WageWorks Highlights From The Health Exchange and Benefits Broker Conference

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The Liazon/WageWorks relationship was sourced from WageWorks’ relationship with Towers Watson. Liazon used a few other FSA/HRA/HSA administrators, but according to Liazon, WageWorks represents a better product that is less expensive. We anticipate Liazon’s 82,000 participants (as of January 1, 2014) will move to the WageWorks platform during the next open enrollment and all newly signed participants will be part of the WageWorks platform. Last week, WageWorks announced that it will begin administrating flexible spending accounts, health reimbursement accounts, and health savings accounts for Liazon in July 2014. Liazon’s exchange business primarily focuses on the small- to midsize employer market.

Consistent with Towers Watson’s recent commentary, on a year-to-date basis, Liazon has sold to roughly 110 new groups representing about 15,000 participants (versus sales of 125 groups, representing 25,000-30,000 participants in all of 2013). In addition to Liazon’s internal sales efforts, Towers Watson will sell the Liazon exchange solution for employers that have 3,000 to 5,000 employees. We believe Towers’ OneExchange Active platform will be focused on the largest employers. WageWorks also has an exclusive partnership with Towers’ OneExchange Active. According to the Census Bureau, there are about 121 million paid employees in the United States. About 60 million employees (50% of total) work at companies with less than 500 employees; about 15 million (12% of total) work at companies with 1,000-4,999 employees and 40 million (33% of total) work at companies with at least 5,000 employees.

We believe this is directionally consistent with Towers Watson’s (TW $106.81; Outperform) commentary on its most recent earnings conference call: “And we actually feel somewhat more confident about predicting what the take-up and exchanges might be five years from now than we maybe do one year from now… I think we still feel very good, we still feel very bullish, but we just can’t give you a projection at the moment, as to what, even January, what 2015 is going to look like….” In addition, employees generally have a negative perception of moving to an exchange; Aflac surveyed 5,400 workers, and about 60% had a negative view of employers that move to an exchange.

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