"Benefits 2.0: Brokers as the Frontline of Benefits Innovation"
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"Benefits 2.0: Brokers as the Frontline of Benefits Innovation"

Rick Zullo, Co-Founder and General Partner, Equal Ventures & Simran Suri, Associate, Equal Ventures

Rick Zullo, Co-Founder and General Partner, Equal Ventures & Simran Suri, Associate, Equal Ventures

The last decade has undoubtedly seen one of the most fundamental changes to the benefits ecosystem in known history. While the long-term impacts of the pandemic on our healthcare system are still unknown, we’ve also seen a continued (and unrelated) evolution of the way healthcare and other benefits are funded. Given a highly competitive employment environment and rising healthcare costs, the benefits market has needed to evolve. With the adoption of the Affordable Care Act, we’ve seen the industry’s cost structure continue to evolve even more, further incentivizing employers to self-fund and identify creative ways to cut costs while expanding coverage. The benefits industry of today is so radically different from the cookie cutter plans of the past, that we’re referring to this newly formed dynamic as Benefits 2.0.

As this new Benefits 2.0 dynamic emerged, new opportunities were created. We moved from large, monolithic reimbursement processes to those driven by real-world ROI. Employers could choose care options based on what would drive the best outcomes at the lowest cost, not just what was approved for reimbursement by their providers. Becoming eligible for reimbursement across major healthcare plans had historically been a long, arduous and bureaucratic process. Opening that up has coincided with new risk management solutions, a renewed focus on economic efficiency and an expansion of benefits offerings beyond traditional healthcare. Collectively, we believe these trends have created an environment full of choice, but difficult for employers to navigate on their own.

3 Key Trends Emerging in Benefits 2.0

As the market wrestles with the new normal, new service areas and solutions are drawing interest, creating opportunities for the entrepreneurially minded. We see the areas below as major shifts creating opportunities for employers, service providers and founders alike.

(1)  Growth in self-funding increases employers’ need for risk management solutions like stop loss

 

Benefits 1.0 saw self-funding limited to large employers with enough cash reserves to cover the potentially high costs of unexpected claims. The majority of small employers either offered no benefits or stuck to fully-funded plans with predictable annual costs. Rising premiums and ACA’s mandated coverage changed the game. With 21% of small employers and 82% of large employers shifting to self-funded plans, interest in stop loss has risen. Traditionally used as a risk management measure to curb the cost of expensive, unexpected claims, the stop loss market has exploded, hitting $25.2B with consistent 10% YoY growth for the past 4 years.

Premium costs have grown more than 3x since 1999, creating additional cost burden for employers

*Note: shows cost of premiums for single coverage health insurance for non-federal employers Source: KFF

“If you can account for most of what your employee base wants - you may find that self-insuring actually saves you money. Plus most companies that self-insure have some type of catastrophic or gap insurance anyway. Those companies that can and choose to self-insure tend to be able to cater more to the needs of their people than those that are closed into a box with benefit plans that carriers typically provide.”

- Anessa Fike, Founder & CEO of Fike & Co

(2)Growth in care navigation solutions that can prove a clear-cut ROI by bringing down the cost of care

Before ACA, reimbursable CPT codes limited the care services that self-funded employers could provide. ACA has removed much of this red tape by expanding the scope of covered services.

Simultaneously, increases in self-funding have incentivized employers to provide care navigation services. While these solutions can act as a catch-all for common illnesses, their greatest value comes from helping employees navigate networks of providers to find the best care options for complex or chronic conditions and avoid the $200B that is wasted on unnecessary medical testing and treatment annually. Investing in care navigation solutions can prove a clear-cut ROI for self-funded employers by enabling them to better manage cost and utilization of existing benefits packages.

According to NFP, almost 8 in 10 employers see ROI as a key priority when building benefits packages Source: NFP

“As employers are inundated with point solutions and the stress of macro conditions influences buying decisions, a focus on quantifiable ROI will be critical for new companies looking to sell into the employer. Increasingly companies must position themselves away from point solutions and solve end-to-end problems for their target user, ideally replacing more than one solution. Better risk analysis, ROI studies, claims data and total rewards analytics should lead to a better, more efficient sales process with long-term customer retention.”

