are among the problems the bill is intended to address. The solution: give politicians and bureaucrats the power to reject rate increases. No need, apparently, to address the underlying cost of medical care. The assumption seems to be that the way to reduce health care spending is to clamp down on premiums. This, of course, is like saying that the way to attack rising gas prices is to limit what gas stations can charge at the pump. One might conclude that, to be charitable, the legislation is addressing only a part of the problem.

Not only does AB 52 give medical care providers a free pass, it is likely to result in a windfall for the consumers groups supporting its passage. Politico Pulse notes that AB 52 requires insurance companies to pay for costs incurred by groups representing consumers at rate hearings. For groups like Consumer Watchdog this can represent a substantial amount of income. The Politico Pulse post reports that “Under a similar California provision for property and auto insurance, Consumer Watchdog has recouped approximately $7 million in legal fees since 2003”

Then there’s the 4th Circuit Court of Appeals hearing on two Virginia law suits seeking to have the Patient Protection and Affordable Care Act declared unconstitutional. A ruling from the three judge panel is expected in July. Much has been made of the fact that two of these three Appeals Court Judges were appointed by President Barack Obama – and the third by President Bill Clinton. While those so inclined are likely to consider this a conspiracy of cable news worthy dissection ad nauseum, it’s important not to make too big a deal about this.

First, courtrooms are not like the floor of Congress: partisan leanings have far less influence there. Second, as the Associated Press article points out, there are 14 judges on the court. Which of them hear a particular appeal is randomly determined by a computer program. There’s nothing sinister about the three judges selected for these appeals being appointed by Democrats, it’s just the way things turned out. No black helicopters are involved. Third, whatever this panel decides will be appealed by whichever side loses. The appeal could go to a hearing before all 14 Appeals Judges in the 4th Circuit or it could go straight to the Supreme Court. Finally, even if the appeals remain at the circuit level for another round, the final decision will be made by the Supreme Court. Everything going on in the lower courts (and there’s a lot of other suits out there needing to go through their appropriate Circuit Courts), is simply prelude. Yes, what the appeals court decide influences the Supreme Court Justices, but in a matter of this magnitude, far less than one might imagine. What happens at the District and Circuit levels is not unimportant, but it’s far from definitive.

While we’re playing catch-up: my previous post noted that Congress was likely to repeal the 1099 provision in the health care reform law. They did and the President Obama signed the law removing the tax reporting requirement from the PPACA. The PPACA no longer impacts 1099 reporting. I know you already knew that, but I wanted to close the loop on this issue. It’s now closed – and repealed.

Finally, a note about broker commissions and the medical loss ratio calculations required by the health care reform law. Where we last left our heroes, the National Association of Insurance Commissioners was debating whether to endorse bi-partisan legislation (HR 1206) that would remove broker compensation from the MLR formula used to determine a health plan’s spending on claims and health quality initiatives. The NAIC task force dealing with this issue wants time to review data being pulled together by the National Association of Health Underwriters, carrier filings and elsewhere.  Pulling together all this information, much of which has never been gathered before and is not maintained in a centralized data base, took a bit longer than initially anticipated. According to Politico Pulse, however,  the task force no”now believes it has all the data it will be able to get.” Which means the task force’s final report on broker commissions and the MLR calculation is now expected by May 27th.

Stay tuned.

And thanks again for staying tuned to this blog.  I look forward to continuing the dialogue with all of you.

NAIC to Study MLR Impact on Compensation and Consumers Before Voting on Changes

Brokers holding their breath to see if their compensation will be removed from the medical loss ratio formula required by the Patient Protection and Affordable Care Act will be turning a darker shade of blue. The hoped for support from the National Association of Insurance Commissioners, which was expected to result from a meeting of the NAIC’s Professional Health Insurance Advisors Task Force this past Sunday, has been delayed at least four weeks.

While there was widespread and strong support for removing independent broker compensation from the formula carriers are used to calculate their medical loss ratio under the PPACA, the Task Force opted to ask their staff to provide additional data before making a decision.

While disappointing the delay is not really surprising. A substantial of the commissioners are new, having just been elected or appointed as a result of the November 2010 election. As Jessica Waltman at the National Association of Health Underwriters put it in a message to NAHU’s leadership, “[I]t was clear as soon as we arrived in Austin that some of the new Commissioners (and there are quite a few of them) had reservations about moving that quickly since this is their first meeting…. some of the more senior Commissioners were very sympathetic to their concerns about rushing things through. The NAIC almost never endorses legislation, so this is a huge deal for them.“

In addition, the issue is controversial. Consumer groups and some liberal Democratic Senators have voiced opposition to changing the MLR formula.

The Agent-Broker Alliance leading the charge for this change to the health care reform law met with several supportive commissioners and the decision was made to delay the vote. This would allow time for information relevant to the issue, already requested of carriers, to be received and considered. This time will also be used by the Agent-Broker Alliance to gather and submit data on how independent brokers are able to save clients money and the post-sale service brokers provide their clients.

Most observers I talk with are optimistic the NAIC will eventually endorse this change in spite of hesitancy from some liberal commissioners. In this regard, Politico Pulse is reporting that “Liberal insurance commissioners got a little feisty (well, for insurance commissioners) … pushing back against the speedy, one-month time line for” considering the broker compensation exemption proposal. Politico quotes California Insurance Commissioner Dave Jones as saying “I’d hate to see haste impede us having the information in front of us to make a relevant decision.” And Washington state’s insurance commissioner Mike Kreidler as declaring “I hope what we produce as a work product we can stand behind and that we’re more interested in accuracy than speed.”

