1 © P.R. Kongstvedt Chapter 6: Sales, Governance and Administration Learning Objectives Understand the basic structure of governance and management in payer organizations Understand the basic elements of the internal operations of payer organizations, including: Information technology (IT) Marketing and sales, including insurance exchanges Underwriting and premium rate development Eligibility, enrollment and billing Claims and benefits administration Member services, including appeal rights Statutory accounting and statutory net worth Financial management 2 2 Board of Directors May be specific to a plan, may be pro-forma for a subsidiary of a larger company, etc. Responsibilities: Final approval of corporate bylaws General oversight of the profitability or reserve status Oversight and approval of significant fiscal events Review of reports and document signing Setting and approving policy Oversight of the quality management program In for-profit plans, responsibility to protect shareholders’ interests In free-standing plans, hiring the CEO and reviewing CEO’s performance 3 © P. R. Kongstvedt Typical Key Management Positions Chief Executive Officer/Executive Director Chief Operating Officer/Operations Director May be a separate position from CEO in large companies If separate from CEO, the COO may also be the President Chief Medical Officer/Medical Director Vice President (or SVP or EVP) of Network Management Chief Financial Officer/Finance Director Treasurer Chief Marketing Officer/Marketing Director Chief Underwriting Officer Chief Information Officer/Director of Information Systems Corporate Compliance Officer 4 Typical Key Operational Committees Quality Management Committee Credentialing Committee Utilization Review Committee Pharmacy and Therapeutics Committee Medical Grievance Review and Appeals Committee 5 Foundational Information Technology (IT) Systems Key software functionality includes: Benefit configuration Employer group and member enrollment Premium management Provider enrollment, contracting and credentialing Claims payment Document Imaging and Workflow Customer Servicing Medical Management Ability for two-way EDI with insurance exchanges, employers, state and federal government, members, providers, etc. 6 HIPAA Mandated Electronic Transaction Standards HIPAA requires covered entities that conduct certain electronic transactions to use only ANSI X12N 5010 defined standards ACA is creating new standards and requiring more standardization of implementation 7TransactionStandardProvider Claims submissionANSI X12 – 837 (different versions exist for institutional, professional, and dental)Pharmacy claimsNCPDPEligibilityANSI X12 - 270 (inquiry) ANSI X12 - 271 (response)Claim statusANSI X12 - 276 (inquiry) ANSI X12 - 277 (response)Provider Referral certification and authorizationANSI X12 - 278Health care payment to provider, with remittance adviceANSI X12 - 835Enrollment and Disenrollment in health plan*ANS.

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© P.R. Kongstvedt
Chapter 6: Sales, Governance and Administration
Learning Objectives
Understand the basic structure of governance and management
in payer organizations
Understand the basic elements of the internal operations of
payer organizations, including:
Information technology (IT)
Marketing and sales, including insurance exchanges
Underwriting and premium rate development
Eligibility, enrollment and billing
Claims and benefits administration
Member services, including appeal rights
Statutory accounting and statutory net worth
Financial management
2
2
Board of Directors
May be specific to a plan, may be pro-forma for a subsidiary of
a larger company, etc.

2. Responsibilities:
Final approval of corporate bylaws
General oversight of the profitability or reserve status
Oversight and approval of significant fiscal events
Review of reports and document signing
Setting and approving policy
Oversight of the quality management program
In for-profit plans, responsibility to protect shareholders’
interests
In free-standing plans, hiring the CEO and reviewing CEO’s
performance
3
© P. R. Kongstvedt
Typical Key Management Positions
Chief Executive Officer/Executive Director
Chief Operating Officer/Operations Director
May be a separate position from CEO in large companies
If separate from CEO, the COO may also be the President
Chief Medical Officer/Medical Director
Vice President (or SVP or EVP) of Network Management
Chief Financial Officer/Finance Director
Treasurer
Chief Marketing Officer/Marketing Director
Chief Underwriting Officer
Chief Information Officer/Director of Information Systems
Corporate Compliance Officer
4
Typical Key Operational Committees
Quality Management Committee
Credentialing Committee

