Breaking the zero-sum game
Over the past few years, the employer benefits ecosystem experienced exponential growth. The inventory of available benefits goes far beyond the core, non-taxable set of medical insurance, 401(k)s and commuter benefits to include a wide range of additional services. Childcare, financial planning, physical therapy, coaching, fertility treatments, and many more can now be offered as an employer-sponsored benefit.
This trend of packaging a consumer service as an employer benefit, Service-as-a-Benefit, or SaaB for short (corresponding to Software-as-a-Service/SaaS) is fueled by tailwinds on both sides of the marketplace. As the competition for top talent continues to heat up, employers look at unique benefits as a way to tap into employees’ mental accounting, differentiate their employee value proposition and bring their corporate values to life. On the provider side, new entrants, in particular, are looking for effective growth strategies and are drawn to the allure of the corporate channel and its promise of acquiring a large group of users, en masse, while reducing overall acquisition costs, and securing a more reliable source of revenue.
Hitting the “Business Case” wall
But what first seems like a simple win-win as providers see good traction with enthusiasts and early adopters, reveals its more complex nature when providers try to establish a stronger foothold in the market.
Benefit administrators without a strong affinity to a particular service, find themselves between a rock and a hard place. On the one hand, a growing abundance of services to choose from. On the other hand, a very heterogeneous value proposition to their employees: while parents may find childcare, for example, absolutely essential, childless employees will find it useless. The important and deliberate investment in building more diverse workforces and growing organizational geographical footprints compound the latter even further, as a more diverse and global workforce has a more diverse set of employee needs.
Given a fixed per-employee benefits budget, provider selection becomes a zero-sum game: choosing to offer coaching-as-a-benefit means not offering financial-planning-as-a-benefit. And how is one supposed to compare coaching to financial planning, especially taking the heterogeneity in value into account?
Within this paradigm, the only way to break out of the zero-sum game is by making the business case for an overall increase in the benefits budget given the intrinsic value of a particular service. And that business case often proves out to be incredibly difficult to credibly make.
The speedy early traction grinds to a crawl, if not a complete halt.
Back to Win-Win(-Win)
There is, however, another path for turning the zero-sum game into a win-win(-win) by redesigning the way benefits management works across providers, administrators, and employees.
Service-as-a-benefit providers need to shift from lump-sum per-org-size or per-employee pricing schemes to per-activated-employee or per-usage pricing schemes, so they only get paid when an employee has opted to use the service.
Benefits administrators need to both curate a portfolio of service-as-benefits providers that’s strategically aligned with their intended positioning, and provide their employee base with transparent individual budgets to allocate across the portfolio. The preliminary curation is essential to both preventing erosion in mental accounting and the perceived value of the benefits, as well as avoiding an unreasonable cognitive load on employees forced to choose from a nearly endless array of options.
Employees will then be responsible for constructing a benefits package that best suits their needs, and will have the option of modifying the package on a reasonable cadence (quarterly seems reasonable) to reflect any changes in their personal needs and life circumstances.
This reconfiguring of the ecosystem also poses an interesting business opportunity in the form of a platform for bringing all three parties together and potentially providing the following services:
- Enable providers to easily interact with a large group of benefits administrators and streamline the handling of both contracting and payments.
- Enable benefits administrators on one side to interact with a large group of providers and easily create their service-as-a-benefit portfolios, and on the other side to set individual benefits budgets.
- Enable employees to manage their personal benefits budgets, build and modify their benefits package and onboard onto/enroll in the specific service-as-a-benefit that they selected.
Now all we need is that platform…