|Brian Patt||Triveni Harsh Mohta|
As health insurance undergoes a major transition from an employer-driven model (group market) to a direct model involving employers and consumers (individual market), health insurance exchanges (HIX) represent a significant step facilitating the change. With about 45 million uninsured and 50 million underinsured, lack of choice, transparency and rising costs were reasons for the Patient Protection & Accountable Care Act (PPACA or ACA) to mandate the establishment of state exchanges. The ACA mandates that every individual be insured by 2014, thus driving insurance exchanges.
The recent Supreme Court ruling addressed several critical points. It is too early to know the complete reaction in the private and public insurance markets to the rulings; however, the following are likely:
- CMS schedule for deployment of public exchanges will move forward for states.
- Most states are unlikely to be able to deploy and reach full operational readiness within CMS timelines – many states would either subscribe to the federal exchange or look to a private exchange or co-op.
- Aspects of ACA still face uncertainty from upcoming elections and legislative actions, but exchanges are here to stay. The U.S. healthcare model, pre-ACA, wasn’t sustainable. While some ACA provisions may be considered overreaching or unfunded, exchanges provide the individual market-facing mechanism that enables transparency and cost take-out by backing individual responsibility for cost management.
ACA presents health plans with a “participate vs. build” option with respect to exchanges: participate in the public exchange within state guidelines or build a private exchange that is closed (single payer), brokered (multiple payers through broker associations) or open (multiple competitive payers). We focus here on private exchanges and how commercial payers should prepare for these now, because the mandate increases competition among health plans but also offers them a unique opportunity to set up private exchanges in parallel to expand member base, offer a collaborative environment and greater flexibility to employers, and simplify the process of purchasing insurance. Co-existence of private exchanges alongside public exchanges will create a competitive, healthy and effective health insurance system by achieving key goals of healthcare reform:
- Extend coverage to more consumers.
- Promote a stable insurance market.
- Maintain the right equilibrium of insurance pools between insurance markets.
- Allow consumers access to the most cost-effective options that meet their individual needs.
- Provide payers with significant assistance in regulatory compliance, such as reaching medical loss ratio (MLR) targets.
Four key factors are driving health plans to establish private exchanges:
- Market: Competition among health plans with the mandate of exchange setup. Attraction of covering millions of uninsured individuals and targeting mid-size and large employers that do not benefit from public exchanges.
- Costs: As rising costs pose a hurdle for insuring every employee and individual, there is a need for affordable insurance for plan sponsors as well as enrollees and to move toward a defined contribution model from a defined benefit model. Exchanges offer transparency and choice to promote this.
- Consumerism: Consumer focus will be inherent in all platforms. Support via call center, chat, mobile, social media, etc., is now the starting point for consumer-facing platforms.
- Risk-pooling: Multi-carrier exchange provides opportunity for better risk pooling through the use of technologies, such as EMR and HIE records, that provide a more accurate health history.
Challenges and strategic considerations for private exchanges
Health plans need to address several challenges while setting up private exchanges to increase member base:
- Operational model: In a multi-carrier environment, the governance model, execution strategy and business rules definition are significant challenges. Although health plans can opt to set up a single-carrier exchange, the complete execution strategy definition is still a challenge.
- Brokers: Exchanges cannot simply be the new portal for broker interaction. Just as life insurance, property and casualty (P&C) insurance, and travel and leisure sectors redefined the role and opportunities of the agent/broker, private exchanges (and the health insurance industry) need to do the same. Services provided by brokers will transform from primarily sourcing and registration to value-adds that will support improved health delivery and cost take-out.
- Infrastructure set up and integration: Serving millions of consumers requires a well-defined infrastructure strategy based on population characteristics and insurance market environment. Integration with health plan administrative and operational systems is crucial for data integrity as well as an automated and accelerated transactional environment. Sound integration strategies reduce administrative burden and associated costs.
