Buffalo, New York, is an ideal place to shake up people's relationship to their health insurance. And it has nothing to do with the wings, the beer, or the long, gray winters of heart-straining snow shoveling.
Buffalo grew up and prospered around the Erie Canal, in the 19th and early 20th centuries, and made its fortunes processing steel, lumber, grain, and other shipped goods. As the industries moved elsewhere, this upstate New York city hollowed out. The local saying is that Buffalo was a city built for half a million people (actually 580,000 in 1950) and now tries to keep it together for about half of that (261,310 in 2010). The Buffalo region is in the bottom 10 for projected job growth in the U.S. Buffalo is, in fact, one of the few areas in the country where the senior population is actually declining.
But some things defy trends, or stand up against them. Such is the case with the Buffalo Niagara Medical Campus, the University at Buffalo’s expansion plans, and, in a smaller way, with Liazon. From two offices on two floors of a renovated office building in downtown Buffalo, all but a few of Liazon’s 75-person team manages a new kind of health benefits system for 2,000 small and midsize firms.
Buffalo is just about the best place the 5-year-old startup could be doing it. The Buffalo Niagara Medical Campus project has infused 8,000 employees and an annual $600 million in spending in 120 downtown acres. All but a few of Liazon’s tech-savvy, startup-minded employees have come from local colleges (and, occasionally, local health or tech firms). And Liazon’s CEO and cofounder, Ashok Subramanian, sees the area in which he grew up as being as good a place as any to gamble on the future of health insurance.
"The biggest problem (with Buffalo) is a preconception," Subramanian says, in a recent interview at Liazon’s office. "The preconception that you couldn’t generate a company, or just (sales) leads, of sufficient size in Buffalo. That you couldn’t change what we’re trying to change from Buffalo."
What Liazon is trying to change is how companies offer and negotiate health insurance for new hires (the "onboarding process") and existing employees ("annual enrollment"). Instead of an employer negotiating one or two health plans yearly and unceremoniously requesting sign-ups, Liazon’s Bright Choices plan-choosing portal lets employees pick out packages of health insurance, flex accounts, and life and disability insurance. Employees log into a customized web portal, see the relative costs and details of plans in reasonably plain language and star ratings, and pick a combination. Young people without kids, with glasses, and in need of life insurance pick different coverage than heads of households with clear vision and lots of deductibles. Whenever someone has a question, they can call an 800 number staffed by Liazon’s own employees.
Liazon’s time is now, the founders believe, because young workers are moving between jobs more often, because the true rising costs of healthcare are more apparent to everyone, and because nobody seems happy with the standard employer-provided insurance model.
"Employers hate it. Carriers hated it, because it makes them impersonal, imprecise, and forces customer turnover … there’s no ambivalence, really, that the system is so broken. Everybody’s feeling pain. People wanted us to break things open," Subramanian says.
Before becoming Liazon’s first customer, Rick Muller, chairman and former CEO of Buffalo-based consulting firm Inergex, walked a standard employee healthcare line. He’d receive one or two pamphlets from providers, then his executive team took their best (painful) guess at what worked.
Employees have been signing into Bright Choices for five years now, and, Muller says, "I think it makes our company look a little cooler."
"At an IT services company, you’re looking to hire the best and brightest. Our onboarding process is unique, and it fits a model that more web-savvy consumers are used to," Muller said. "Employees could do this on their own time, not feel pressured, and they have that 800 number, which is a big help."
Investors seem to agree, to the tune of $35 million in venture capital, $31 million of it acquired in the last 14 months. Backers include Bessemer Venture Partners, the venture arm of Bain Capital, and Fidelity Biosciences. Despite the influx, and the buzz around this particular market segment, Subramanian says he and Liazon’s partners aren’t aggressively looking for an exit.
Buffalo was able to provide Liazon with ample space to grow, initial clients, and employees who can live well locally on their salaries, but Subramanian admits the time he spent outside Buffalo—Princeton, Stanford business school, and health care consulting at McKinsey & Company in New York—was essential, especially in Liazon’s early stages.
The Buffalo Niagara Enterprise (BNE), the region’s economic development organization, wants to make it easier for firms like Liazon to find mentors among the region’s small but growing number of venture-based, web-era startups, says Thomas Kucharski, president of the BNE (which itself uses Liazon to offer health care to subscribing members, including freelancers). To grow connections, the BNE brings in groups from neighboring cities—Rochester, Syracuse, and Albany—for conferences and pitch presentations. "In Buffalo, everybody does help everybody out," Kucharski says. "You’re only a few people and links removed from whomever you need. And we’re trying to add more people."
Subramanian returns to New York frequently, but mostly to accommodate his wife’s career as a musician. Liazon, he says, can change how employers and employees treat their health care obligations on the web, served up from Buffalo. "We’re looking to build a big business in an exciting field, and we’re looking to do it in Buffalo," Subramanian said. "It’s not a coincidence."