Shawn Jenkins, CEO BenefitFocus interview by Matthew Holt

Last year I interviewed Shawn Jenkins, the CEO of BenefitFocus. This is a really interesting company, and most of you know it — if at all — from the partnership Health 2.0 has had with ICYou (headed by the wonderful Nina Sossamon-Pogue) which did all those great interviews at Health 2.0 (and made the wonderful DVD which is still available).

Sadly, the timing of the interview wasn’t great as I did it in late August 2007 got married a week later, and then dived into the conference. And as a consequence the transcript never got posted. Which is a real pity, as I just re-read it and it’s really interesting and one of the rare interviews in which the interviewer sounds like he knows what he’s talking about! Shawn, Nina and friends will be back at the next Health 2.0 conference showing various of their technology, but for now give this transcript a read to find out where they were 6 months ago.

Matthew Holt: This is Matthew Holt of the Heath Care Blog and I’m back with the podcast. And today, I have with me Shawn Jenkins. Shawn is the CEO of BenefitFocus.

Shawn, Good morning.

Matthew: How are you? And, where are you?

Shawn Jenkins: Good morning, Matthew. I’m fantastic today. I’m in beautiful Charleston, South Carolina, where it’s nice and warm today. And it’s great to talk with you. I really enjoyed your work and look forward to jam with you here today.

Matthew: Right, right. Well, I’m very interested about BenefitFocus, and I would suspect that what you guys have been building over the last few years is sort of the inside plumbing, for the connection between health plans and benefit professionals within employers, and probably elsewhere. And you’re also doing some new stuff that I happen to know about, which is closer to some of these Health 2.0 that we have been investigating.

But, let’s start at the beginning. For those who don’t know who BenefitFocus are, what do you guys do and what’s your core business?

Shawn: Absolutely. Well, BenefitFocus is, we’re software development services company in the benefits area, but primarily health care is our focus. And a way to describe it, it’s sort of the infrastructure, it’s exactly what we have been working on and continue to do. Our BenefitFocus products such as e-enrollment, electronic enrollment, electronic billing, kind of this “the claim solutions”. It’s Web-based tools that health insurance companies and employers and their members use to, basically, take paper out of a pretty mundane process like signing up to your benefits or paying your bill and that’s our technology. And we roll it out in different geographies based on the clients that we have.

Just to give you a little bit of idea, Matt, about the size of our
company. We’re sort of this quiet company that you haven’t heard about
from a marketing standpoint because we don’t do any advertising. Our
growth has just been phenomenal. We have currently live over 89,000
corporate clients in all 50 states, and in a growing number of
countries as well, but primarily here in the United States. That’s a
total of close to 35 million members online that use, touch us in some
way to do a transaction, like I said.

So, they sign up for their benefits when they’re newly hired or pay
a bill and their employers reconcile that, so forth. And that number is
growing significantly. By the end of the year, we’ll have a little over
100,000 corporate clients online and just over 40 million folks. So,
that’s the kind of core business – we call our BenefitFocus Enterprise
Health Care Platform, and it also encompasses all additional benefit
types to such as a life insurance products and supplemental benefits
and so forth. But the health plan is such a central and a big part of
it that that’s where most of our focus is.

Matthew: So, let’s just talk a little bit about, you know, what that
means in terms of reality. Now, I assume that you don’t have, when you
started the company, you went out to call on every sort of corporate
type. You started it about once a year. You only get to them via your
other client relationships with health plans and others. But, tell me a
bit about how that started. What was the first subject you offered to –
whom, where, and then, talk a little bit about the evolution of the
kind of services you’ve been offering.

Shawn: Yeah, a great question, and you know, it is a little bit
about sort of what our original vision was, and a lot of that is still
intact. Now, our thought, Matt, back in 2000, when we started to focus
– June of 2000 and if you think about the landscape, March of 2000 was
when the NASDAQ crashed and the bubble was burst and all the…

Matthew: Yeah, I’ve actually just been writing about this liberal
blogger who just paid a fine to the SEC, just to settle with the SEC,
just was here for, you know, touting stocks on a bulletin board in
2000, that was going on. That was illegal. [laughs] Everyone was doing
it then!

Shawn: Yeah, right. I was lucky what we did back then.

Matthew: Yeah.

Shawn: So, yeah, we kind of came in as the forest fire was
beginning. We’re one of the few survivors and actually thrived during
that environment. But our original thought was really pretty simple,
you know. There’s a lot of paper in health care. It’s an expensive
process to offer in our health care system and all benefits. And our
observation was employers and employees were somewhat frustrated by the
amount of forms they have to fill out and the number of times they have
to fill them out.

