Dennis Prysner

Carriers are finalizing their state insurance exchange strategy in preparation for the October 2013 date by which medical plans will be available for purchase through these initiatives. Many are finding themselves confronted with four challenges that are hampering their efforts to roll out programs in multiple states.

One of the most significant is the lack of consistency in the exchange models being deployed by individual states. HHS has suggested two federal-state partnership models. In one, states assume responsibility for managing participating health plans. In the other, states aid consumers in navigating the system. Four additional models have been identified by Deloitte: 1) information aggregator, 2) retail-oriented exchange, 3) guided exchange and 4) market curator.

The model ultimately deployed will dictate the level of responsibility that will fall upon participating carriers’ shoulders and, therefore, the capabilities and technical infrastructure that they must put in place. In fact, variance in exchange models is the underlying source of all the primary challenges carriers face when preparing for exchanges.

For example, each model will require carriers to provide different interface capabilities. In the first model recommended by HHS, the state assumes responsibility for managing plan selection, collection and analysis of rate and benefit information and for collecting and reporting plan performance data—responsibilities that will likely be transferred to the carrier as part of the state’s price of admission.

These interfaces must also be capable of overcoming another common challenge: meeting the technical and information needs of multiple entities. This requires carriers to establish not only the interfaces but also the internal technical infrastructures and business processes to ensure that required information is properly and compliantly exchanged with all entities. These include federal and state exchanges, state departments of insurance, employers, reinsurers and consumers.

Finally, carriers must be able to step in and fill in any functionality gaps that the state exchange is not equipped to offer. These may include premium and claims administration, document fulfillment and retention and cross-selling activities. These are typically highly specialized processes and programs that are most effective when leveraging advanced technologies and proven business processes.

Over the next few weeks, we will take a closer look at each of these exchange challenges. We’ll break down their underlying causes and offer solid solutions for overcoming them so carriers can successfully tap into this potentially lucrative market—and maximize the return on their investment.

Dennis Prysner

The race is on for carriers planning to participate in state insurance exchanges. Under interim final rules issued by the Department of Health and Human Services (HHS) March 12th, states will be allowed the flexibility on how many key provisions of the law are implemented, and at the same time, if they wish to operate their own exchanges, they must “demonstrate complete readiness” by Jan. 1, 2013.

This means carriers must also be ready to respond and be far enough along in their exchange planning to satisfy any requirements states may set – as well as to meet the October 2013 enrollment launch date—or risk being excluded from the exchange. This includes:

•  Designing and securing certification of exchange-specific Qualified Health Plans that meet the Actuarial Value and provide all Essential Health Benefit (EHB), the details of which will not be finalized until September of this year
• Establishing physical connections to each state exchange to publish plan and rate information and manage enrollment and benefits, which for carriers operating in multiple jurisdictions could mean implementing scores of different technical interfaces
•  Designing business processes to administer exchange plans, including the ability to calculate subsidy levels and out-of-pocket limits and bill multiple sources for premium payments

Clearly, participating in state exchanges, while potentially advantageous, is resource intensive and requires a fundamentally different approach to administration. That is why outsourcing to experts is gaining favor as one of the best, most cost-effective strategies for accomplishing all the heavy lifting that goes into state exchange programs.

Partnering with an experienced outsourced provider to handle the infrastructure and administration allows carriers to focus internal resources on core competencies. Carriers can focus on plan design and certification while their partner focuses on establishing the technical gateways and administrative business s operations. This includes ensuring the interface with each exchange meets the technical specifications, data collection, reporting and communication requirements of each state.

Outsourcing also enables carriers to tap into a depth of expertise that is often not available internally. It allows them to leverage their partner’s experience administering individual plans, as well as Medicare and Medicaid, to meet the unique needs of exchange participants.

For example, the members purchasing insurance through exchanges will typically be eligible for varying levels of subsidies, which will necessitate flexibility in premium billing, payment processes, and reconciliations. Many of these members will also be new to the individual insurance market and will require a higher level of customer support than most carriers are accustomed to providing.

Experienced outsourcing partners can provide transparent plan administration which enables carriers to reap the rewards of exchange participation without diverting valuable resources away from other profitable business lines. They can also implement strategies designed to maximum the investment into state exchanges, such as analytics-driven marketing, retention and cross-selling programs.

