Zenefits – The “Compliance” Fall Guy


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Its all over the “Benefit” news. Patrick Conrad has resigned as Zenefits CEO this past Monday and is also off the Board. One more startup, that too a unicorn where the founder and CEO bites the dust, having let go for various reasons. What’s ironic is, that a CEO who is known as aggressive, brash and outspoken hasn’t said a word yet on the latest turn of events.

The reason quoted for what transpired is “Compliance”. Due to insurance sales done over the past couple of years, through unlicensed sales agents on behalf of Zenefits, state regulatory bodies are coming down heavily upon the company. As a result, David Sacks, the COO of the company for about a year, has taken on the reins as CEO and is trying to assuage investors, clients, insurance carriers, employees and regulatory bodies by letting go of the current CEO and re-inventing the organization as one that will change intrinsically from a culture standpoint, to be an organization that is compliant and will grow in a mature manner.

There has been quite an interest from the investor community in Zenefits. For a company that grew from zero to $1M in 8 months and then, to $20M by next year, it has attracted a lot of attention. With huge investments flowing in, the last being about $500M in May 2015, the expectations were poised to rise. With that kind of money in the kitty, what is there to hold back? $100M in revenues by Jan 2016 was the target that came out, perhaps a little too aggressive, knowing that scale is important but there is the need to give time to set processes in place to form a strong foundation for that growth.

With the commitment to hit $100M in revenues by Jan 2016, and $500M to tap into to make that happen, the management of Zenefits set into action. Among other roles, a hiring spree of sales staff was on. However, what lacked was putting the infrastructure and processes in place to bring the right kind of staff, provide them the needed training and ensure they conducted themselves in a compliant manner.

Its not just Patrick Conrad that is liable for Zenefits’ current issues, but their entire management team. Of course, Patrick may have stepped down taking responsibility as the CEO or may have been the fall guy, but, David Sacks was around as COO for an year leading operations, finance and product. Having been brought in for his seasoned experience, he came in to help manage a company that was in hyper growth mode. The Sales VP, Sam Blond who ran the sales organization is also as responsible.

Josh Stein has been appointed this week as the Chief Compliance Officer by David Sacks. Why did it take so long to bring in a Compliance Officer? Everyone in the company knew they were in a highly regulated industry. It was basic. As hiring began to meet the ambitious revenue target, why wasn’t a Compliance Department put in place? Why were the checks and balances that are so innate to the health insurance business ignored?

The $100M in revenues by Jan 2016 was perhaps very aggressive, given the lapses in the organization to get there. However, all is not lost. It’s a matter of a few more months before Zenefits hits the target, going by its business model, given that it fixes its way of doing business and keeps in the good books of the state regulatory bodies. However, it’s not the magic number that should matter anymore. What should matter is the need to have a sound sales management infrastructure and related processes in place including compliance, on which the organization can continue to build. Once that is established, reaching any targeted revenue number within a meaningful timeframe should not invite so much attention.

Recent history has shown that startups are allowed to make mistakes and then, correct themselves. In many cases, they have stood up to conventional laws and helped reshape them, in light of a new economy. Zenefits has shown the same in case of Utah. In other cases, the law just cannot be ignored or broken.

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The conventional world of health insurance brokers – redefined by ACA


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“Commissions are either low or gone!”

“Healthcare.gov – Like it or not, you have to deal with it.”

“Plan choices, Private Exchanges, Benefits Administration, don’t know what else we will have to learn and do.”

These are some of the statements that you get to hear from health insurance brokers now days. The Affordable Care Act, by bringing in Federal and State governments to the center of the healthcare debate, has totally changed the landscape of health insurance distribution. And with it, come myriad changes as to how employers, individuals and brokers deal with it.

Let’s focus on brokers today.

Right from the CEO of Healthcare.gov, it has been reiterated time and again that brokers are an integral part of the post ACA world.

But, how do brokers need to mold and change in order to take advantage of the opportunities at hand in this new world?

