PayFlex Systems USA – Case Study

PayFlex is a health benefits administrator in the United States. It offers consumer-based products such as health savings accounts (HSAs), flexible spending accounts (FSAs), health reimbursement arrangements, and well-being reimbursement accounts. Employers and brokers of PayFlex products administer and manage their employee and client benefits through PayFlex’s platform, HealthHub. PayFlex also provides services that make it convenient for end customers to manage and use their savings, such as the PayFlex Mobile App and PayFlex card.

History of PayFlex Systems USA

PayFlex Systems USA was founded in 1987 in Omaha, Nebraska. The company’s focus was to help small and mid-size employers navigate through consumer-based healthcare products space that were provided as benefits for employees. They provided services, such as HealthHub, that allowed for employers and employees to access and manage their benefits online.

In mid-2000s, PayFlex received funding from private equity companies Oak Capital and Oak HC/FT Partners. In 2011, after having grown to 3,300 employer customers and 1 million individual accounts, they were sold to healthcare company Aetna for $202 million. The acquisition strengthened Aetna’s position by bringing their customer base of consumer-based savings products to 2 million. In 2018, Aetna was acquired by CVS Health Corporation. This makes PayFlex a subsidiary of one of America’s largest health care companies by revenue.

Health Benefits Administration Industry

Health Benefits Administration industry is one that falls under a larger category of Human Resources and Benefits industry. Many companies that provide general HR services, such as ADP and or Mercer also offer services that are specific to Health Benefits Administration. Similarly, insurance and health companies, such as SunLife Financial and Colonial Life, also provide health benefit administration products and services along side their traditional insurance products.

In 2020, the Human Resources and Benefits industry in the US was estimated to be $59.6 billion market by revenues. Benefits administration specifically make up 25.6% of the market.[1] While there are few large Human Resource companies that offer Benefit Administration services, most of the industry is made up of smaller companies, each specializing in a different aspect of the industry. As a result, companies in this industry compete on traditional factors such as service differentiation, quality, and cost.

Small and mid-sized businesses are the main drivers of growth in the industry. Additionally, the increasing competition for talent is leading to businesses to expand their portfolio of benefits offered as a way to attract top talent. This indirectly drives spending on benefit administration by increasing the volume of administrative tasks done by HR teams. Small and mid-sized businesses are looking to outsource these functions primarily for cost and expertise reasons.

Industry Competitors

The competitive landscape of the Health Benefits Administration industry is highly fragmented with a large diversity in the types of companies that offer services. The mix includes traditional banks, insurance companies, consulting firms, and technology companies alike.

PayFlex competes with other HSA custodian companies, such as Health Equity and Optum Bank. These HSA custodian companies are designated by the IRS to manage health savings accounts and similar products. Another PayFlex competitors is Alice, which is a fintech company that provides mobile pre-tax spending management tools.

PayFlex Systems Business Model

Companies like PayFlex generate revenues from fees paid by employers for health plans and by individuals for their savings accounts. Additional revenues are also generated from fees paid by network service providers. Individuals can become a PayFlex member either through their work (if their company uses PayFlex for their health plan) or through a broker.

PayFlex Success Factors

PayFlex’s success factors is the proprietary technology, which provides clients access to all of PayFlex products through the HealthHub platform. By owning the technology, PayFlex can customize each clients’ solution to fit their requirements like a glove. This creates an improved experience for the end users and the client’s system administrators. Additionally, having control over the platform allows for PayFlex to continuously improve the client and end user experience by releasing new products and features.

Additionally, PayFlex’s history as well as their position with their parent company provides them the foundation to be successful in the small and mid-sized business space. Their long history provides them deep and credible knowledge of the consumer-based health products industry. This can be leveraged to create meaningful products that address the key pain points for employers and brokers. Furthermore, having Aetna and CVS corporation as the parent companies will enable PayFlex to build a customer journey that is focused on growing with the business; as mid-size companies scale up, PayFlex can grow alongside with them by leveraging resources and knowledge from Aetna.

PayFlex – Next Steps

Moving forward, PayFlex will need to strengthen its brand equity in order to compete in an increasingly competitive market. Trust is a significant factor in consumers when it comes to deciding which health care and or insurance provider to go with. With its poor Better Business Bureau rating, the company risks being pushed out by existing competition that is more reputable. In order to do this, they will need to improve their customer service to address the poor experience that end customers are reporting.

[1] Anthony Gambardella, “Human Resources & Benefits Administration in the US,” IBISWorld, December 2019, accessed May 22, 2020

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