Time is short for carriers to finalize their exchange readiness programs, even for those who recognize the distinct advantages offered by outsourcing some or all of their needs. Resources are limited, and carriers that wait too long to establish key relationships could find themselves standing on the exchange sidelines.

Jeff Bak

In less than two years, the first wave of consumers will be shopping for subsidized medical coverage through an insurance exchange. Already, 13 states have enacted legislation to create reform-mandated exchanges, while others continue to evaluate whether to allow a federal exchange instead of their own.

Enrollment through public exchanges is slated to begin in October 2013. Some are holding out hope that the Department of Health and Human Services (HHS) will concede to pressure from states and the industry and issue an extension. However, the agency’s recent decision to keep all medical loss ratio (MLR) deadlines in place makes that unlikely.

As such, the clock is ticking. Many carriers that intend to participate in what could be a lucrative new market will have to scramble if they are to have in place the products and infrastructures necessary to connect with multiple state exchanges – and customers.

Insurance exchanges will allow individuals and small businesses to compare health plans based on price, quality and coverage. They will also assist applicants in determining if they are eligible for subsidies or tax credits to help offset premium costs or if they qualify for Medicaid.

The challenge for many health plans is that they simply do not have the capacity to manage all the moving parts exchange participation will require. Many are finding it necessary to focus resources on exchange-specific plan designs at the expense of putting in place the systems necessary to connect to multiple state exchanges, as well as to manage on boarding and post-sale administration.

Indeed, internal assessments underway at many carrier organizations are revealing existing weaknesses in such crucial areas as enrollment, eligibility, premium collection and renewal and retention programs. To succeed in an exchange environment, plans must not only strengthen these key areas, but they must also build in the flexibility required to customize them according to individual state requirements.

Carriers must also be capable of collecting and sharing data that few currently utilize. For example, they must be able to accurately calculate premium percentages based on available subsidies and have processes in place to manage split billings and collections. Maximizing profitability also requires advanced predictive modeling and business intelligence tools that will allow health plans to deploy analytics-driven recruitment and retention programs, including cross-selling of voluntary benefits outside the exchange.

In short, carriers must be able to dedicated sufficient human, financial and technical resources to establish compliant, cost-effective state exchange programs. With time running out, many will find that outsourcing is a viable option. It provides access to turnkey systems and processes. Equally important, it allows them to leverage the expertise necessary to ramp up and administer a profitable exchange line of business.

Jeff Bak

When the Department of Health and Human Services (HHS) issued its Medical Loss Ratio Final Rule in December, the revised regulations held several pleasant surprises for health plans. Most notably, the final rules eased some of the most onerous mandates related to issuing rebates for those plans that fall short of the MLR threshold.

Among the most significant concessions was how rebates are issued to enrollees. In the interim rules, carriers were required to identify all past and present enrollees of both individual and group plans and issue rebates to each. In the final rule, health plans are required to issue a lump sum rebate to group plan policyholders, who must then use it in a manner that benefits all subscribers, for example as a premium reduction or cash refund. For individual plans, rebates must be distributed to each enrollee or, in the case of a policy that covers more than one person, to the subscriber.

The final rule also eliminated the need for carriers to calculate how the rebate should be divided between policyholder and enrollee based on the percentage of the premium each paid. The minimum rebate was also increased from $5 to $20 per group policyholder.

This shift in administrative accountability from carriers to employers was a huge relief to the industry. From a tactical standpoint, the complexities associated with the interim rebate requirements made it unlikely that smaller carriers in particular would be able to comply within the established timeframe.

However, carriers should not let the fact that HHS eased some of the more arduous requirements surrounding the MLR rebates lull them into passivity. The agency did not extend any of the compliance deadlines. With few exceptions, carries must still report MLR calculations to HHS by April 1, 2012, submit MLR reports by June 1, 2012, and issue rebates by Aug. 1, 2012.

A great deal of work must be done in a short amount of time. Processes and procedures must be put into place, and technical and human resources shored up to handle the spike in workflows generated by the rebate process.

Carriers should also take the agency’s stance on deadlines as a sign that HHS will be equally resistant to changing the dates of other key elements of healthcare reform. In particular, the agency has made it very clear that it has no intention of changing the dates by which insurance exchanges must be operational.

In less than two years, the first consumers will be shopping for and selecting subsidized coverage through exchanges. Carriers must be ready with the systems, processes and marketing necessary to make the necessary connections – which will be the focus of our next blog.