3. Utilization Review Committee
Pharmacy and Therapeutics Committee
Medical Grievance Review and Appeals Committee
5
Foundational Information Technology (IT) Systems
Key software functionality includes:
Benefit configuration
Employer group and member enrollment
Premium management
Provider enrollment, contracting and credentialing
Claims payment
Document Imaging and Workflow
Customer Servicing
Medical Management
Ability for two-way EDI with insurance exchanges, employers,
state and federal government, members, providers, etc.
6
HIPAA Mandated Electronic Transaction Standards
HIPAA requires covered entities that conduct certain electronic
transactions to use only ANSI X12N 5010 defined standards
ACA is creating new standards and requiring more
standardization of implementation
7TransactionStandardProvider Claims submissionANSI X12 –
837 (different versions exist for institutional, professional, and
dental)Pharmacy claimsNCPDPEligibilityANSI X12 - 270
(inquiry)
ANSI X12 - 271 (response)Claim statusANSI X12 - 276
(inquiry)
ANSI X12 - 277 (response)Provider Referral certification and

4. authorizationANSI X12 - 278Health care payment to provider,
with remittance adviceANSI X12 - 835Enrollment and
Disenrollment in health plan*ANSI X12 - 834Claims attachment
(additional clinical information from provider to health plan,
used for claims adjudication)ANSI X12 - 275 (not finalized at
the time of publication), and HL7 CDAPremium payment to
health plan*ANSI X12 - 820First report of injuryANSI X12 -
148 (not yet issued)* These are for voluntarily but not
mandatory use by employers, unions, or associations that pay
premiums to the health plan on behalf of members.
Source: Compiled by author based on 45 CFR §160.920 and
other sources at the Center for Medicare and Medicaid Services
(CMS);
Accessible at http://www.cms.gov
HIPAA Mandated Privacy and Security Requirements
HIPAA requires high levels of privacy and security for
electronic information, to:
ensure the confidentiality, integrity, and availability of
electronic PHI;
protect against any reasonably anticipated threats or hazards to
the security and integrity of electronic PHI;
protect against any reasonably anticipated uses or disclosures of
electronic PHI not permitted by the HIPAA privacy rules; and
ensure compliance with the above by its workforce (Source:
Federal Register, 45 CFR § 164.308)
There are eighteen standards for HIPAA security rules:
8Security Management ProcessAssigned Security
ResponsibilityWorkforce SecurityInformation Access
ManagementSecurity Awareness and TrainingSecurity Incident
ProceduresContingency PlanEvaluationBusiness Associate
ContractsFacility Access ControlsWorkstation UseWorkstation
SecurityDevice and Media ControlsAccess ControlAudit

5. ControlsIntegrityPerson or Identity AuthenticationTransmission
SecuritySource: Federal Register, 45 CFR § 164.308(a & b), 45
CFR § 164.310(a-d); 45 CFR § 164.312(a-e)
Standardized SBC/SOC
ACA requires all health plans, including self-funded, must
provide a standardized Summary of Benefits and Coverage
(SBC), also called a Summary of Coverage (SOC) to all current
and prospective enrollees
The SBC/SOC to be done in a uniform and common format that
defines the number of pages, the exact information that must be
provided, and even the size of the font
The SBC does not replace the far more detailed Evidence of
Coverage (EOC), sometimes called a Certificate of Coverage or
Certificate of Insurance
9
Marketing vs. Sales
Marketing and sales are related but distinct activities
Marketing
Focus is on overall growth goals, strategies and tactics,
management of the process
Compensation combination of salary and overall growth goals
Role in Insurance Exchange as well as outside exchange
Sales
The actual process of selling the plan’s offerings in the
marketplace through any distribution channel
Compensation usually heavily weighted towards achievement of
sales goals
No real role in the insurance exchange
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© P.R. Kongstvedt