So we started with something as simple as enrolling employees when
they’re hired or going through that annual open enrollment period. We
came as a one to many solution. It was one website that you could go to
put all your benefits in. It would send those transactions, as
employees signed up for their benefits, back to the companies’ payroll
system, and then, we take that data and send them off to the carers,
regardless of who they were – health insurance company, life insurance
company, dental insurance company.

And what happened, right at the beginning, is we sort of bumped in
to a deal with Blue Cross Blue Shield here in South Carolina. And they
said, “You know, we’ve been looking at doing something like that. Why
don’t we private label your application?” And at the time, there was a
lot of people with the similar idea. There was a lot of people out in
the market. There’ve been a lot of capital raised around this sort of
idea of managing benefits and health care and connecting.

There was some early talk about consumerism and how to tie that to
health plans and what all that meant but there wasn’t a lot of traction
there yet. That was sort of the landscape. That deal with Blue of South
Carolina really created, early on in 2000, our distribution model which
has resulted in licensing technology and services to a carer, our
health plan particularly. And then, their employer groups, the people
that buy insurance from them, get the benefit of the technology.

Over the years, we’ve expanded tremendously, as you can imagine. And
we do electronic billing, we do e-sales and e-quoting tools for brokers
so they can sort of model out benefit plans and particularly for small
employers. A lot of consumer tools, Matthew, these days around helping
the members, the consumers, their spouses, trying to figure out what
their options are. You know, have a PPO, what I have now, I have a
health plan and HSA. What all those terms mean.

A lot of decision-support technology kind of riding on top of that,
that infrastructure that you pointed out. In addition, when we talk, I
guess a little bit later here in our conversation, about our new
direct-to-consumer activity which is a lot of exciting stuff

Matthew: Yeah, let’s hold off from that for a second and…

Shawn: Sure.

Matthew:… we’ll have a chunk about that later. But let’s go back
to the core business. So, there you are in late 2000, you have Blue
Cross in South Carolina who presumably was saying, “Well, OK, with this
Web thing going on, we have to figure out a way to try to get some of
the paper out of the enrollment process. Because, we know that there’s
faxes and forms going back and forth between them and their corporate
clients.

Shawn: Sure.

Matthew: And every time some of them has to change something, there
will be another fax, probably be a $30 or $50 transactions right there.

Shawn: Sure.

Matthew: Obviously, the reason this piqued my interest is that the
very first business model, the HealthEon, which later because WebMD,

Shawn: Sure.

Matthew: So, that was its very first iteration, but it was actually
talking about doing exactly this with Blue Shield of California.

Shawn: Right.

Matthew: And I was kind of amused when I heard from some of your
folks that you are now talking to Blue Shield of California about doing
this, ’cause it’s kind of… You know, 11 years later, [laughs] they
haven’t got it done it yet.

So, there were two things – was the technology model of how you
ended up being on the ASP side rather than selling software to the
individual plans? And then the business model of how do you get paid
for this. So, on a technology model, am I right in saying that
everything lives at BenefitFocus world and that you’re private labeling
an ASP solution essentially, except the service solution.

Shawn: Yeah, close to everything, sure. You know, the term we use these days is software as a service.

Matthew: Yeah.

Shawn: We absolutely believe in the concept of what we call
“multi-tenant applications”. So, we have one big data center,
redundancy and backup and that type of thing. And then what we do is we
impose business rules and we do customization through configuration as
we call it. So, our clients enjoy the benefit of scale even though
they’re big in and of themselves. But our software as a service model,
they license the technology and then we go through the plumbing phase
and we configure it.

By the time it gets to market, it looks like their website, it
integrates a single sign on. It’s behind the scenes. It has all their
business rules and so forth. But all the hardware, all the updates —
you know, the software updates that we do – those are all managed by
BenefitFocus, and part of our service which helps, not only the insured
but also the employer.

Because the employer not only is getting the benefit of this new
technology. They also have a lot of integration points with payroll and
so forth; and by us sort of managing all that data integration and the
model being sort of a centralized multi-tenant model software as a
service. But BenefitFocus applications really, I mean, can drive
incredible cost savings, because you don’t have these long
implementations when every upgrade doesn’t take six months.

We update our software every three months across the board. Then
sometimes there’s some interim work that’s added-to functionality, so
it’s a ton of functionality. As soon as it goes out, every client on
the platform has it.

Matthew: Let me just ask you a couple questions here about that,
because you’ve got the issue there that you’ve got an interface,
presumably, with different systems at the plan or the carrier. You’ve
also, as you mentioned, then got a lot of interfaces back with the
other things at the HR department, dealing with payroll, I assume
there’s pensions. I should know — given that my fiance, whom I’m
marrying in a week and a half, is an HR professional, I should know
more about what the hell she does! [laughs]

But I know there’s a variety of activity going on, and there are
these others – ADP and a bunch of other big players in those kinds of
systems, and all these other guys. And yet, we always know in
healthcare that the interface is a big challenge. So do you have to
write interfaces to a bunch of different leading systems, so that
typically when you come to see a new employer or a new health plan,
you’ve got the right interface with the people they’re using? How does
that work?