  1. Move from being a sales agent to a benefits advisor – Healthcare has always held a top slot among government, politics and economy. Healthcare consumption is inevitable. In these new times of higher transparency, newer technology, better consolidation and decision making choices moving more into the hands of end consumers, brokers do not necessarily have to play the role of selling more, but of being a confidant, of being someone who can help a consumer move through choices, compliance and legislative requirements, the myriad intricacies, the new healthcare landscape has to offer. Sales are there to happen, and will happen more. But, are you prepared to service your consumers before you expect to sell?
  2. Expand into new product lines – Besides medical insurance, there are other products individuals and employers seek in order to provide a wholesome benefits experience. Voluntary products are popular choices and with them, come opportunities to expand and grow your business. Private Exchanges are stocking these on their shelves to sell alongside medical insurance products. And, especially with choice moving into consumers’ hands, these help round out and provide a better benefits experience. 
  3. Expand into third party exchanges – Talking about private exchanges, there are numerous avenues of product distribution available now. The public exchanges, several private exchanges, each with its own niche. Similar to health plans, brokers need to evaluate the choices available to their target markets and adhere with some that they expect to make the best impact for their customers with. Again, all this is overwhelming for individuals or employers and hence, they seek broker expertise to guide them to the right choices that aligns with their needs. With these exchanges also comes the need to understand benefits administration. The role of a broker no longer ends with completing a sale. It further continues with being there to guide their clients through the use of technology, being there to help answer their compliance and administrative questions and ensuring that they have a rewarding benefits experience throughout the year until next time.
  4. Embrace Technology – The new age healthcare world is technology driven. Its time brokers get comfortable with it, learn how to leverage it and use it to their advantage. Digital storefronts are a reality of the post ACA world. With exchanges coming out, consumers have learnt to expect to see their brokers on the web. Though in person interactions and telephonic conversations are important, providing self-service mechanisms to their clients who are very savvy now days, becomes as important. Consumers are connected and expect to reach their brokers any time, any day, however they wish. Additionally, it provides brokers the opportunity to grow bigger, faster.

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The new kid on the block – The Anthem-Cigna combined company


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Move over, Aetna-Humana.

On July 25th, 2015, Anthem & Cigna, the nation’s second and fourth largest insurers by enrollment and the second and fifth largest by revenue, have announced a $54.2 billion merger, now the largest in the history of Health Insurance. Again, a part cash and part stock deal, Anthem is to pay $188 per Cigna share, a 38.4% premium over Cigna’s share price as on May 28th, 2015. $103.40 is to be paid in cash and 0.5152 shares of Anthem stock are to be exchanged per Cigna share.

Similar to the Aetna-Humana merger announced about 3 weeks ago, this deal is targeted to close in the second half of 2016.

Anthem will own 76% of the combined company while Cigna will own 33%. Anthem CEO, Joseph Swedish will be the new Chairman and CEO of the combined company while Cigna CEO, David Cordani will be its President and COO.

The combined company is expected to have 53 million medical members – nearly 1 in every 5 insured Americans with annual revenue of $115 billion. This would make it the largest U.S. health insurer by membership, closely trailed by UnitedHealth Group, with 46 million members.

With Aetna-Humana’s combined company poised to serve 33 million members, health insurers have consolidated from being the top 5 to top 3.

Historically, Anthem has been a company created through acquisitions, which grew mostly by buying Blue Cross-Blue Shield plans in various states. One of the prized acquisitions of Anthem came in the form of Wellpoint Health Networks of California in 2004. Amerigroup, a Medicaid plan in 19 states was its most recent acquisition in 2012. Anthem is the biggest member of the Blue Cross and Blue Shield Association, which has about 36 independent insurers that collectively insure 106 million members. Anthem serves members in 26 states.

Anthem dominates the employer based insurance markets in 10 of the 14 Blue states. Anthem has about 39 million medical members of which 61% are in the self insured market and 15% in Medicaid. Group business is about 12% and Medicare Advantage, just about 1%.