6. Fundamental Elements of Marketing
Brand Management
External Communications and Public Relations
Advertising
Employer versus consumer advertising
Collateral texts: outdoor, direct
Market Research
Lead Generation
Sales Campaign Support
Heavily regulated for individual and small group market
through the Exchange
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Distribution Channels by Market Segment
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Health Insurance Exchanges...
ACA created state-based American Health Benefit Exchanges
and Small Business Health Options Program (SHOP)
Exchanges, administered by a governmental agency or non-
profit organization, through which small businesses with up to
100 employees can purchase qualified coverage
Separate exchanges for individuals to access coverage
Permit states to allow businesses with more than 100 employees
to purchase coverage in the SHOP Exchange beginning in 2017
States may form regional Exchanges or allow more than one
Exchange to operate in a state
Feds operate exchanges in states that refused to build them

7. Office of Personnel Management to contract with insurers to
offer at least two multi-state plans in each Exchange. At least
one plan must be offered by a non-profit entity
Creation of plan rating systems similar to that used in Medicare
Advantage
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Health Insurance Exchanges (cont.)
Brokers still allowed to operate in this market segment for
health
Exchanges do not prohibit a non-Exchange market for
individual and group coverage, but rates must be the same if
sold both in and outside of the Exchange
Require the Office of Personnel Management to contract with
insurers to offer at least two multi-state plans in each Exchange.
At least one plan must be offered by a non-profit entity
Each multi-state plan must be licensed in each state and must
meet the qualifications of a qualified health plan
Members of Congress and congressional staff may only enroll in
either plans created under ACA (e.g., CO-OPs) or in plans
offered in Exchange – but this also required a “fix” because
ACA as written did not allow of an employer contribution to
coverage purchased through the individual exchanges
Two-way data exchange requirements are huge
© P.R. Kongstvedt
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Actuarial Services
Actuaries analyze the data and predict costs, adjusted for
Trend
Utilization
Costs

8. Benefits design
Behavioral shift
Distribution amongst different providers with different cost
profiles
Actuaries generally do not create the rates, but only model costs
Large payers have their own, smaller and mid-sized plans use
actuarial consulting firms
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Rating and Underwriting
Underwriting has had two distinct but related meanings:
Medical underwriting referred to using an individual’s or small
group’s medical history to determine whether to offer coverage
at all
General underwriting includes gathering of information to assist
in the development of premium rates
Underwriters use the actuarial data and other factors to
calculate rates
Three types of premium rating:
Community rating
Experience rating
Premium equivalent or imputed premium rates
Type of rating only affects the calculation of the base rate, not
the mechanics of creating actual premium rates
Community rating requires the same base rate for all, though
may be different for all individuals vs. all small groups
Experience rating uses base rate from actual costs of the group
Premium equivalent is calculated just like experience rating for
the base rate
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Rating and Underwriting in the Individual and Small Group

9. Markets under the ACA
Extension of dependent coverage to age 26
Prohibition on rescissions except in cases of outright fraud
Prohibition of preexisting condition exclusions and coverage
rescissions
Lifetime and annual policy coverage limits prohibited
Require first-dollar coverage for preventive services
Minimum medical loss ratio (MLR) of 85% for large group and
80% for individuals and small groups – applies only to insured
business, not self-funded (no premiums)
Insurers required to guarantee availability and renewability to
individuals and groups.
Insurers not allowed to use health status as a rating variable
Only the following will be allowed:
Age related pricing variations are limited to a maximum of 3 to
1.
The number of people covered under the policy (e.g., “single”
vs. “family” coverage).
Tobacco use (except rates may not vary by more than a ratio of
1.5 to 1)
Other provisions such as out-of-pocket cost limitations based on
income, etc.
Requirement to include Essential Health Benefits at one of four
different coverage levels
Premium risk-adjustment mechanism for individual and small
group markets
Beginning in 2018, impose an excise tax of plans with
premiums that exceed a certain level
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© P.R. Kongstvedt
The ACA’s Four Coverage Tiers
What’s in Your Wallet?
Allows for 40% swing in cost sharing between Platinum and