Shawn: Well, there’s some industry standards. There’s some
government standards around HIPAA, there’s transaction sets, we know,
with all kinds of words and numbers after them, like A-34 and so forth.
And of course, we support those, but over time, we’ve gotten so good in
our infrastructure. We really invest a ton of what we call our
BenefitFocus e-exchange engine.

If you look at our capital investment, our head count — most of the
money that we’ve piled into it is being able to get interoperability,
being able to make our system work with multiple systems. These days,
when we meet a new carrier, they’re probably on a membership system
that we’ve already worked with before, and we have some good interface
there, and the work is more around just enforcing their business rules.

We, in our production environment today, feed over 350 different
insurance carriers. So it’s rare that we meet one that we haven’t
already bumped into. And all the big payroll systems, from PeopleSoft
to Oracle, ADP – you know, the commercial ones, Ceridian, those guys —
we have standard interfaces built in, where our clients can just say,
“Hey, this is what I use,” and then tell us what the data elements are.
So we’re fantastic at the infrastructure, that data exchange level.

Because without that, you know, a web site that just sort of shows
you static information, and tells you how to print a form out isn’t
really all that valuable. You have to be able to click, save, and then
the data’s got to make it for the return. The return on the investment
in our services is usually 5:1 to 8:1 – meaning, every dollar you spend
with BenefitFocus, it comes back to you in hard-dollar savings to the
tune of $5, possibly $8. Because as you mentioned earlier, those
transactions of faxing a form over can cost 20 to 50 bucks, where with
us, all baked in – a dollar or two.

Matthew: Let’s go through the extension of this. I imagine when you
start off right, the first thing, when you first sold the Blues of
South Carolina on the concept, it’s great. They take it to their first
customer and say, “It’s fantastic. I can now enroll my employees in the
Blues plan, and that’s that one-static transaction.” Not static, but
it’s that one transaction. Great. We’ve got rid of the fax there. But
then of course, you then start thinking, “Well there are other things
going on here. One is that there’s non-healthcare benefits.” There’s
the 401K and pensions and the other stuff. There’s obviously the
connection back to the payroll system, of “How much am I deducting from
payroll from premiums?”, and all that kind of good stuff And then of
course the other thing is, a lot of companies have more than one health
plan.

Shawn: Right.

Matthew: So how do you bridge that gap? Because now you’re coming in
as a sort of value-added feature of a particular customer of yours
— you seem to be getting paid by the carrier here – but now you have
an employer who says, “Well, I’ve got five health plans.” Or whatever
the number is. “I don’t want to use five different systems.” Was that
the sort of 2002, 2003 conversation? And how did that get resolved?

Shawn: [laughs] It was a beginning startup conversation, and we
always had this mantra: one to many. We wanted the employer and the
employee to go to one web site, and put in their address one time, and
then make all their benefit selections – basically, everything the
employer has to offer has to happen in one simple set of screens. And
we use this one-thought-per-screen technology for the employee, so they
just click next, next, next. And they don’t have to go website to
website.

What you’re describing is very hard to do, took a lot of time and a
lot of effort – a lot of late nights and weekends. But the platform
will support what we call sort of the “anchor tenant”. You know, at the
beginning of a shopping center, you have a big anchor tenant like
Wal-Mart or something like that, and then the rest of the stores. The
health plan is the benefit, and then everything else sort of hangs off
of that.

And what happens is the employer needs one central place to manage
all their benefits. And they look to their health plan for assistance
with that. The health plan has an incentive, because they want to lower
their costs. They’re getting all these transactions and paper, and
there’s errors, typing, and you can’t read the forms.

So health plan’s incentive: the employer would love to have someone
give them one place to go. It’s this one-to-many model which was
central to our idea, early on, really, before we started BenefitFocus.
And it’s proven to be really key to adding value, driving down cost,
getting employers to adopt at a high rate.

If you roll out this pretty simple web site that doesn’t do all the
benefits, or doesn’t handle all the transactions, they might use it
once or twice, then they sort of quit. But our employer adoption rates
are over 80%, so as we roll out, for example, electronic enrollment or
electronic billing, we see over 80% of the population begin to use that
technology, and then stay with it. They persist. They continue to use
it.

I think that’s been key to, not only the business model, but the
real value ultimately to the person that cares the most – is this HR
department, it’s the benefits folks, and it’s those employees or those
consumers that are out there that really just need a couple simple
screens to go through that covers everything that they need to decide
on, and then hit save, so that behind-the-scenes of data exchange – our
e-exchange platform – is fundamental to what we’ve been able to
accomplish to date. And the growth that we’ve seen.

