Faced with many talent challenges, employers need better tools to evaluate and deliver individualized health, wealth, and wellness benefits to their future workforce. Many Americans say benefits are as important as salary—if not more so—when evaluating job opportunities. Yet many organizations still use complicated, and often antiquated, infrastructures for benefit design and employee guidance.
Many employees don’t bother fighting through the confusion to better understand the options available to them, resulting in underused and unoptimized benefits plans that could do more to support employees and their families.
Fortunately, recent digital advances in the benefits space can offer a better experience for all involved. The critical question, then, is which industry player will take the lead in building an integrated benefits experience?
Who will succeed at facilitating the convergence of an ever-expanding selection of workplace benefits, from the traditional (such as retirement, medical, disability, and life insurance) to a growing set of newer options (such as financial planning, behavioral and mental health support, childcare, and more)?
In this article, we explore three potential scenarios of how an integrated benefits experience could take shape:
- In the first scenario, the convergence is led primarily by service vendors and select product manufacturers—including benefits administrators, enterprise resource planners, retirement recordkeepers, benefits providers, and health insurers.
- In the second scenario, intermediaries take over. This could be in the form of a new entrant, such as a digital marketplace, or a current distributor creating an integrated purchasing experience for employers (see The Future of Digital Transformation in Insurance).
- In the third and least likely scenario, a retail player enters from outside the traditional workplace benefits industry.
For incumbents in the workplace benefits industry, the time to act is now.
Rising healthcare costs are top of mind for many employers: according to a recent McKinsey survey, more than 60% of employers expect healthcare costs to outpace inflation for the next three years.
The need to balance costs with a modern integrated benefits experience is pushing incumbents—and potential challengers—to redefine the intersection of health, wealth, and wellness in US workplace benefits.
Today’s fragmented benefits landscape—and where to find the upside
An employer’s HR department is typically a trusted source of benefits information for employees. Accessing those benefits, however, can require employees to interact with a dizzying array of vendors, including insurers, enterprise-resource-planning (ERP) systems, payroll systems, benefits administration interfaces, retirement recordkeepers, and care providers. According to the most recent McKinsey Employer Health Benefits Survey, more than 70% of employers work with three or more benefits vendors.
Many Americans say benefits are as important as salary—if not more so—when evaluating job opportunities.
For many organizations, this represents a disjointed, high-cost benefits management structure that delivers a suboptimal employee experience, misaligns benefits spending between employers and employees, and strains businesses’ HR teams.
Service- and product-purchasing decisions are made in isolation via different vendors using different interfaces and different ways of providing service, creating a complex web of deadlines, communications, and processes.
This structure also lacks an integrated view that allows employees to see across all their needs and how their current benefits are tracking against those needs.
We see this as a defining opportunity to create intuitive, data-driven technology platforms that can anticipate an individual employee’s life stages and needs while delivering high-quality, easy-to-use services, information, and products in real time (see How will Technology Impact Insurance?).
This opportunity presents a clear upside for all stakeholders:
- Benefits providers, manufacturers, and vendors. By designing comprehensive benefit platforms that address the breadth of employees’ health and financial-wellness needs, vendors can support their best-in-class products with an even better experience every time an employee needs to make a significant financial decision. Vendors that aspire to a larger role in the industry could even develop a platform that aggregates an ever-expanding set of solutions for both employers and employees, such as single-sign-on interfaces. This platform could help vendors increase their importance in the value chain and give them access to more economic pools.
- Employers. The continued expansion of benefits offerings is likely to be administratively complex and costly. It’s no surprise, then, that two-thirds of employers who responded to McKinsey’s most recent Employer Health Benefits Survey expressed an interest in integrated solutions across health- and wealth-related benefits. An integrated approach could reduce the administrative burden and streamline procurement, all while improving employee outcomes, overall satisfaction, and engagement.
- Employees. Integrated benefits deliver a better experience for employees. Empowered employees can better access and understand all their workplace benefits, starting from enrollment and leading to higher uptake and ongoing engagement.
Moreover, an integrated benefits experience can lead to deeper and more meaningful relationships among benefits providers, employers, and employees. Such relationships are necessary to serve individuals meaningfully and improve players’ offerings for many different types of employees and their families.
Integrated workplace benefits of the future: Three potential scenarios
While options will evolve differently based on an employer’s size, industry, optimal insurance design, and the demographics of its workforce, winning models will ultimately meld product, technology, and advisory expertise into an integrated offering.
Successful workplace-based integration may be led by current benefits vendors—particularly those with existing products that prioritize the user experience and interface.
Technology disruptors that see opportunities to enter the industry could also emerge, but that is less likely given how entrenched today’s solutions are in the market and the disruption necessary to displace them.
All told, we see three potential routes for the development of an integrated benefits experience: consolidation among current vendors and manufacturers, an intermediary-led integrated platform, and the entrance of retail service and product purveyors.
Scenario 1: Consolidation among current vendors and manufacturers
In the first scenario, employers and employees prefer to purchase a combined offering—or the majority of their products and services—from a single organization. The orchestrator of this combined offering could be an existing major-medical or voluntary-benefits carrier (product manufacturer), a retirement recordkeeper, a benefits administration or human resource information system (HRIS), or an ERP system provider with existing enrollment and employee engagement solutions.