When politicians speak of the need to “study” and “consider” an issue it means 1) they sincerely want to learn more about the topic or 2) they want to defeat the proposal without having to go on the record voting against it. While I hope I’m wrong, given the opposition to the exemption from liberal consumer groups, I’m betting on the latter motivation in this case. (Time will tell as I’m inclined to believe the data will be very supportive of moving forward with the exemption). That the NAIC went ahead with just a four week delay in spite of calls from Commissioners Jones and Kreidler to slow down is a sign that while there will be debate, there’s a better than even chance the NAIC will indeed support legislation to make changes to the medical loss ratio provisions of the PPACA.

Ultimately whether broker compensation is included in medical loss ratio calculations will be determined by Congress and President Barack Obama – which means nothing is certain. While I believe taking this action furthers the intent and purpose of the health care reform bill, the proposal will not enjoy smooth and speedy sailing. The bipartisan legislation introduced by Representatives Mike Rogers and John Barrow, HR 1206, has been referred to the House Energy and Commerce Committee, but no date for a hearing has yet been set.

That the idea is still alive, however, is both remarkable and encouraging. But it’s still too early to start breathing again quite yet.

Broker Testimony Before NAIC Concerning MLR and Commissions

The National Association of Insurance Commissioners will be meeting in Austin, Texas this week to consider a number of issues related to the Patient Protection and Affordable Care Act. One topic will be how the medical loss ratio provisions of the health care reform bill impacts brokers and consumers. A coalition of broker organizations will be testifying this Sunday urging the NAIC to move forward with a proposal to exempt producer compensation from the MLR calculation.

The MLR targets (individual and small group carriers must spend 80% of premiums received on claims or health quality efforts; large group carriers must spend 85%) is a critical part of the PPACA’s scheme to “bend the cost curve” when it comes to premiums (never mind that the biggest driver of premium rates is the cost of medical care). Limiting the amount of premium dollars insurers can devote to administration and profit, supporters believe, will result in reduced insurance rates. Also, since the PPACA requires all consumers to obtain health insurance coverage the medical loss ratio rules are designed to prevent carriers from gaining an undeserved financial windfall.

Significantly, exempting broker commissions does not run contrary to either purpose. The legislation being considered by the NAIC will still limit the percentage of premiums carriers can spend on administration and profit – and to a greater degree than most state measures addressing MLR targets do today. In addition, carriers will still need to aware of the total cost of their policies – including broker compensation. From a consumer’s point of view, the total cost of coverage will be the carrier’s premium and the broker’s commission. Carriers will be unwilling to go to market with a total cost that is uncompetitive because of overly generous broker commissions. This is one, but not the only reason, broker commissions are unlikely to return to where they were before the passage of the PPACA even if broker compensation is removed from the MLR formula. That broker commissions should increase at the rate of medical inflation, as opposed to general inflation, for example, is hard to justify when medical inflation is increasing at twice the rate of increases to the Consumer Price Index. But this change will — and should — be driven by market forces, not arbitrary limits set by Congress.

The NAIC proposal is also consistent with the purpose of the PPACA’s approach to MLRs because, as I wrote last summer, exempting commissions from the medical loss ratio may actually reduce overall administrative costs in the system. Carriers today aggregate broker compensation from small groups and individuals then pass 100 percent of these dollars onto independent third parties, retaining none of it for themselves. This reduces paperwork costs for hundreds of thousands of brokers, businesses and families and is a cost-saving measure that should be encouraged by the PPACA.

Not everyone sees it this way, of course. The American Medical Association, consumer groups and some Democratic legislators have urged the NAIC to keep the medical loss ratio calculation put in place by the Department of Health and Human Services (with input from the NAIC) as is. On the other hand, a bipartisan group in the House of Representatives has introduced HR 1206 to remove broker compensation from the formula used to determine a carrier’s MLR.

The broker coalition, comprised of the National Association of Health Underwriters, the National Association of Insurance and Financial Advisors, the Council of Insurance Agents & Brokers, and the Independent Insurance Agents and Brokers of America, was asked by the NAIC to present their views at Sunday’s hearing on the NAIC medical loss ratio proposal. Significantly, they were told there was no need to talk about the value brokers add to America’s health insurance system – this value was already recognized and appreciated by the Insurance Commissioners. Instead they were asked to focus on the economic impact of the MLR provisions as currently being implemented.

In a letter to NAIC from the Agent-Broker Alliance reports on a study that shows 25 percent of brokers surveyed are reporting business income reductions for individual and small group sales of 21-to-50 percent with another 25 percent describing losses at between 11 and 20 percent. The result is that brokers are leaving these markets, reducing the availability of their expertise to consumers just when the complexity of health care reform makes this expertise more critical than ever.

Past NAHU president Beth Ashmore will be providing testimony at the Sunday NAIC hearing. As a long-time Texas broker she will be able to provide Commissioners with a glimpse into how the “theory” of the PPACA is revealing itself in practical terms.

The NAIC has no vote in Congress, but they do have significant influence, especially to the extent the NAIC vote in favor of changing the MLR calculation is bipartisan. If they support exempting broker commissions it will give considerable momentum to efforts bills such as HR 1206. The legislative process takes time so there will be no quick fix. The key is to keep initiatives moving forward down the path. The NAIC meeting is a milestone along the way.