Health Insurance Exchanges: Early Lessons from Real-World Assessments


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Succeeding in the health benefits exchange and individual insurance markets will require health plans to design and implement consumer-oriented market segmentation strategies, including profiling, 360-degree customer views and analytics capabilities to evaluate product performance.

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Health Insurance Exchanges: Early Lessons from Real-World Assessments

  1. 1. • Cognizant 20-20 InsightsHealth Insurance Exchanges: EarlyLessons from Real-World AssessmentsSucceeding in the health benefits exchange and individualinsurance markets will require health plans to design andimplement consumer-oriented market segmentation strategies,including profiling, 360-degree customer views and analyticscapabilities to evaluate product performance. Executive Summary forward with their plans to participate in HIXs or evaluating whether to do so, particularly in the With key elements of the health insurance individual plan market. This white paper shares exchange (HIX) landscape becoming more initial lessons about how best to rethink business defined, early lessons are emerging among models, reinvent processes and rewire technol- leading payers that are critical to successful par- ogy to succeed in the HIX marketplace. ticipation. For instance: • States have declared which exchange models Applied Learnings they will adopt, with 19 announcing they will Lesson 1: The certification of run state-based exchanges, seven planning QHPs requires payers to analyze partnership exchanges with the federal provisions and monitor continually- government and the rest defaulting to the shifting state requirements. federal exchange. Several states are currently analyzing PPACA’s • The Health and Human Services (HHS) coverage requirements and defining the QHP department has released guidelines that certification process that best fits their needs. the federal and state exchanges will use for Establishing these processes is tedious, and defining qualified health plans (QHPs). health plans must manage changing certifica- tion requirements and shifting timelines. They Yet other important components introduced by must also be prepared to continually exchange the Patient Protection and Affordable Care Act and revise plan/product offering information (PPACA), such as “navigators,” are still not well with state agencies. Health plans must invest sig- defined, nor are their implications completely nificant effort in analyzing specific state require- clear. ments across all facets of certification. Based on our participation in exchange work- Certain states will be “active purchasers,” so shops and meetings, we see payers moving that only the QHPs with which the state has cognizant 20-20 insights | march 2013
  2. 2. contracted may offer products on the state’s products to meet these requirements, while also exchange. Other states are adopting the clear- tailoring offerings to meet the desired consumer inghouse model, meaning they will allow any plan population. The marketing strategy must also be to offer products through their tailored accordingly, with an increased emphasis As payers take into exchange, as long as the plan on plan management-related activities. This will meets established minimum include understanding the National Association consideration the criteria (including those from of Insurance Commissioners (NAIC) System for state’s BHP, they the Utilization Review Accredi- Electronic Rate and Form Filing (SERFF) or other will need to focus tation Commission and the state-defined submission processes, including National Committee for Quality designated templates and defining how network/ on defining their Assurance) and continues to rate information will be uploaded. products to meet comply with the rules set by the Lesson 2: Payers will reinvent these requirements, state’s department of insurance sales and marketing processes and certain other state-mandat- while also tailoring ed requirements. to accommodate the shift toofferings to meet the “navigators” within the individual market. Payers must be intimately desired consumer familiar with the provisions Navigators — those agencies and individuals trained to explain plan options to consumers population. of a state’s selected essential seeking insurance — will be major forces and facil- health benefits or benchmark itators in the individual insurance market. Health health plan (BHP) to design products meeting plans must engage these market participants, but those standards. States may tailor the federal with new business models, given that navigators definitions of BHP compliance within the defined may not receive any direct or indirect payments provisions. For instance, a state may decide to from health insurers, and insurers are explicitly offer dental/vision coverage as a supplement or prohibited from being navigators. embed it within the product. Navigators are funded through grants provided by As payers take into consideration the state’s state HIX funds and must demonstrate they have BHP, they will need to focus on defining their existing relationships, or could establish relation- QHP Certification Process Timelines and Actions Plan filings due Final certification to exchanges of QHPs Enrollment begins January ‘13 March ‘13 April ‘13 June ‘13 July ‘13 October ‘13 January ’14 Provider availability Health plan Network access reporting Exchange coverage plan for network submission April 1 additional certification data becomes effective Carrier Authorization and Benefit Design Qualification Requirements Step 1 Step 2 Step 3 Step 4 Step 5 Complete HIX Complete HIX Submit benefit designs, Submit plan certification Participate in the HIX participation business agreement. forms and rates to information to HIX for final quality assessment intent form. insurance administration certification. process. for