10. Bronze plan designs
Coverage levels based on in-network costs for all but
emergency care (defined via “prudent layperson), not billed
charges
Coverage based on actuarial equivalency, so may be spread
around benefits, except cannot have different cost-sharing for
MH/BH than for Med/Surg.
Room to futz with benefits as long as cost sharing ends up
where it’s supposed to
18
High deductible plan with preventive services and limited office
visit coverage for the under-30s
18
Eligibility in the Commercial Market
Eligibility in the commercial (non-Medicare/Medicaid) market
may be thought of in four categories:
Eligibility in Employer Sponsored Group Benefits Plans
Eligibility changes based on life events
Individual eligibility
Eligibility for subsidized coverage
Employer sponsored coverage
Must be full time
Dependent coverage through employee
Must first enroll during defined periods such as upon
employment following a defined number of days after they start
working
19

11. Life Events and Eligibility Options
[Put Table 6 – 2 here]
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© P.R. Kongstvedt
Life Events and Eligibility Options (cont’d)
[Put Table 6 – 2 here]
21
Elements of Claims Complexity
Multiple Lines of Business
Provider Payment Rules
Sophiscated Px & Dx Coding
Unbundled Claims
Referral/Authorization Rules
Government Mandates
Medicare/Medicaid Standards
Other Party Liability
Cost Sharing Features
Benefit Plan Variations
Multiple Lines of Business
Rules and Regulations of Exchange
Tracking MLR for Groups and Individuals
Value Based Benefits
New Payment Models
22

12. Claims Operational Functions
The modern claims capability is the set of operational functions
within the payer organization that together process claims from
receipt to issuance of payment and/or Explanation of Benefits
(EOB).
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© PR Kongstvedt
Determination of Eligibility & Liability
Benefit plan in force on the date of service
Provider network and/or PCP on date of service
Coordination of Benefits (COB), Other Party Liability (OPL),
and Subrogation
Benefits Administration
Applying the applicable schedule of benefits in force on the
date of service
Requires CPT codes, Hospital Revenue Codes, HCPCS codes,
ICD-10
Computation of cost sharing amounts
Application of appropriate medical policies
Application of appropriate provider payment schedules based on
specific network at time of service, in vs. out of network, etc.
Management of pended claims, resubmissions, and duplicate
claims
Adjustments and appeals
Detection of fraud and abuse
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Core Claims Determinations in the Adjudication Process
Role of Member Services and Consumer Affairs

13. Help members understand how to use the plan
Help resolve members’ problems or questions
Measure and monitor member satisfaction, administer surveys
Monitor and track the nature of member contacts
Allow members to express dissatisfaction with their care
Help members seek review of claims that have been denied or
covered at a lower than expected level of benefits
Manage member problems with payments
Help address routine business issues
State health insurance exchanges may play a similar function,
but unclear at this point
25
Formal Internal Appeals Process Requirements
[Put Table 6 – 3 here]
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Formal External Appeals Process Requirements
[Put Table 6 – 4 here]
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© P.R. Kongstvedt
Financial Management
Four primary responsibilities
Operational finance
Budgeting
Treasury function (managing cash and investments)
Reporting

14. Key concepts
Accrual accounting
Statutory Accounting Principles (SAP) vs. Generally Accepted
Accounting Principles (GAAP)
Only cash and cash equivalents can be counted as assets, not
things like IT systems, buildings, long-term investments, etc.
Statutory Net Worth requirements, using SAP
Calculation and management of claims reserves, including
Incurred But Not Reported (IBNR)
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