- Consumer acquisition and relationship management: Assessing the market potential and developing new strategies are required for consumer acquisition and retention.
- Marketing strategy: Differentiation for the health plan has to be achieved through marketing, outreach and communication plans.
- Adverse selection: Innovative approaches are needed to address the issue of adverse selection and must be supported with appropriate risk adjustment mechanisms and strategies.
- Data security and privacy: While implementing process automation and integration, the data flow needs to be controlled with a secure channel and requires stakeholder buy-in as well as infrastructure availability.
Health plans need to cover both IT and operational services in a harmonized manner
|Exchange operational model||
|Consumer acquisition and relationship management||
|Marketing strategy definition and broker support||
|Infrastructure and integration||
Setting up private exchanges: Strategic and operational approach
People: Governance for a private exchange is typically by an independent body comprising of the IT platform provider, representatives from participating carriers and legal advisor, as well as a consumer representative. The exchange would serve a broad spectrum of people with a range of income levels, English proficiency and technological savvy.
Process: Private exchange needs to define business processes equivalent to public exchanges (in compliance with ACA), since it has provisions for tax credits and subsidies to attract consumers. Financial modeling should factor all expenses while providing subsidized and affordable coverage and generate revenue at the same time. Addressing adverse selection requires appropriate risk management strategies and can be achieved with claims and premium information from core health plan systems. Plan management and related business rules are important, as the flexibility of plan and benefits for consumers can attract them through transparency. Landscape definition for plan management should consider provisions for value-based benefits, dynamic quote generation and rating capabilities, and marketing and CRM for differentiation and profitability of the exchange – a holistic strategy for multi-channel marketing (direct mail, Web, mobile), education, and service and support.
HIX set up approach
Technology: Technology strategy driven by people and process is key to exchange efficiency. Leveraging existing technology infrastructure (e.g., call center/help desk), integration with existing systems (claims processing, rating, quoting, premium processing engines, etc.) and process automation are key factors. Contracting with vendors that provide operational and technology services for customer management, enrollment, billing, premium payments, payment reconciliations, commissions handling, education and outreach, etc., under a single umbrella enables administrative simplicity and efficiency.
The following features enable carriers to enhance the private exchange service landscape and provide a user-friendly, one-stop-shop experience for consumers:
- Robust plan selection tools with search filters (e.g., monthly cost, office visits, additional coverage, providers, HSA eligibility) and benefit-level comparison with benefit-level pricing.
- Holistic plan recommendation engine based on demographic and clinical data.
- Online quoting and comparison for easy comparison shopping across insurers; robust rating and quoting engine that facilitates “apples-to-apples” comparison of plans and rates.
- Provision for discounts/subsidies.
- Integration with claims and premium processing systems for transaction automation and risk management.
- Rich user experience with user training, multi-channel delivery, social media support with plan negotiation capabilities, online education and surveys.
- Integration with broker networking systems.
- Security and privacy compliance with robust infrastructure.
- Analytics and reporting to aid real-time business decisions based on realized value levers.
Private exchanges: Driving growth and differentiation
Private exchanges are likely to proliferate, but health plans need to differentiate from the private insurance market and public exchanges through clear strategies for innovative deployment, distinct consumer experience and efficient operation. Value-added features are key for each strategy, such as integration with tax-deferred accounts (HSAs, HRAs, etc.), tax credits processing, communities and auctions in implementation, social media networking and support for consumer experience, innovative operating models around plan management and so on. Health plans can broaden their product offerings over time with dental and life insurance or even non-insurance products to best their competition. If thoughtfully planned and systematically executed, private exchanges can help health insurers adapt to the individual market and drive growth, while achieving healthcare reform goals for consumers.
About the authors
Brian Patt is head of exchanges and global alliance director, Infosys Public Services. Triveni Harsh Mohta is senior project manager of healthcare solutions, Infosys Public Services. For more on Infosys, click here.