Blue Cross member companies do not compete with one another, but Cigna does. However, Anthem has confirmed that the combined company will remain Blue.

Cigna operates in U.S. health, life and disability markets and has an international presence in 29 countries, primarily through expat employer benefits. Cigna has 15 million medical members. About 80% of its business is in the self-insured market. Besides employers, Cigna serves individuals and Medicare Advantage customers. Cigna also has 24 million behavioral health consumers, 14 million dental care members, 8 million pharmacy benefit plan members and 1.5 million Medicare Part D pharmacy customers.

Anthem has a major presence in the public insurance marketplaces while Cigna does not.

While Aetna-Humana deal expanded Aetna’s presence in the Medicare Advantage space, the Anthem-Cigna deal is expected to radically affect the commercial insurance market, where both the companies have dominant presence in various geographies.

Similar to the Aetna-Humana deal, this deal is also being touted as formed to consolidate operations, take advantage of technology integration, streamline costs and expenses, leverage complementary offerings and markets and finally, to leverage better costs for end consumers through the negotiation of lower prices with hospitals and providers. Initial cost savings of $2 billion were announced for the combined company.

On the other hand, lower competition with a few major players could mean more power in fewer hands, premium increases and perusal of policies in favor of their shareholders than consumers.

If history is any indication, according to a 2012 study of the 1999 merger between Aetna and Prudential, premiums increased by seven percentage points.

Now, it’s for the federal and state regulators to watch out for consumers.

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Aetna-Humana merger – What does this mean to Healthcare Consumers?


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On Friday, July 3rd, 2015, Aetna and Humana announced a $37 billion merger, the largest in the history of Health Insurance, in part cash and part Aetna stock for Humana stock at a modest 29% premium over Humana stock price as in May 2015. This merger values Humana at about $230 a share. Humana shareholders will receive $125 in cash and 0.8375 Aetna common shares for each Humana share. Aetna’s shareholders would own approximately 74 percent of the combined company and Humana’s shareholders would own approximately 26 percent. Upon approval from regulators, the merger is to be closed in the second half of 2016.

Over the past few years, Humana has set itself up as a leader in the Medicare Advantage space.

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According to a study conducted by Kaiser Family Foundation, Humana holds about 19% of the Medicare Advantage market as compared to Aetna, which holds only about 7% of the market. This merger allows Aetna to triple its Medicare Advantage business taking it to the #1 single carrier spot in the business trailed by United Health.

Nearly 7.5 million of Humana’s 14.2 million members were enrolled in individual or group-related Medicare plans as on March 31st, 2015; that’s more than double the combined number of Medicare enrollees at Aetna, Cigna and Anthem. This made up nearly 72 percent of Humana’s total revenue in 2014, compared to 25 percent for non-Medicare plans.

By contrast, Aetna is a leader in the diverse commercial insurance space.

With the employer sponsored insurance landscape changing and potentially slowing down, Aetna saw government business as the avenue for its future growth. The Affordable Care Act (ACA) is helping expand Medicaid coverage in several states as it attempts to provide health coverage for millions of uninsured people. Meanwhile, Medicare Advantage has seen its total enrollment triple over the last decade to 16.8 million people.

This merger has been connoted as being inevitable in a changing healthcare landscape post ACA. Both companies have announced that this merger will help consumers in terms of better products and services due to the merger making way for better technology, products and relationships with healthcare providers. Further, they announced this as a merger of complementary strengths in markets served and technologies used.

About 2 years ago, in May 2013, Aetna acquired Coventry Health Care for $6.9 billion as the first step in consolidating its government business. With that acquisition, Aetna had added approximately 3.7 million medical members and 1.5 million Medicare Part D members. In addition, Aetna’s Medicaid business had grown from 1.1 million members to more than 2 million members, and its Medicaid footprint had expanded from 12 to 16 states.