Jeff Bak

Based on 2010 baseline data, had the Medical Loss Ratio (MLR) mandate been in effect last year $1.3 billion in rebates would have been paid out by publicly traded carriers. That is according to a report by Citigroup Global Markets.

When those findings are combined with U.S. Department of Health and Human Services estimates that 45% of consumers with individual coverage are in plans that don’t meet the MLR, it becomes clear that rebates are a very real – and very complex and costly – possibility for many health plans.

In fact, were the mandate in effect today, an estimated 9 million people would be eligible for rebates averaging $164 per person. In 2012, rebates are expected to cost the industry $1.4 billion.

The numbers alone are enough to keep carrier executives awake at night. But many are also increasingly troubled by the realization that they are ill-equipped to manage the rebate process. Their systems and processes are simply not flexible enough to adapt to the complex rebate regimen.

The challenge is not just determining the amount of the actual rebate. It is tracking the customer data required in the event a rebate must be issued and ensuring that payments are issued within the mandated timeframe — no later than August 1 following the end of the MLR reporting period.

Compliance for these carriers requires a comprehensive retooling of critical business processes and deployment of enhanced and highly agile IT systems – all at a time when they are already grappling with the increased costs of complying with multiple other mandates. These include reform-driven mandates such as guaranteed issue and elimination of lifetime limits as well as non-reform requirements such as HPAA 5010 and ICD-10.

To succeed, carriers must focus on deploying the systems necessary to streamline the rebate process. For example, they must find ways to deploy integration pathways to ensure necessary data feeds and workflows and develop processes that facilitate interactions with members and employers so that critical data elements can be obtained.

Carriers must also execute strategies that enable them to convert the rebate requirement from a cost center to a marketing opportunity. Programs must be designed that minimize rebate payouts and leverage the process to enhance revenues by cross-selling non-traditional products to existing subscribers and reengaging terminated ones.

The catch is that it may not be enough to make the changes necessary to comply with current rebate requirements. Thanks to the forthcoming Supreme Court ruling on legal challenges to healthcare reform – particularly with regards to the lack of a severability clause – and pending legislation, implementation and enforcement of the MLR mandate is likely to be modified. That is why any adaptations carriers make must be flexible enough to accommodate any future changes that may result from these challenges.

Clearly, complying with strict MLR mandates — 85% for large group carriers and 80% for small group and individual carriers — is a top-of-mind issue for many healthcare executives today. It’s not just because of the estimated financial impact. Many have also come to the realization that their existing processes and systems are ill-equipped to comply with the MLR mandate or efficiently manage the rebate process.

For example, to calculate the MLR, data must be aggregated by state and market over a three-year period. Earned premium adjustments must be made for assessments paid to, or subsidies received from, federal and state high-risk pools, as well as for premiums associated with group conversion charges. Other adjustment must be made for experience rating refunds and unearned premiums.

Incurred claims must be adjusted for such things as group conversion charges, unpaid claims between the prior and current year’s unpaid claims reserves, change in claims incurred but not reported (IBNR), other changes in reserves and any experience rating refunds.

Under the MLR formula, plan activities that improve healthcare quality can be counted with incurred claims. These include case management, care coordination, chronic disease management, accreditation fees directly related to quality of care activities and quality reporting, as well as IT to support these activities. Also acceptable are quality initiatives designed to prevent hospital readmissions, improve patient safety, reduce medical errors and promote wellness and health activities.

It’s a lot to manage on an ongoing basis, particularly when critical systems and processes must first be retooled or, in some cases, built from scratch…at a time when few can afford to make the significant investments required to do so.

Many carriers will find that the solution is to leverage technology-enhanced outsourced solutions that provide a cost-effective “turn-key” approach to MLR management. The right partner will be able to mitigate the risk of failing to meet the MLR and deliver benefits beyond avoiding rebates or the hit on limited profits.

The focus should be on implementing new and efficient administration and sales models to shift expenses and to achieve optimal pricing to avoid going over or under the MLR. It should also be on expanding portfolios to include ancillary products to replace lost revenues.

Most importantly, the focus should be on strategies designed to specifically avoid the MLR threshold. Finally, by outsourcing to a highly experienced partner will equip carriers not only to process rebates if and when required, but to also convert that rebate process from a profit loss to a marketing opportunity.