Matthew: How do you go from being the private label, inside-on, for
the big anchor tenant health plan – and maybe this is not a relevant
question. Maybe most of the people you’re dealing with are using one
health plan. But for the big companies who, in some cases by law have
to offer more than one health plan or to have a health plan — so I
have Blue Cross of South Carolina, but I also might have a United
Health Care contract, and you know, I might be in many different
states, tying together different stuff. How do you have the
conversation with your “anchor tenant” health plan – that by the way,
“I’m going to put your competitor on the system too”.

Shawn: Well, it didn’t go so well in the beginning, but the premise
that the employer will only use it if it does everything sort of
overrides everything else. Ultimately what the employer – the spender,
the person that’s spending the money -– What they need, they sort of
get. The way that it plays out in practicality: a company has their
health insurance, let’s say with Blue Cross Blue Shield. That’s their
only health plan – let’s take that simple example. They might have a
couple options. We go in, we set it up for the health plan, we roll it
out to their employer groups, the employer finds out about it through
some marketing campaign or what-not.

Basically, they get this message that says, “Hey! All that paper
that you have? We’re going to wave a magic wand, and it’s going to
away. We’ve got this really cool, relevant, current technology that’s
provided at no cost to you. It’s going to save you money, it’s going to
be a better communication tool for your employees. You can export these
transactions into your payroll system, and then you can also pay your
bills online.

So it’s what you need, it’s what you want… And by the way, the
good news is, if you have other benefits, you can put those on there as
well.” Some of our health plans actually pay for that additional
service, sort of a platinum-level service. You can put your dental
insurance on here, and you can put your long-term disability, and your
other HR policies. It’s this platform for managing all that.

And it’s optional. The employer generally starts with just the
health plan, and then adds things as they go, once they realize it
works. It’s easy, we’re already working with your supplemental benefit
provider, so there’s already links built.

So that’s sort of that scenario, and the adoption of that stuff is
fantastic. The stickiness – the value to the health plan — is that if
you’re in there, and you’re that anchor tenant, and you’re providing
this value-added service, you’re driving your cost down, because you’re
not getting paper any longer. But also when it comes up for renewal,
and they’re looking at a competitor, the competitor might not have a
website at all to do the transactions, or they might have what we call
a one to one, meaning that it will only do theirs, and employers faced
with, dropping all the links and swapping out this process that we
become very accustomed to.

So that is the marketing advantage. In the case that you pointed
out, Matthew, what if I have multiple health plans? Well, a lot of our
larger multi-state clients do. You might be domiciled in one particular
state and they have care there, but then in another state they may
offer a local agent, or particularly in California, it is pretty common
that the employers offer three or four different health plan options,
just to give a multiple choice.

In that case the health plan that we work with, the primary one
we’ll call it, has a marketing decision to make. And they generally do
it by market segment. So they are large self-funded clients, that they
will offer the platform to, and they will say, go ahead and put your
other carers on there, and then you just pay a little bit extra for
that.

Sometimes in the smaller markets, they won’t allow that. They won’t
allow one of the competitors’ health plans to be loaded. So it will do
our health plan plus all your other insurance, and they kind of use it
in some cases as a tool to sort of get you to just use their health
insurance. It’s kind of a market segment by market segment decision. If
a consultant is in there, promoting multiple healthcare plans and so
forth, they will use it as a tool to be a key platform and manage all
that.

This gives them a level of control and interaction with the group
that the other plans don’t have. It will still allow another insurance
to show up. But the neat thing is that they sort of have control over
that.

Matthew: What seems to me is that the tension in the business model
that you have, is that you are getting paid by the health plan. Is
there a revenue stream for you also from these other ancillary or even
incidental plans that are taking a few bucks to get on the system as
well?

Shawn: Yes, there are sort of two other angles. One is from the
employer group, the employer themselves might want to add some
additional functionality and additional links to their other benefit
providers, or we a lot of tools or content management systems, lot of
consumer directed healthcare tools, lot of wellness plug-ins. So they
can sort of buy up some of these things, a la carte, and that’s growing
tremendously. The second thing is these ancillary providers.

In the early days, we would call them up, back in 2000, 2001 and
say, “Hey, we need to send you data from your client,” and they sort of
would hang up on us. [laughter] And then we’d call back and say, “No,
no we are serious,” and they would hang up again. They would think we
were a broker or trying to get a commission or trying to steal
business, but we have never derived any income off of commissions or
brokers. We just don’t sell products that is a sort of a conflict for
us.

What’s happening now is that now that we have close to 100,000
corporate clients with over 35 million numbers on our system, people
come to us saying, “Hey, how can we be part of your network? We know we
are managing data with you, but how can we sort of make our products
kind of top up in the system.” Those are strategic things that we are
looking out in the future. I think one neat application of that, is
health saving accounts, as they become more prevalent.