With the current merger, the combined Aetna-Humana company’s government business — Medicare, Medicaid and Tricare — will be based in Louisville, KY where current Humana corporate headquarters are located, and will be the biggest part of the company, totaling about 56% of the combined companies’ projected 2015 operating revenue of about $115 billion.

The combined company will cover more than 33 million people, only led by UnitedHealth Group and Anthem. The combined company would be the second-largest insurer by revenue, just behind United Health.

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Aetna and Humana are in nine of the same states in Medicare Advantage. Combined, they would have market share of 88 percent in Kansas, 80 percent in West Virginia, 58 percent in Iowa and 51 percent in Missouri. Regulator dynamics will soon be in play in these markets to ensure that monopolization is kept at bay and true consumer interest is in action by encouraging competition. How, is yet to be seen. However, such major consolidations potentially increase insurer’s influence with federal regulators.

Although insurers and investors apparently see a benefit in these mergers, it’s yet to be seen how the economies of scale play out for end consumers. With the size of the companies coming together in a yet larger consolidation, is more of scale economics still possible? Or are such mergers only going to lead to consolidation with one or two behemoths taking over an entire market, thus narrowing down any competition or innovation that comes with competition?

From a consumer benefit standpoint, its still unclear what is to come? With the power exercised by such a merger, the combined company could push providers to provide better outcomes at lower prices. You could also argue that there would be more streamlined and limited number of choices available for consumers to choose from. However, less competition could also lead to higher premiums, higher out of pocket costs and narrower networks.

While announcing the merger, Mark Bertolini, CEO of Aetna said, “You need to have enough power and enough presence at the local market level to be able to create relationships and efficiencies that are to consumers’ advantages. That requires “larger organizations, more capital, more technology and more intellectual property. That’s what’s driving the consolidation.”

One signal, if it means anything would be what Mr. Bertolini did in the recent past. He raised the minimum wage for Aetna employees to $16 an hour and lowered workers’ out of pocket insurance costs. He announced that he has incorporated those benefits into financial projections for current Humana employees post merger. He was also in the news recently for encouraging all his employees to take up free meditation and yoga classes at various Aetna locations to combat stress and get on the path of wellness. This speaks to where his true heart lies in terms of setting an example and signals a ray of hope on things to come from this merger.

Image Courtesy of FreeDigitalPhotos.net, Wall Street Journal & Kaiser Family Foundation

SCOTUS rules “For the People” on Affordable Care Act


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On Thursday, 06/25, in a historic 6-3 decision, the US Supreme Court reinforced the highly debated and controversial Affordable Care Act.

As you may know, under the Act, Health Insurance Exchanges were established as marketplaces to help individuals buy health insurance. The Federally Facilitated Marketplace serves individuals and small groups across the country, specifically in 34 states that did not build their own an exchange.

Based on annual income, individuals validate their eligibility for tax credits. Over 10-13 million individuals enrolled during last open enrollment. Around 7.8 million availed the credits during their health insurance purchases. These credits were provided both on the Federally Facilitated Marketplace as well as state marketplaces.

There was a lawsuit, the now infamous King vs. Burwell questioning the structure of the law that stated these credits be made available on exchanges of states. Since there was no mention of FFM or Federal Marketplace, it was implied that the credits did not apply to the states that depended on the FFM and as a result, the subsidies given out to date were deemed illegal.

If the Supreme Court hailed the lawsuit, it meant that about 6 million healthy people who already availed these credits would lose them for the upcoming open enrollment. There was a possibility that healthy people may not purchase insurance in the absence of credits and the carriers faced a skewed unhealthy insurance clientele, resulting in disastrous results on overall healthcare in US. The founding premise of the law, to ensure as many citizens are covered would have been at jeopardy.

Chief Justice John Roberts stated while reading out the majority opinion on Thursday, “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.”

With SCOTUS acting on behalf of the benefit of US citizens, everyone can look forward to next steps in improving US healthcare distribution and delivery.

Image Courtesy of Wikimedia Commons