While select products could in theory be sourced from a single supplier, we believe an open architecture or preferred partners, organized on a central platform, is a more likely scenario.
This one-stop-shop platform would provide seamless enrollment, benefits, and financial-wellness recommendations for participants, as well as convenient account servicing. Work-site vendors could analyze participants’ individual product portfolios to derive deeper insights, offering them higher-quality, data-driven recommendations and a better experience (for example, educating participants on how to think through the optimal allocation of benefits spending across health, retirement, and financial wellness).
Group vendors could offer an even more robust experience through value-added services, such as automated allocations across participants’ health and wealth needs or guidance for sponsors on products and plans. Forward-thinking group vendors could even use anonymized participant data to develop more suitable products—for example, flexible pricing on life or health insurance based on data from wearable devices.
This first scenario would be a natural evolution for certain market participants that are already creating marketplaces for voluntary and ancillary benefits; combining benefits administration, navigation, and advocacy; and evaluating adjacent capabilities. Preparing for consolidation will require investment in enrollment, guidance, expanded data access, and a clear M&A or partnership road map to expand into adjacent services. Absent those efforts across the industry, the other two scenarios become more likely.
Scenario 2: An intermediary-led integrated platform
In this scenario, an intermediary (such as a distributor or an aggregator) succeeds in creating a superior purchasing experience for employers and a unified interface for employees.
A next-level marketplace could create a rich digital-shopping experience with built-in educational and guidance tools.
There are two natural points in the value chain where an intermediary-led platform could arise. First, distributors in the benefits ecosystem (such as brokers and general agents) could create an integrated purchasing experience for employers. In this scenario, sponsors would benefit from a simpler and more convenient experience in procuring through a single organization or point of contact. But the participant experience would remain unchanged unless the distribution partner also created an integrated portal where employees could view and manage benefits across providers.
The market is showing early signs of momentum around distributor consolidation into adjacent competencies, following more than a decade of surging roll-up mergers in the insurance distribution ecosystem.
And acquisition activity among wealth management and benefits advisory firms suggests that both types of firms are looking to expand into adjacent value pools to deepen their customer relationships. The increased interest from private-equity firms has provided an influx of capital, allowing many firms to make meaningful investments in technology and other relevant capabilities. For vendors and manufacturers, partnerships with distributors may become increasingly critical—particularly if those distributors emerge as clear leaders in the value chain on integrated benefits.
The second natural consolidation point would be at the launch of a digital marketplace by brokers, new tech entrants, or digital-savvy carriers. The digital marketplace would aggregate offerings across benefit vendors, enabling sponsors to select “best of breed” products from different organizations based on pricing, products features, or brand reputation, for example.
Some benefits administrators have made initial investments in this direction, although offerings are not yet comprehensive and purchasing journeys remain disjointed, more akin to a referral engine (to brokers) instead of a truly integrated experience.
A next-level marketplace could even create a rich digital-shopping experience with built-in educational and guidance tools such as robo-allocation calculators across retirement, health, and other wellness needs. A distinctive platform could also consolidate servicing, providing a cohesive experience with a centralized customer service center and a digital portal for participants to access all their employer-sponsored products across vendors.
Scenario 3: The entrance of retail service and product purveyors
Finally, if employer-sponsored product vendors do not address the need for integration, retail players could fill the gap as they seek to expand into adjacent value pools and deepen relationships with customers.
With a retail-led platform, participants could view their full financial picture across both retail and employer-sponsored products (for example, banking, insurance, retirement, and retail investments), enabling them to make decisions with all the relevant information at their fingertips.
They would also be able to connect different products more seamlessly—for example, easily setting up recurring retirement or savings contributions via a single platform.
Retail institutions would become all-encompassing, providing individual and employer-sponsored products either by acquiring the necessary capabilities or through partnerships. In this scenario, however, procurement and servicing may not converge, leaving the sponsor (employer) experience largely unchanged.
This is the least likely scenario to gain meaningful traction given the disruption it would create for employers and employees. However, if employers think the employee benefits ecosystem is evolving too slowly to meet their needs, alternative solutions could emerge.
Though the path to achieving an integrated benefits experience and the number of solutions that will emerge to meet the needs of various employer archetypes (by size, employee demographic differences, industry focus, and so on) are unknown, these issues present a clear opportunity for industry leadership.
An integrated benefits experience offers wide-ranging and compelling advantages for all stakeholders; employers can reduce administrative burden and costs, streamline decision making, and create distinctive employee experiences to attract and retain quality talent, helping their organizations grow more effectively over time. Empowered with full understanding and access to their benefits, individuals can make more informed choices for themselves and their families. The organization or organizations that will propel US workplace benefits forward are already moving in that direction—but who will get there first?
AUTHORS: Mathew Lee – partner in McKinsey’s Miami office; Arielle Pensler – associate partner in McKinsey’s New York office; Neha Sahgal – consultant in McKinsey’s Chicago office.