We have great electronic signature technology, we can open up a bank
account online, and pass that data to the health savings account
trustee. And what we are being asked by our customers fund groups is,
“Hey, can you just show two or three different banking options as my
employees sign up, and let them tick and then just send the data off to
them when you’re done.” And that’s an area where we really don’t drive
advertising out of the application, but we think that some partnership
between us, the health plan and the banking institution are starting to
form, to be able to position their products. So it’s really becoming a
marketing platform, as much as a transaction platform.

Matthew: So you are really aiming squarely, I think at that utility
space between anything that touches the relationship between a plan and
its member, and multiple  members. You are really aiming at that space.
Now I guess there is a sort of a leap here, which is the coordination.
Are you the agent, as well as the external software arm of the plan, or
are you largely a utility sitting in the middle which connects everyone
to everybody, which is going to house separate revenue streams. And I
assume you are going from one to the other as your strategic business
focus. Is that a fair comment or not, really?

Shawn: Yes I think so, it’s a good observation, and we are a little
bit of both right now and probably will continue to be. Our core
business, our benefit focus enterprise [noise] that really reduces cost
from reduced paper, automate process, bring current technology and
communications to health plans and other insurances companies, but
primarily health plan.

The business is so strong and growing, and being adopted by those
carers and as they spend more money on that stuff they get a huge
return in, and it’s fast. As we put their employer groups on and their
members start using it and the employers start interacting with it,
there is an immediate value that can be extended through partnerships.

So, as health plans do this today, they will market CORBA services
from somebody else, or they’ll have a banking relationship, or they’ll
have a wellness vendor that will come in or disease management vendor
that might come in. So it’s not really out of their mindsets. I mean
it’s their membership and they want to try and leverage that, and
provide additional value, and we just kind of help that. We are just
there. We are the guys who get it all done electronically, and the
stuff works, and it’s fast and is on time.

We just facilitate, actually help them by helping the employer bring
more services to the employees, helping the health plan bring more
services to the employer. And because the volume is so big, we really
don’t even need to push that right now, it’s just sort of being pulled
out of us. People are coming and saying, “Hey, can we plug-in and you
make our things available.” The health plans are bringing ideas to us
themselves, through similar or consumer products they want to market or
making other types of arrangements.

So a lot of those types of organic activities going on, and we are
sort of evolving. Also because software is a service, and this stuff is
not installed in some bunch of different data centers that all have to
be upgraded, we just plug the stuff in and we integrate it in, and then
immediately there is new products, new services and new technology can
be made available to really everybody.

Matthew: So give me a sense of where the core part of business —
and we will switch over to some of the new stuff in a second — for the
core part of the business, you guys been around since 2000, when you
were up with your first client.  What’s your penetration at the market?
What kind of competition you’re seeing out there from somebody doing
something like you, and how far are we in this the transition from
everyone signing up on paper. I know that when I signed up through
ehealthinsurance.com, I am still sending in the papers forms that end
up with Blue Shield right after that. What point do we go that everyone
gets, to the individual market, but let’s stay with the corporate
market, where the massive lot of Americans get their health insurance.
What share do you think that the 160 million and getting it through
some arrangement like this? And what is the potential for growth within
that?

Shawn: Sure, where we are at on that space right now is we are
clearly the leader in the volume of transactions, the number of members
and the number of groups that we have online. We have 25 different Blue
Cross/Blue Shield plans that we are plugged into in a production
fashion; many more on the way. As I mentioned earlier, we feed over 350
other insurance companies, so we really plug in to everybody that is
out there in the commercial sense.

We have 35 million members in our system that use the technology in
some form or fashion, primarily for enrolment and billing, and more and
more for sales quoting from a broker perspective. So out of the total
insured market in the United States, 150 to 160 million, what’s that –
16 – 17 – 18 percent.

The other people that are — an I would say, my guess is that the
amount of people in the whole market that are doing something truly
electronic, is probably is not much more than 50 or 60 million folks.
The rest, a lot of the small groups still fill out a sheet of paper and
give it to a broker. There’s still just a tremendous amount of paper
there. And then there’s lots of processes inside of that that haven’t
even been addressed yet.

So we think it’s very early on. It’s taken five or six years just to
get the plumbing installed, to get the infrastructure in there, and
then now the mass adoption. From a competitive standpoint, the
competition we’ve faced over the years, which is actually going down,
is more build-it-yourself.

Matthew: Sure.

Shawn: We work with big companies. They’re usually a billion to five
or six billion dollars in revenue apiece, these plans. And they have
the ability to build software. And so we don’t really see anybody that
comes in and can automate quote claim, from the front end all the way
back end, paying your bills. Specialized in the health care and the
benefits industry, what we see more is a plan, and less and less an
employer group but somebody saying, “We’ll just build this ourselves.”