review/approval. Minimum Federal Requirements for Qualified Health Plans • Be licensed and in good standing. • Adhere to essential health benefits requirements. • Comply with exchange procedures, processes • Meet reporting requirements (i.e., quality improvement and requirements. reporting, enrollment reports, etc.). • Offer products that are in the interest of qualified • Gain accreditation within the timeframes established individuals and employers. by the exchange. • Adhere to financial management standards • Meet marketing standards (i.e., notice requirements, (i.e., risk adjustment, reinsurance, etc.). plain language standards, etc.). • Adhere to enrollment standards. • Meet requirement on segregation of abortion funds. • Adhere to network adequacy standards. • Meet transparency requirements. QHP certification process may vary depending on the requirements of individual states Figure 1 cognizant 20-20 insights 2
  3. 3. ships, with employers and employees, uninsured Because the 834 file has been recently and underinsured consumers, or self-employed enhanced to include additional elements individuals likely to qualify for enrollment in a HIX. to support exchange-related transactions, including initial premium information, some Payers must ensure that navigators are aware of of our larger payer customers are already their range of plans and benefits, as well as which analyzing these elements and assessing the market segment they serve. Given that it is still impact on their IT systems. unclear who will emerge as navigators, many of our clients have made this a lower priority area • The exchange redirects individuals to the payer Web site. If a state chooses not to but still are determining how best to provide manage enrollment itself, the HIX would direct product information to this new channel. individuals who have selected a plan to a Lesson 3: Payers must payer’s Web site for enrollment and premium redefine their quote-to-card payment. In this scenario, a payer will need to process for seamless manage the hand-off of the consumer from the integration with exchanges. HIX to its payment tool; accept and process HIXs will disrupt the industry’s quote-to-card the payment; and conduct reconciliation using mechanism, requiring payers to reinvent the an 834 transaction file with the HIX after entire process, with a special enrollment. It is critical to emphasis on for exchangea par- functionality enrollment, key Although some larger payers have the ability to offer products on a private insurance address all of the ticipation. exchange, smaller local/community health cross-functional Payers will receive an enhanced payers may have to enhance their abilities to accept transaction routing from their state and requirements for 834 enrollment file on a pre- create interfaces to ensure seamless consumer enrollment and defined frequency from an transitions to their portals. exchange. However, certain eligibility, as well as exchanges may choose to Lesson 4: There is no “one size fitstheir potential impact forward the individual request all;” a complex premium and subsidies on the simplified directly to payer Web sites. It reconciliation process requires payers to is critical to address all of the enhance their financial operations capabilities. codification of plan cross-functional requirements Reconciling premiums, individual advance benefits, to meet for enrollment and eligibility, as premium tax credits and cost-sharing subsidy the basic formulas well as their potential impact payments in a HIX will be a complex process, on the simplified codificationrequired by the ACA’s of plan benefits, to meet the potentially involving interactions with individu- als, states, HIX operators and the U.S. Treasury product levels. basic formulas required by the Department. A smooth, streamlined reconcili- ACA’s product levels (platinum, ation process that works well with various HIX gold, silver and bronze). For example, determin- models will be vital. Health plans must assess their ing eligibility of which subsidies a consumer may current billing capabilities and analyze exchange- qualify for could have a significant impact on the specific provisions that they must accommodate. decision-making process relative to plan selection and associated benefits. While a majority of states are deferring premium billing to payers, a few state exchanges (such Leading health plans are preparing for the as Washington and Nevada) have decided to following possible scenarios specifically for support premium aggregation. Depending on individual enrollments: the exchange, payers will need to configure their billing systems to accept or send an enhanced HIX • The exchange manages eligibility and plan 820 (HIX payment file) from or to an exchange at enrollment. The HIX determines an individ- a predefined frequency. ual’s eligibility to receive a subsidized health plan and, subsequently, may elect to manage Several of our payer clients are looking for an the individual’s enrollment. If a state elects off-the-shelf billing product or a billing clearing- to manage enrollment, payers should expect house that will provide the ability to interface to receive an 834 transaction file from the with different HIX billing models to avoid complex exchange (or associated government entity) enhancements to their billing systems. that will be used for plan enrollments. cognizant 20-20 insights 3
