Payroll Firm ADP to Compete with Brokers

competition1Automatic Data Processing Inc., the payroll- processing giant, will offer companies a new way for their employees to select health benefits, challenging firms like Towers Watson & Co. and Marsh & McLennan Cos.

Payroll Firm ADP to Compete with Brokers in Offering Health Exchange

By Zachary Tracer | August 6, 2015

Automatic Data Processing Inc., the payroll- processing giant, will offer companies a new way for their employees to select health benefits, challenging firms like Towers Watson & Co. and Marsh & McLennan Cos.

ADP is introducing an online service known as a private insurance exchange that will let workers shop for coverage among multiple health plans, much the same way consumers can select policies on a government-run exchange under Obamacare. One new feature is designed to help companies limit costs: Employees can be given a fixed sum of money to spend on the plan they pick, with any extra cost coming out of each paycheck.

Exchanges have caught on in recent years as a way for employers to give employees more choices of coverage and potentially shift more of the cost to them as well. About 40 million people will pick a health plan for 2018 through an online exchange, up from 6 million for this year, according to Accenture Plc.

“More people are going to need this high-grade shopping experience, they’re going to want more information, and they’re going to want to take more control over their health care,” Gerry Leonard, president of ADP Benefits Services, said in an interview.

ADP, which handles health benefits for about 15 million people, has been expanding its offerings as companies work to comply with the 2010 Patient Protection and Affordable Care Act. The law, known as Obamacare, requires many employers to provide health coverage to more workers and sets rules about what the policies need to include.

Managing Benefits

ADP’s website works with its other offerings that help employers manage payroll and benefits. That could help it compete with exchanges offered by firms like Aon Plc, Towers Watson and Marsh & McLennan’s Mercer. Willis Group Holdings Plc said in June that it would merge with Towers Watson, in part to expand in employee benefits such as insurance exchanges.

USI Insurance Services will help companies pick health plans to offer on ADP’s exchange, though employers also can use their own broker instead.

“This question of payroll integration is one of the fundamental benefits administration challenges that needs to be solved,” said Rich Birhanzel, managing director for Accenture’s health administration services business. “One could imagine that that kind of package capability could be attractive to an employer.”

Cadillac Tax

A tax on high-cost health plans that starts in 2018 is fueling employers’ search for cheaper coverage options, Leonard said. The so-called Cadillac Tax, part of the Affordable Care Act, imposes a 40 percent levy on family plans with premiums that top $27,500 and individual plans costing more than $10,200.

“As we approach 2018, we’re going to start seeing activity really picking up more,” said Amy Gurchensky, an analyst at consulting firm NelsonHall. “It’s really not a question of if organizations are going to move to private exchanges. It’s a question of when.”

It’s not clear that having employees pick coverage options on a private exchange can keep the total cost down, Leonard said. It does let employers shift more of the expense to their workers, by providing them with a fixed sum of money.

That could be a good thing for healthier workers, who might need less care. Yet sicker employees could wind up paying more, particularly if the cost of insurance increases more quickly than the size of the employer subsidy.

Public Exchanges

A tie-up with closely held GoHealth represents a second avenue for cost savings. Through GoHealth, ADP will help employees who don’t get workplace coverage — such as part- timers — select health plans on public exchanges, where they might be eligible for subsidies.

The integration could let employers drop part-time workers from their health plans without making them feel abandoned, according to Ryan Smolek, vice president of operations at GoHealth.

“There is a calculation that needs to be done about whether the employee is better off under group insurance in the company versus on the exchange,” he said.

Copyright 2015 Bloomberg.