But that mentality has actually gone down a fair amount in the last
24 months, as the pace of the Internet’s changing. Web 2.0 and social
networking, embedding video, and all those things that you sort of need
to be relevant, that’s hard to keep up with. If you’re not focused on
it, the world just moves too fast. So a lot of our selling, and the
folks that are hiring us now have built technology, and it’s good. It
just needs to be added to a little quicker pace, so we come in and then
sort of augment that.

We know there’s a ton of headroom in the core business of just
automating the billions and billions of dollars of transactions that
are taking place in health care and all the benefits. And just a simple
number that still blows my mind: $2 trillion in our health care system
this year, roughly.

And back when the Clintons were in office the first time, Bill and
Hillary, when she studied it, one of the numbers that they came up with
was 30 percent of our health care system is spent on administration.
And that’s 30 percent of two trillion; that’s $600 billion on
administering our health care system. And BenefitFocus has got a great
running start, and a key piece of that, which is a lot of insurance
transactions.

But we’re moving into the banking sector now and the financial
sector, around all the new products that are coming around consumers.
There’s just tons of room.

And I think our start was perfect because, in 2000, a lot of folks
had already started, had already got going, but the market wasn’t
ready. The technology wasn’t mature enough. The whole notion of
software as a service and the maturity of that, the broadband access,
and a risk averse health insurance company tolerance for trusting a
vendor like that, it just wasn’t there. But now, the market’s coming to
us in a big way. And our reputation is strong. We get it done, we get
it done fast, and we can save everybody involved a bunch of money.

Matthew: So, before we go to your new initiatives, let’s talk just a
bit about what you can tell me about the status of the company,
original investors, what you’re releasing now publicly, in terms of run
rate, employee size. Give me some metrics so we have a sense about it.

Shawn: Sure.

Matthew: I don’t know if you talk about your revenue numbers and have plans for that, but just give me a sense of where that is.

Shawn: Yeah. BenefitFocus, we’re just coming up on 400 associates
that work for our company. That’s up from 270 at the beginning of the
year, so we’ve added 130 people already this year.

Matthew: Your own HR department probably better be using this stuff,
because they’ve got plenty of other stuff going on, no doubt.

Shawn: [laughs] Oh yeah. Yeah, recruiting and that kind of stuff is
full speed ahead. So we’re growing. We’re privately held. We started
2000. We don’t release revenue numbers, but we’ve been profitable for
the last four and a half, four years or so. So once we got about three,
three and a half years old, we turned profitable and have stayed that
way. We haven’t needed capital…

Matthew: Do you have venture capital? How were you funded originally?

Shawn: Yeah. Well, we funded it ourselves. Myself and two other
gentlemen founded the company, and then we raised a little bit of local
money–not a lot by Internet standards; it was hard to get any money
back then. And we did that for about the first year and a half, and we
lived off that, and it became profitable.

There’s tons of money in the market right now. We don’t really need
it. But we did go through. And we don’t really… We’re one of these
sort of quiet companies on revenue and investors and that kind of
stuff, so we kind of leave it at that. But the good news is we’re
growing and we’re profitable. And we, earlier this year, restructured a
little bit and put a little bit extra money in the company to fund, to
make some significant capital, into what we think are big opportunities
around more data exchange, and particularly around a lot of consumer
technology.

Matthew: That’s great. Let’s talk about that, because that’s really where I think would be interesting.

Shawn: Sure.

Matthew: Because when I started talking with your colleagues,
[laughs] it was like, what you do is fantastic and it’s great, but it
doesn’t quite fit into the main part of some of the consumer Health 2.0
stuff that I’ve been talking about. And then they said, “Oh yeah, but
we’ve got this other thing that’s going on.” [laughs] So I said,
“That’s interesting.” Give me a quick description of what at least the
two of the initiatives are around video and around consumer-centric web
applications. Talk a bit about why you’re heading in that direction.

Shawn: Oh, absolutely. We’re extremely excited about some of our
investments and what we call BenefitFocus Consumer Healthcare. This is
really a lot of media. We started a group called BenefitFocus Media to
produce video content for all types of distribution outlets, but
primarily the web.

And then we have two direct to consumer sites that are in beta right
now and will be launched later this year. And one of them is ICyou.com,
and it’s a video site. It has some of our video content that’s produced
by BenefitFocus Media, and then it has user-generated content. So you
can stare into a camera and tell your medical story and upload it. And
it’s totally focused on medical, patient-centric direct to consumer.
What we’re finding, and we haven’t even brought it out. Matter of fact,
this will be the first public discussion about ICyou.