  4. 4. At a broader level, health plans need to prepare products or extensions to existing systems that for the following emerging scenarios: are under development to address this matter. • The exchange manages collection and aggre- While the silver bullet to CSR is still missing, plans gation. The HIX collects individual premium are assessing a variety of options. Scenarios payments from the subset of members who under evaluation include the use of accumula- choose to remit payments to the exchange, tors and shadow claims. Regardless of which aggregates the collected payments and method or approach is used, it is important that forwards them to issuers. The payer’s role plans take into consideration the needed recon- is largely limited to reconciliation with the ciliation between CSR projections and actuals to exchange. ensure plans receive their appropriate allocation of government funds to augment consumer costs. • The billing vendor manages collection and aggregation. An exchange contracts the Lesson 6: Exchanges will provide management of individual premium payment a gateway for Medicaid service plans processing and aggregation for a subset of to enter commercial health insurance members who opt to remit payments to the operations. HIX. Again, a payer’s billing role is generally Several of our Medicaid health plan clients limited to reconciliation with the exchange. see HIXs opening an opportunity to enter the • Direct payment approach. The exchange commercial market. The HIX market provides would leverage the payers’ existing payment significant opportunity to gain a share of the processing infrastructure and uninsured population that falls between 133% to Health plans will direct HIX members to remit 400% of the federal poverty level (FPL) and thus premium payments directly to are eligible for subsidies. have to either a payer. The HIX will provide build an ability to consumer assistance for Specifically, Medicaid plans considering entering enact cost share unresolved billing questions the health insurance exchange are focused on retaining their existing Medicaid consumer and other issues. Payer tracking within premium billing would be base, which may vacillate or “churn” betweentheir current claims modified to clearly identify Medicaid and the commercial products offered system or look at both the HIX and health plan on the exchange throughout the year. Approxi- mately 30%1 of the specific population that is on the bill, as well as theadditional products federal tax credit that reduces 133% to 250% of the FPL (otherwise known as or extensions to the premium obligation to the the “Medicaid Up” population) will churn between existing systems consumer. expanded Medicaid and commercial exchange products. that are under In this model, payer finance functionality will need to development to be considered to reconcile At the same time, Medicaid health plans want to not only retain their current members that mayaddress this matter. advanced premium tax credits be in play in the HIX market, but also target new and cost share reductions. entrants that will be added due to the expanded Medicaid bracket. Lesson 5: Plans must start preparing early for the Medicaid service plans must make a strong, complexities of managing cost clear business case for entering the commercial share reductions (CSR). market and vet HIX participation options. The Payers must project/anticipate cost-sharing commercial market’s dynamics, business abilities, expenditures to which eligible consumers are products and IT infrastructure requirements are entitled and then submit them to the exchange significantly different from their existing Medicaid or other designated government organizations systems. for refunds on a regular basis. This process will be similar to the Medicare Low Income Subsidy Plans are conducting detailed vendor analyses (LIS) programs, which will provide a good starting to identify IT partners that will help enable their point for health plans already managing similar transformation to a commercial model. This will programs. Health plans will have to either build require new and upgraded capabilities, especially an ability to enact cost-share tracking within in enrollments, claims, billing and member their current claims system or look at additional services. cognizant 20-20 insights 4
  5. 5. Core Medicaid Service Plan Functional Enhancements forCommercial Health Plan SuccessTo participate in exchanges, health plans offering Medicaid services would need to develop/upgradecapabilities across the value chain. Here is an overview across some of the critical functions for exchangeparticipation. Medicaid Commercial (Exchange LoB) • Individual enrollment: Each individual • Group enrollment: Individuals may enroll as enrolled as a member. family/group of dependents. • Target population: 0%-133% of federal • Target population: Enrollment poverty level. >> 137%-250% of federal poverty level (both APTC and CSR are applicable). >> 250%-400% of federal poverty level (only APTC is applicable). • Does not require billing of premiums to • Premium billing is a core function for a members. commercial insurance product. Billing • Largely funded by state government. • Requires reconciliation of APTC from federal • No delinquency issue due to state government for individuals receiving subsidies. funding. • Delinquency handling. • State or its brokers enroll individual • Consumers enroll themselves and may be Brokers/ based on eligibility. eligible for subsidies or be enrolled by brokers. Navigators/ • No concept of navigators or advisors. • Navigators will assist members in decision- Advisors making at the point of selection of the plan on the HIX. Claims • Medicaid involves zero or minimal cost- • Commercial insurance products will have CSR in sharing with members. the form of co-pays or deductibles. • No delinquency issue due to • COB, claims processing for delinquent members. government sponsorship. • Checking for family accumulators. • Only private reinsurance programs are • Government reinsurance programs and other available. risk management programs (risk adjustment and Finance risk corridors programs), in addition to private reinsurance programs. • Medicaid requires periodic reporting • Additional requirements to report to the HIX on to the state in the areas of enrollment, APTC, CSR, risk management. Reporting claims, provider networks, financial per- formance, medical management, etc. • Member delinquency, exchange user fees, reim- bursement and rebates, etc. • The plan/product