No More Friends with Benefits
Not every company needs to devise game-changing solutions to combat the systemic problems our country faces, particularly in energy, education, and health care. Another way is to become a "nibbler"—a company that chews away at small pieces of a problem, reducing it bit-by-minuscule bit.
If you want a nuanced understanding of a big problem, keep your eye on the nibblers.
Consider health-care. Long before passage of the reform bill, steeply rising costs were giving employers the kinds of shooting pains that precipitate ER visits. Corporate leaders expect increases of 9 percent in 2011, and 96 percent say containing those costs is essential to their businesses. ConSova, based in Lakewood, Colorado, is a nibbler that has been working on this problem since 2003. The company audits employer health-care plans, searching for ineligible dependents, such as ex-spouses and long-in-the-tooth offspring.
Ineligible dependents haven't even registered in the health-care debate. Michael Smith would not have known this was a problem if he hadn't stumbled over it. In 2002, Smith's employer—a large benefits-consulting company—asked him to help a client make sense of its health-care costs. The number of dependents being claimed on the company's plan was out of whack: 3,500 dependents for every 1,000 employees, compared to a typical 2,200 per thousand. When Smith looked into it, the first thing he noticed was the surprising variety of surnames among supposedly nuclear families. Some relationships were puzzling: "There was 24-year-old guy with a 24-year-old dependent and a 52-year-old spouse," Smith recalls. "Clearly he was passing off his mother as his wife, and his wife or girlfriend as a dependent child." The company built factories in remote areas; Smith soon learned that employees' extended families had followed them there and set up beauty salons, auto repair shops, and other businesses that could not afford health coverage. So the large employer's workers had listed those relatives on their own policies, making the company insurer for half the town.
Smith asked other clients if they'd encountered similar problems. "One client with a high turnover rate told me they asked for birth and marriage certificates when they enrolled people," he said. "She told me 15 percent of dependents enrolled are ineligible. I dropped the phone."
Smith took the dependent-audit idea to his employer, who nixed it. So he struck out on his own. The company with the 15 percent ineligible rate became his first customer. That business had 100,000 dependents on its plan and, coincidentally, had discovered the week before Smith's call that 10 employees had continued carrying an ex-spouse for eight months to two years after a divorce. "A lot of this happens because employees get divorced and don't tell the plans," said Smith. "But most just don't understand the rules. They'll say, 'I've been taking care of my niece or nephew for years. Why can't I get them health insurance?'" Smith initially assumed that audits would find, on average, 2 percent of employees ineligible. But as he built ConSova on the strength of that first engagement—working chiefly for contingency fees at first—he found that most clients had rates of 8 percent to 14 percent.
ConSova no longer works for contingency fees. The 38-employee company is profitable, with 74 percent of business secured through word of mouth. It has conducted more than 200 audits for large companies such as John Deere, Sprint, and Nissan: verifying 1.5 million dependents and deeming 225,000 ineligible.
Dependent audits aren't a transformative innovation. They won't fix health care. But for ConSova's clients they make a difference. And that is the hallmark of a successful nibbler.