Matthew: Let me put in a quick disclaimer/plug here, which is that
the BenefitFocus folks are going to be at the Health 2.0 conference,
which, as anyone listening to this podcast or who’s been reading my
blog knows, it’s on September the 20th in San Francisco. And they’ll
actually be filming some of the activity there. And I haven’t met her,
but you recently hired a local anchorwoman to come and work as a sort
of front person for that piece. Is that correct?

Shawn: Absolutely. Yeah. We’re excited about your conference, and
I’ll be there personally. And then, Nina Sossamon, who is who you’re
referring to…

Matthew: Right.

Shawn: Nina Sossamon is an Emmy Award-winning anchorperson, and
she’s been a friend of mine. And we were talking about, for the last
couple of years, health care and what’s going on. And we started seeing
all this consumer activity, and we thought, to be relevant, to make
sure that our technology continues to grow, and really tap the ultimate
market, which is the millions of people, we need to be able to
communicate with them in a current fashion.

So Nina’s group, the BenefitFocus Media Group will be there at the
Health 2.0 conference. We’re excited about that. We’ll be capturing
that on video. It’ll be available on ICyou.com each day and further. So
that initiative, the media piece of it, the direct to consumer video,
our site…

And what I was getting ready to mention, one of the phenomenons
that’s starting to happen, as we go forward, is a lot of teaching and
medical universities are finding out about the site. And it’s pretty
early on, but we think that we’re going to end up having user-generated
content. But additionally, we think it’ll be a big outlet for folks
that already have tons of video, whether it’s breakthroughs that
they’re coming on, research.

There’s a lot of video that’s embedded in these hospital systems and
research facilities, and there’s no real good outlet for it. So we
think that will begin. There’s already a couple of them that are
starting to upload their video content there. That’s just a neat thing.
It’s a fun thing that we’re doing. We think it has a lot of relevance
for the consumers.

We, as consumers, like the content out there. We’ll be producing a
fair amount of it ourselves, on various topics, from covering events to
breaking medical procedures, to simple stuff like understanding your
insurance and financial – a lot of healthcare finance topics out there
will be covered as well. So that’s one.

The other piece is a personal health record. The web site that we
have out in beta right now is iHealthFocus.com. The central value
proposition of that direct-to-consumer piece is a personal health
record. We’re just interested in what’s happening with EMRs –
electronic medical records – we’re interested in what the government’s
going to do about that, we’re getting smart on docs.

I’ve personally, and our staff, has been reading your blog and
listening to some of the people you’ve been interviewing, and learned a
lot in that market. We know, basically, from interacting with lots of
members — they need help with a couple things. They need help
understanding what their history was, what their kids took last year,
who they saw – you know, basic stuff. Their file folder system at home
— they need that electronic.

And then the financing around that. You know, who have I paid, who
do I owe, what does my insurance company cover. I moved from one
insurer to another insurer last year – how does that all work? So we’re
bringing to market — it’ll be direct-to-consumer. The model right now
is that it’ll be free, and it’ll probably be sponsored at some point,
but right now we’re just making the investment in it.

And that’ll be a portal that has news in there, it has lots of
information, but it has some value in that you can store your medical
information and your financial information. Because we’re so good at
transactions at BenefitFocus, because we know how to manage data, we
believe that we’ll be able to tie that in to all the other things that
we’re already managing for the membership that we have.

So those are some of the things that we’re doing.

Matthew: That’s pretty interesting, but I assume that you’re not
only thinking of this as offering straight to consumers, but you also
have this big distribution channel of your core business already. And I
assume that at least the iHealthFocus – you know, the personal health
record with the other information attached around that, and maybe also
ICYou – is going to be something that that you’ve heard from your
customers that that’s another issue that they’d like to see solved. And
there are obviously employers who are moving into that world in a
fairly big way with the personal health records. And they’ve had a lot
of trouble to this point, connecting the personal health record part to
the benefit/transaction, claims/transaction part.

Shawn: Right.

Matthew: So I assume that you’re thinking that you can put those two pieces together.

Shawn: Yeah, that would be a good assumption.

Matthew: [laughs] Well, is it a correct assumption, though? That’s the question.

Shawn: Yes, it is – it is the correct assumption. Later we’ll
realize whether our strategy was perfect and brilliant, or just sort of
good, and we went around… But we wanted to – this has been sort of a
gut feel of mine, Matthew – I wanted to get directly to the consumer.
We know how to interact with employers, we know how to manage data, we
know how to interact with insurance companies. We have that data, we
can manage it, we can make it available to members right now – we’re
really good at that.

And what we want to learn is, we also want to understand just moving
directly to a consumer. You know, the person that’s sitting at home, at
night, searching and looking for help – that patient that just got
diagnosed. Our family members go through that all the time. We want to
be able to be really relevant, and communicate to that person in a
current way. You know, in a web 2.0, web 3.0 kind of way — social
networking, bringing in video content and media.