needs to comply with • QHP standards to be met. Product/ state requirements (with state-to-state variations) in the pre-HIX world. • Approval of the HIX/DHHS needed before the Pricing plan/product is listed/hosted on the HIX. • Segregate plans /products by actuarial value.Figure 2 Lesson 7: Risk management, The PPACA includes provisions intended to although a priority, may not be a mitigate risk to payers through three programs: day-one activity. risk corridors, reinsurance (both of which areWe believe that critical activities such as configur- temporary) and a permanent risk adjustmenting enrollments, setting up billing and managing program. These are designed to help plansfinancials will take priority over risk management. manage the risks of insuring populations withHowever, payers must closely follow the risk poorer health and thus higher costs and levelprogram regulations that will be released in the the playing field among plans. The risk programscoming months and prepare for them as the HIX in general call for health plans serving mostlyopen enrollment date approaches. healthy populations to provide some of their cognizant 20-20 insights 5
  6. 6. excess premiums to health plans enrolling less Prepare for the HIX Influence Now healthy populations, as determined by a HIX. It is HIXs will change the health insurance market important to understand the provisions of these for all payers and consumers. We expect HIXs to risk programs to begin risk containment planning. introduce streamlined models for plan compari- HIXs will need to calculate, manage and mitigate sons, better designed and more efficient admin- the risk/pricing of their products and will require istrative processes, and pathways for increased payers to periodically numbers of individuals to purchase health plans via HIXs or similar models, such as private Health plans will also submit encounter/claims exchanges. need to consider the data to statetoor federal agencies and track and For plans evaluating HIX participation, it will be integration points reconcile financials on a important to implement the emerging lessons we for the different continuing basis. have described above. Even plans uncertain about risk programs, both Health plans will also need HIX participation should carefully review and implement these early lessons, with the under- temporary and to consider the integration standing that the markets in which they operate points for the different risk permanent, that will be programs, both temporary will be heavily shaped by HIXs and their practices. managed at both the and permanent, that will be Rethinking business models reshaped by consum- erism, reinventing processes to better servicestate and federal levels. managed at both the state individuals and rewiring systems to collect and and federal levels. These integration points could be manual or involve provide data will be inescapable activities for any uploading encounter/claim history information on payer to succeed in the HIX-influenced market. a file server to be processed by the administrator. Footnote 1 Chris Fleming, “Frequent Churning Predicted Between Medicaid and Exchanges,” Health Affairs Blog, Feb. 11, 2011, and-exchanges/. References • New York Health Benefit Exchange Official Web site, • California Health Exchange Official Web site, • Maryland Health Benefit Exchange Official Web site, • Kaiser Health Reform, • N. C. Aizenman, “For Insurance Exchanges, States Need ‘Navigators’ — and Hiring Them is a Huge Task,” The Washington Post, Feb. 4, 2013, for-insurance-exchanges-states-need-navigators--and-hiring-them-is-a-huge-task/2013/02/04/ bb5e577c-6960-11e2-ada3-d86a4806d5ee_story.html. • “Actuarial Value and Cost-Sharing Reductions Bulletin,” Centers for Medicare and Medicaid Services, • “Bulletin on the Risk Adjustment Program: Proposed Operations by the Department of Health and Human Services,” May 1, 2012, Centers for Medicare and Medicaid Services. cognizant 20-20 insights 6
  7. 7. About the AuthorsRaj Sundara is a Partner with Cognizant Healthcare Business Consulting. Raj brings close to 20 years ofexperience across numerous industries, with a specific focus on healthcare. His responsibilities includeenterprise program management, business process improvements, developing business architectureand IT strategy. Raj handles strategic consulting work and is the service line leader for health insuranceexchanges, retailing, regulatory compliance, healthcare reform and claims and enrollment operationsoptimization. Raj holds a master’s in technology management from the Wharton Business School. Hecan be reached at Bhatia is a Manager within Cognizant Healthcare Business Consulting. His experience spansconsulting, project/portfolio management and healthcare IT operations, including multiple largebusiness transformation initiatives as a management and IT consultant with several state govern-ments and private health plans. His areas of expertise include health insurance exchanges, regulatorycompliance, consumer-driven healthcare and healthcare reform. He received his master’s in informationsystems management from Carnegie Mellon University. Ardhendu can be reached at Gaffar is a Manager within Cognizant Healthcare Business Consulting, with more than 11 yearsof experience in the healthcare industry. Amer has worked on the ground floor of numerous strategy,transformation and compliance efforts to address recent healthcare market reforms. He has extensiveexperience across the payer and provider value chains in both the public and private sectors. He receivedhis master’s in health policy and administration from the University of Illinois and is a certified projectmanagement professional. Amer an be reached at CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 156,700 employees as of December 31, 2012, Cognizant is a member ofthe NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:©­­ Copyright 2013, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.