-   Colin Tobias, Partner at SemperVirens

(3)  Growth in fringe & voluntary benefits that were not previously covered by standard plans

Expanded reimbursement rates and coverage, including evidence-based preventive care without cost-sharing, have created an explosion of new verticals for employers to choose from. Many of these services previously fell outside of traditional health coverage, requiring out-of-pocket payments. Between 2021 and 2022 alone, Aon found a 41% increase in the availability of voluntary benefits like dental, vision, and critical illness insurance. Penetration of fringe benefits like fertility, mental health and financial wellness has also increased amongst private employers. Over 50% of employers have introduced virtual solutions in mental health and primary care and 30% of companies with over 500 employees now provide fertility benefits.

Representative market map of new verticals in Benefits 2.0 Source: Equal Ventures

“Services like mental health are being covered at higher rates than before. That’s key to allowing more firms offering these services to be profitable given the reimbursement shift. I came across a report stating that pre-Covid, reimbursement rates were at $15-35 per 20-minute visit, where they are now $70-250 per 20-minute visit.”

-   Carolina Rojas, Investor at Distributed Ventures

New Choices → New Channel

These changes to the benefits landscape have led to an immense need for partners to facilitate evaluation and distribution of new offerings. While some solutions have gone direct to customer or direct to employer, we are seeing benefits brokers establish themselves as the most effective channel in connecting providers to their end market. Traditionally seen as intermediaries between carriers and employers, brokers have quickly become the keystone of the Benefits 2.0 value chain, particularly with emerging benefit lines.

Today, brokers are much more than a means to coverage. 70% of mid-sized and 48% of small employers rely on brokers for more than just maintaining benefits offerings. Brokers aren’t just transacting on policies – they act as trusted thought partners and consultants, helping employers analyze their workforces’ diverse health needs and curate benefits packages for them. 70% of brokers are seen as advisors on the benefits marketplace, giving nuanced advice on emerging solutions and helping market them to employees to drive adoption and ROI.

“7% of companies in the US have a care benefit while 42% are adding or looking to add in the next 3 years. For WeeCare, this meant that educating brokers on how our care model is different was the number one priority. Once educated, brokers share these learnings with their clients and network and matchmake when the time is right. Brokers have a reputation to hold and care deeply about bringing only the best to their clients when the time is right.”

-     Jessica Chang, CEO & Founder of WeeCare

(Note: WeeCare is an Equal portfolio company)

These brokers often represent hundreds of employers with deep insight into their workforces. Bringing new care solutions to an employer is an upsell opportunity, significantly easier than breaking into a new client base. Their knowledge of these product sets, their impact on costs and employer needs make them the ideal go-to-market partner for new offerings looking to reach a critical mass of customers. Make no mistake, this can be a lucrative opportunity for brokers as well, providing the opportunity for more commissions while further differentiating leading innovators from those failing to keep their finger on the pulse of the market.

Brokers provide access to multiple employers with diverse workforces and healthcare needs Source: Equal Ventures

In recent years, employers have leveraged brokers to create highly customized and robust benefits packages that could be used as talent acquisition and retention tools. Covid-19 and “the Great Resignation” placed even more pressure on brokers to help employers to attract and retain high quality talent with benefits packages. Shifting macroeconomic conditions and a labor market nearing slowdown could make brokers an even more critical channel for employers, who expect per employee health benefit costs to rise 5.6% in the next year. They will likely need additional support in reconfiguring their existing benefits packages and managing costs, particularly since offerings are difficult to repeal once in place.

“Brokers have long been an essential component to the benefits value chain. They simplify an increasingly complex decision-making process for employers and represent a cost-effective distribution channel to the employee benefits marketplace. Many brokers are now turning to technology to help accelerate the value they already provide. Solutions like ThreeFlow help brokers connect and collaborate more deeply with their employer clients and insurance carriers to bring forward the next generation of benefits.”

-   Richard Perrott & Ryan Sachtjen, Co-Founders of ThreeFlow

(Note: ThreeFlow is an Equal portfolio company)

Conclusion

At Equal, our core pillars across our care economies and insurance & benefits focus areas are affordability, access, and accountability. We’ve seen the evolution of the benefits space first hand with platforms like ThreeFlow quickly becoming the central hub for benefits activity and care solutions like WeeCare experiencing tremendous pull from brokers. For each of these companies, we’ve seen the growing strategic importance of brokers in the value chain. We have tremendous belief in the role of brokers to further catalyze Benefits 2.0 by increasing access, affordability and accountability for new care offerings in the market to ultimately drive better costs for employers and better outcomes for employees.

The shift to Benefits 2.0 has begun and we’re excited to play our part here at Equal Ventures. If you or someone you know is building in the space, please reach out!

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