Before exchanges became a buzzword in the health insurance industry, before the federal government launched an effort to create a public exchange in every state, Ashok Subramanian set out to build a better health-benefits mousetrap.
Subramanian and two partners – Tim Godzich and Alan Cohen – founded Liazon in 2007, seeking a more efficient, cost-effective mechanism for employers to deliver insurance benefits to their workers.
Subramanian, a Williamsville native and the son of immigrants from India, came to the project after earning degrees at Princeton and Stanford, working as a consultant for McKinsey & Company and catching the start-up bug.
He and his partners spent about two years perfecting the technology behind their online benefits store, which they named the Bright Choices Exchange, before beginning the process of selling it to local, and then national, clients.
The company also customizes private-label exchange platforms for partners, typically an insurance broker or carrier.
Liazon has raised $35 million in venture capital but has no plans to raise more, Subramanian said, because the company is well-financed and is reinvesting revenues into hiring more sales people and other steps meant to expand the business.
Subramanian, now 37 and Liazon’s CEO, moved to Manhattan for his wife’s career as a concert violinist.
Today, as large competitors move into the exchange marketplace, he sees an opportunity for further growth for Liazon – and for this growth to take place in Buffalo.
With Liazon expecting to top 100 employees soon, about 70 percent of them in Buffalo, the company next year will move from its Main Street offices to larger space in the Coffee Rich building on Scott Street.
Q: What did you learn from being on the consultant side of the business world?
A: I think one of the good things about being a consultant relatively early in your career is you get exposed to a wide array of companies, you get exposure to a wide array of situations, personalities. It’s a really good place to see a lot of things and learn about what you like and what you don’t like. And I often recommend it to people as good training for the future.
Q: Why health care?
A: I was a consultant in the health care practice at McKinsey, so my knowledge, my background, my relationships were in and around health care. I’m always intrigued by certain big, thorny problems that affect a big part of the economy and health care was clearly that.
Q: Why health insurance in particular? What was the problem you were trying to solve?
A: Health care and education are two classic examples where there’s dissonance between how much things cost and who’s paying the bill. And that dissonance leads to market inefficiency and rising cost and often unsatisfactory levels of quality. You always start a business looking to solve a problem. And so the problem in health care is how do you create more efficiency, more transparency and more consumer empowerment?
Q: How did the idea of a benefit exchange, or portal, come together?
A: The three of us, interestingly, came at very similar ideas in different ways. So we all independently authored this model, which was, just imagine a more Amazon.com-like shopping experience for health insurance benefits. Tim had experience from his past. Alan had experience from his past. I had experience in my past. I think the three of us were able to put this together to build something better than what each of us could have done on our own.
Q: How does it feel to see, now, the federal government and the state governments, going all in with these exchanges?
A: The old expression is imitation is the sincerest form of flattery. It is on one hand deeply humbling to know that what was at the time a fairly crazy idea has now gained a lot of validation. But on the other hand it forces us as a company to really stay on our toes.
Q: How have the Affordable Care Act reforms affected your vision for the company?
A: There’s nothing specific about the law itself that necessarily helps our business. But what the law did was force everybody to look at how do we deliver insurance and how do we deliver these products more intelligently and more efficiently? And that just forced folks to take a longer look at how we do business, and that’s been a great accelerator for us.
Q: As you’ve studied how customers use your exchange, what have you learned about how consumers make choices?
A: The first thing we’ve learned is that people buy very differently from what their companies were previously buying for them. What I mean by that is the economist Milton Friedman once said, “People spend their own money a lot better than they spend other people’s money.” So you move someone from, ‘Steve, here’s the HMO, we picked it for you, it’s going to cost you 10 bucks a month,’ to ‘Steve, I’m going to give you $4,000, and you get to go shopping with that $4,000 with this wide range of options.’ We find that, in that example, only 20 percent of people will actually pick the plan that the employer had chosen for them before. Eighty percent will buy something different. Of those, about 90 percent actually buy something less expensive.
Q: You had a lot of options where you could have started the company. Why Buffalo, beyond personal ties to the area?
A: It’s funny. A lot of people often say Buffalo is a tough place to start a company. And there’s an element of truth to that. There’s not an ecosystem of young companies. There’s not a lot of people with whom you can share ideas about starting a company, and get through those tough days together. So there is truth to the challenges. But I tell people, I say this all the time outside the area, that Buffalo and places like Buffalo are actually fantastic places to start companies.
A: No. 1, it’s inexpensive. And so when you don’t have a lot of money to start a business, the ability to hire talent, to get office space, and whatnot, and do that a lot more efficiently, is critical. The second is, again, while the business community here is not necessarily entrepreneurial, it’s very friendly, it’s very welcoming. And so our first 25 customers were all here locally. We were very easily able to get meetings and opportunities to present our ideas, get feedback from businesses here locally. People actually want to see homegrown companies succeed. And that’s a critical ingredient to getting a new company off the ground, which you don’t necessarily have in other places.