A 101-style primer of the employer benefits market - explaining funding types, buyer types, benefits partners and purchasing cycles.
This article is part of a six part series written by Ryan Russell at HTN sharing his learnings on employer sales. Click the links to jump to any of the other articles in the series:
This article is intended to serve as a 101 primer for folks newer to the employer sales landscape. If you already know the general landscape, feel free to skim this section or jump ahead to other sections. The main takeaway of this is while there are a lot of differences between employers that influence your sales approach, they all have one thing in common when it comes to health & benefits vendors:
““We are inundated,” says Meredith Touchstone, director of benefits at CarMax Inc. “We already have these very big portfolios of vendors. And with all this new stuff coming into the market, there’s no way to assess, literally thousands” of digital-health services now available.
While all employers are inundated, how they handle that inundation - and the sales approach might take - varies based on a handful of key characteristics of employers . The most important distinction to understand is size. It drives a number of differences in their needs and therefore how you should think about selling to them. Employer size generally dictates four core things:
I’m a visual person so here is a very high level diagram of how employer sizes drive the categories above. Note the lines are blurrier across employer sizes than illustrated below but it should help illustrate the differences between size segments.
As with most segmentation exercises, there are a number of ways various organizations break down segments of the employer market by size. The point is to look at commonalities between size groups and keep things simple to help avoid paralysis by analysis.
As the chart here indicates, the vast majority of employers are quite small in terms of employee size - 97.5% of employers have under 100 employees. The trade-off becomes: a) do you have the value prop and distribution capabilities to go after volume in the small market segments? or b) the fortitude and capabilities to drive scale through large sized employers? That’s where looking at the core components that drive behavior and decisions for these different sizes can be helpful in understanding the appropriate niche.
Funding type answers how the employer pays for employee benefit expenses. It is also the first place to see where the lines of employer size are not as clean as the visual above.
This KFF chart identifies “self-funded plan” which is really one of three different funding types and, while self-funding is mainly used in larger employers, clearly there are some smaller employers that do so as well. The fourth type, ICHRA, is really a different flavor of one of the core three. Let’s use an example to help make these more tangible.
To oversimplify, assume you’re an employer with 1,000 employees and you estimate the total combined medical expenses across those people will be $10M next year (avg of $10K per employee per year or ~$830 per employee per month). Remember this is an estimate so the actual spend will differ by employer. Here is how that scenario plays out across the three core types:
Note that we mentioned Stop Loss a few times in the diagram, which is a mechanism for capping the risk or exposure that self-funded or level funded insurers have. That is more specific to insurance though, than employers using it to evaluate other digital health solutions outside of insurance.
In addition to those three main insurance types, ICHRA (Individual Coverage HRA) is a newer model that has emerged as a result of the ACA. This is a different flavor of fully-insured. It is the same in that it guarantees the dollar value of coverage an employer will pay. The difference is that the employer is setting aside a certain dollar amount in an HRA that an employee can then use to pick their own health coverage on the individual exchanges. While ICHRA is applicable to organizations of all sizes, most groups looking at this today are smaller companies. The Department of Labor estimates this market will grow by 800,000 companies and 11M employees over the next 3 years.
When you really think about it, the biggest difference is simply how much risk the employer is willing to take on to manage their expected/budgeted cost. The impact that has on sales is: the more risk they are taking on, the more effort they will make in managing that risk (invest more in solutions to manage that risk.). The less risk they are taking, the more they will outsource that effort. These tradeoffs are generally seen in large employers who will spend more time and investment to manage this risk whereas smaller employers outsource that time and effort.
In general, the main buyer we are referring to is the person at the employer who is responsible for carrying the discussion from initial exploration through recommending to the ultimate decision making bodies in the organization. This is because while the CFO may be the person actually signing off on the new program to include in the budget, the Director of Benefits needs to be “bought in” throughout the entire process to actually socialize and recommend the program to the CHRO and the CFO to give the green light. It is important to note that over time, the “buyer” can and does change. While your Benefits lead may be the initial gatekeeper, he/she may turn into your biggest supporter/influencer who actually does the selling to the executive team.
Below are general pictures of the stakeholders that are part of the sales cycle decision making process at different-sized employers, which will be discussed further in the “Sales Cycle” article.
Given the benefit buyer’s importance within the process, it is critical to identify and empathize with the different personas of those people based on their individual backgrounds, what they care about, the organization’s culture, etc. If that person buys into you and your solution, then it becomes critically important to help those people manage the other stakeholders throughout the process. Why? Unless you have a broad reaching, high cost solution the likelihood you ever talk to the key decision makers is very low - at least for the larger employers.
These different sized employers then work with partners (consultants and brokers) for a number of purposes. SHRM has a good summary of those services based on their recommendations for what to include in an RFP to select a broker/consultant that includes their ability to assess a wide variety of digital health startup solutions:
The services provided by these benefits partners and how they are used are, again, based on the sizes of employers they work with and the incentive models they employ.
For a health benefits vendor, how you work with, and incentivize, these partners is what’s important. Brokerages servicing smaller employers generally want to look good to employers by bringing new, innovative solutions and can be incentivized by vendors to do so. There is also a lot of competition to steal clients from other brokers on an annual basis.
Consultants that work with larger employers are generally a bit stickier and because they are paid by their clients as advisors, there is less ability to directly incentivize them to put solutions in front of clients. Employer clients expect to pay for independent, unbiased advising by their consultant. That being said, it is important to keep in mind that even “independent” consultants have their own personal biases and agendas and their firms are always seeking to grow revenue.
Once you have determined who your target employers and their partners are, the next step is to understand their sales cycles.
In employer benefits land, there is really one question that drives the purchase cycle - does the solution you are offering require an employee to enroll in the benefit? If so, the annual time of year when employees enroll in their benefits (aka Open Enrollment (OE) or Annual Enrollment (AE)) really drives everything from evaluation through implementation of health benefits vendors. If not, then the financial planning/budgeting process of the employer will typically dictate the purchase process. Given many employers operate on calendar year budgeting cycles and January 1st enrollment effective dates, those processes often align. In talking to various employers, it is becoming more common to purchase off OE-cycle but some employers still prefer bundling their health benefit solutions all into one cycle, and there are those products that require enrollment.
Regardless of the answer to the cycle question, in order to fully build your sales cycle activities, you must understand the employer purchase process. Larger employers typically have longer evaluation processes that have more variation with more stakeholders. Smaller employers generally have shorter decision cycles.
Here are summary visuals of the employer purchase process for both large market and small/mid market assuming a January 1st effective date for employee benefit changes that require benefit enrollment.
Note the placement of the stars for each cycle. If you do not have the employer comfortable to include your product in the benefits team’s socialization and budgeting discussion the risk that you will have another 12-18 months before getting a “yay” or a “nay” from that buyer goes up significantly - hence the 6-24 month sales cycles.
For smaller employers, you need to be on the brokers’ radar early enough for them to bring your solution up to the employer but the decision process can be significantly faster. We dive into these implications of the employer purchase timeline on your strategy and tactics in the Sales Cycle article but the timing is critical.
Again, these diagrams are specific to the open enrollment cycle, but if you are offering a product that does not fall into the open enrollment cycle, you should be able to largely apply these same boxes to the budgetary planning process.
This concludes the overview of the employer market. If you’re new to the space, this should give you the necessary grounding in the employer market as we go through the next sections related to sales velocity. With that, let’s now move on to the first component of the velocity equation, the number of Qualified Leads, or if you want to navigate elsewhere, feel free choose your own adventure.