We’re launching these direct sites, and we have a couple more that
will follow, simply so that the technology isn’t really influenced too
heavily by any entity, like an employer or a health plan. Because we
think if we built this stuff from scratch, and went to the health plan
or the employer and said, “Hey, what would you like this to do?” We
think we would get a different result than if we went to the consumer.
We’re doing tons of focus groups, and taking our media team out and
interviewing people and saying “How do you live? Where are you files?”
We’re going into people’s houses and saying “Show us how you manage
this stuff, and how can we help you?”

But instinctively and experientially – this gets back to your
question – we know that people will pay for that. We know that a broker
or an employer or health plan or a supplemental benefit plan, or all of
those people will want to come onboard and help provide that service to
the patient, to the consumer. And so we’re pretty confident that we’ll
be smart enough to monetize it. But right now we’re in the phase of
just getting it right, so that that individual consumer has something
that’s just really relevant and works for them. Leveraging.

Matthew: Now I was going to say, are you concerned that – you know,
you’re the CEO, you have a board, you have the strategy of the company
to think about – you’re doing very well in one narrow niche. You’re now
talking about potentially moving into a big, wide open field, where
there are a lot of corpses by the side of the road already, and there
are also some very big players – think about the Intuits and the
Googles who have been making noises about doing similar things in the
world you’re talking about now. Are you concerned that if you raise
your head too high in that area, it might be smacked around a bit?

Shawn: [laughs] Well, we have been a below-the-radar company, just
sort of getting hard work done over the years, and we will continue to
be. We’re not an advertise-on-the-Super-Bowl type of personality. We
like hard stuff, we like to get it right, and we like to add value and
lower people’s cost, and help them with their daily lives. I personally
think that the space is so big, and is so complicated, and you think
about what $2.2 trillion means – there’s only four or five economies in
the whole world that are even that big. Germany, Japan, us, and a
couple other people. So this is a big complex thing.

We think it’s going to take another seven years. We’ve been at this
for seven years, sort of laying this infrastructure. We think the next
seven years are going to have a lot of creativity that’s going to be
demanded. We think it’s going to take the effort of us, and a lot of
the other people that you mentioned, to bring all the tools necessary
to really put consumers in power.

So we’re not worried so much about one dominant player owning the
personal health record space or the healthcare finance space. We
actually look to integrate and partner with all of those folks, whether
it’s Intuit or different… Just like we have with the payroll system
or membership systems. We haven’t gone out there and said, “Let’s be
one of those.” I mean, we certainly don’t want to be an accounting
system. What we do know how to do is manage healthcare information and
provide it to the right person at the right time, in all parties.

So I think there’s plenty of room. I know that there’s tons of
opportunities. We’ve been pretty smart. We spend our money wisely, we
invest appropriately when we get committed to something, and we have
the benefit of being privately held and being able to sort of pick our
battles. We’re listening to employers and what they need.

So we’re pretty confident that we’ve got a lot of people that are
looking to us to help them in this area, and I think what you’ll see
from us is partnerships with some of the folks that you’ve mentioned,
and moving data back and forth, and that sort of thing. It’s just such
a big market that it’ll take a while to play it.

Matthew: Yeah, I think that’s a very pointed, wise comment, because
whenever I talk with a company which is particularly scared about some
other big competitor or small competitor in their market, I’m always
going “When you have this size of a market, and this much complexity –
you don’t have to go for the whole thing in order to have a nice decent
business.”

Shawn: Right.

Matthew: But on the other hand, the question is “Can you grow the
entire market segment?” Obviously the whole issue around
consumer-generated content, consumers getting advice online, and
integrating that with the health care system — we’re just at the very,
very early stages of this now. It’s probably a 10-, 15-, 20-year
phenomenon that’s playing out here. So that’s a great way to end it.

Shawn: Yeah, I couldn’t agree with you more. We think it’s going to
take 25 to 30 years to sort of remake our healthcare system, and
there’s just a lot of influencers in that. That’s why we need to run a
good, that’s why we need to continue to bring value to our customers,
and remain profitable – so that we don’t get in a vulnerable spot.
Which is what we’ve been able to do, in some pretty tough years, and
what we’re continuing to get better and better at as we grow. We’re
excited about it.

Matthew: Great. I’ve been talking with Shawn Jenkins, he’s a CEO of
BenefitFocus. Those of you at the Health 2.0 Conference, or coming to
it, Shawn will be wandering around there. You’ll see Nina, running his
media, the media front person – [laughs] that’s a terrible thing to
call it! You’ll be seeing her around, and there’ll be some other
BenefitFocus people at the conference, and we’re looking forward to
seeing you there Shawn. And thanks a lot for your time this morning!

Shawn: Excellent. Thank you, Matthew. I really enjoyed it. I appreciate it. Have a good day.

Matthew: Take care.

Matthew Holt

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