Business Insurance RMIS Article

Choosing online benefit system not free from risk: Longevity of tech vendors a concern for buyers

October 8, 2001

by JOANNE WOJCIK

It's easy to get tangled up in the web of online benefits enrollment system vendors, especially because many of those that are here today may be gone tomorrow.

Take San Diego-based xyber-NET, for example. Business Insurance profiled the use of xyber-NET's interactive HealthFare system by a California-based fast-food company in 1997 (BI, March 3, 1997).

But, like many promising dot-coms that later became dot-bombs, xyber-NET dropped out of the benefit enrollment system business. Now xyber-NET specializes in credit and warranty insurance administration and data-warehousing applications.

``Like others...they burned a little too much money. So they moved on,'' said Jonathan Felt, xyber-NET's former chief technical officer and product manager.

But HealthFare is still around, albeit under a different label.

Another San Diego firm, Hawthorne Benefit Technologies Inc., purchased HealthFare from xyber-NET in 1999 and reintroduced it as BeneTrac. Hawthorne also hired several xyber-NET employees, including Mr. Felt, who now serves as vp and general manager of Hawthorne.

Since many of today's innovative software programs designed for benefits enrollment and administration are being developed by Internet startups, it can be difficult for a buyers to know whether the vendor it selects will be around long enough to service the company's business, benefits experts say.

``Viability is going to be one of the issues,'' observed Michael Cornetto, senior consultant at Watson Wyatt Worldwide in New York. ``The problem today is, even strong companies have gone away, whereas other companies that were not so well off were bought by stronger companies and made better.''

``There will be risk. There are tremendous changes in the industry,'' agreed Denis Cortese, a consultant in the Atlanta office of Buck Consultants Inc. ``Even the big companies got beat up by the dot-com disaster.''

Because of this uncertainty, Margaret-Ann Cole, a principal in charge of human resource outsourcing product development at Unifi Network in Fort Lee, N.J., advises clients to ``look for established companies with a lot of financial backing.''

Steer away from startups and technology companies that lack benefits outsourcing experience, she warns.

``Small players are disappearing from the scene,'' Ms. Cole said, noting that such firms ``didn't realize how difficult benefits are'' to administer.

Unfortunately, because online benefits enrollment technology is relatively new, not every company with an attractive product has an established track record, points out Terry Warren, operations leader for Willis North America Inc.'s benefits practice in Nashville, Tenn.

``Because it is the Internet, you don't have people with 20 years' experience,'' Mr. Warren said.

Vivius Inc., for example, has a software program designed to administer the much-discussed consumer-driven health care model, but it has yet to sign up its first customer. Vivius' system essentially allows users to design personalized health plans.

Recognizing that it would be difficult to sell employers such an untested system, Vivius is marketing its product to insurers that will, in turn, offer the system to employer clients, said Dave Teckman, president of the Minneapolis-based company. ``We bring the technology to the plan and let them private-label it.''

But even these systems, while available free to employers, have certain limitations, Mr. Warren points out.

One question is whether the system would be available for the employer to use for its entire benefits enrollment, or only with the single insurer that offered it, he said. ``The carrier may not want to feed data to competitors. Maybe they'll just collect the data and give it to employers to send to other carriers participating in the benefit program,'' Mr. Warren said.

Such a problem was seen in HealthFare.

``The old model was carrier-sponsored. But that had its problems,'' Mr. Felt said. In particular, the insurer sponsors didn't want HealthFare to give competitors access to their enrollment system, he explained.

To avoid that problem, Hawthorne is marketing BeneTrac to brokers rather than to insurers, and the cost of the system is shared by all participants in the benefit plan transaction-the broker, insurers and the employer, Mr. Felt said.

Before beginning the search for an online benefits enrollment vendor, a benefits manager must first determine exactly what he or she wants the technology to do, benefits experts say.

For example, will the system perform only enrollment, or will it also be used for back-room administration, linking with an existing payroll system?

The answer to that question alone can narrow the field significantly, experts say, because many of the new vendors are selling products that perform enrollment or administration only.

Another question a benefit manager should consider is whether the system will operate in-house on the company's existing intranet, or whether Internet accessibility is needed.

If the Internet-based model is desired, the benefit manager then needs to determine whether all employees have access to such a tool. If not, it may be necessary to install computer kiosks or to also offer a telephone-based system.

Benefit managers also should investigate their own existing technology resources and determine whether their in-house support would be available to assist with benefits administration. This can reduce the need for ongoing system support from the vendor, benefit experts say.

The accuracy of the employer's existing data also will have a bearing on how sophisticated a vendor must be.

``We had one client that we ran data cleanup for three years in a row,'' recalled Mr. Cortese of Buck. Each time the data was collected from open enrollment conducted electronically, it was sent to the employer to be reconciled with data stored in its human resource information system.

Among the problems Mr. Cortese cited were that ``some children were listed as sons when they should be daughters, or an ex-spouse was included after a divorce.''

Another consideration is whether the employer wants the online enrollment system to integrate with the company's existing HRIS or payroll systems.

In such cases, a benefit manager should ask a vendor what kinds of systems its software has been linked to, as well as how many times the company has set up such arrangements, said Willis' Mr. Warren. ``Who have they fed the data to already?...To how many vendors, including insurance companies, health plans, life insurers, are they comfortable sending information?''

Furthermore, Mr. Warren said an employer should consider whether the company's existing HRIS was purchased from a well-known national vendor, ``or is it home-grown?''

Finding a vendor can be accomplished by attending trade shows, by sending out request-for-information letters or by contracting with a consultant, broker or vendor search firm.

``People are making a business of doing vendor searches,'' according to Unifi's Ms. Cole.

For example, San Francisco-based Curcio Webb L.L.C., which has offices in several cities nationwide, helps employers select outsourcing vendors, such as online benefits enrollment and administration software developers.

``We work with the client to make sure all the bases are covered'' before launching a search, said Brian Dennen, a consultant for Curcio Webb in Buffalo, N.Y. Then, Curcio Webb conducts the necessary due diligence and reference checks on vendors before inviting them to bid, he said.

``Checking references is underrated,'' he said. ``Too often it's pushed off to the end. But it's an important step.''

If a vendor being considered has no clients, it's a tough situation, Mr. Dennen said.

``We generally don't recommend a client be a guinea pig,'' he said. But, if it appears that the vendor is a viable candidate, Curcio Webb will ask the vendor to put some of its fees at risk.

``The market is pretty consistent in the way it prices. However, there is demand from vendors to get clients, and some will put their fees at risk,'' Mr. Dennen said.

While firms like Curcio Webb can cut through the clutter for employers, the search is more difficult for benefit managers that can't afford such services or do not have benefit consultants that would do the vendor screening for them.

In such cases, the benefit manager may find an insurance broker helpful.

``Talk to your broker, because there are so many vendors out there. We have reviewed them as a service to our clients,'' said Willis' Mr. Warren.

Volume: 35
Publication number: 41