Fiscal fitness in the private health insurance industry requires an increasingly precarious balancing act.
Australian Private Health Insurance has been kept busy navigating a period of ever-increasing change and uncertainty. Meanwhile, Annual Premium increases have been less than a claim- inflation over recent years. In 2018-19, Private Health Funds collected $24.5B in premiums and paid out $20.7B in claim benefits, and that gap has been narrowing.
The challenge for funds is to remain on a path of growth while maintaining compliance and financial ballast. With 86 cents of every premium dollar on average paid back in member benefits, gaining control of Management Expenses and Benefits Management is critical. Further complicating the landscape, members expect new levels of personalized service, convenience, engagement, and—increasingly—price transparency.
Legacy infrastructure is not equipped for the enormous rigors of today’s modern health insurance market, which is mired in new levels of complexity and controls. Innovation must enter the equation and quickly.
No shortage of opportunity for innovation
Several operational functions are ripe for innovation in the Australian market, starting with policy administration. Many developments, including aged based loading and recent health crisis responses, offer funds tremendous opportunity to differentiate themselves. Many insurers, however, do not have the agility needed. They are unable to configure quickly, price, and adapt to premium increases. They are unable to deliver new benefits due to hardcoded legacy systems. They may also lack the analytical capabilities required to determine which additional benefits could offer the most significant incentive to current members and cohorts of prospective members. Such capabilities could be provided while optimizing cost and margin considerations.
Revenue management and billing transformation also offer an opportunity to drive greater efficiency and market differentiation. Insurers seek to expand their ability to provide and administer flexible provider payment options, such as debt offsetting or bonuses for performance and outcomes, and they need end-to-end solutions that can support these goals. Besides, insurers, looking to respond to members’ elevated expectations, seek to offer flexible and modern billing options, including helping product innovations such as pick and mix products. Automation and advanced analytical capabilities are critical to introducing greater efficiency, agility, and control across these core business functions.
Claims management and adjudication is the third frontier for innovation. Let’s start with accuracy. It’s unknown just how much is lost to claims leakage in the Private Health Insurance System; estimates range from 1-1.5% to as high as 7%. A 1.5% loss to claims leakage equates to over $300M. That figure represents simply the direct financial costs and does not consider accompanying costs in attempting to find and recover leakage. Extended remediation wastes time and money. It also impedes insurers’ ability to manage their revenue cycle effectively, and erodes their confidence in providers, and creates a barrier to closer strategic alignment. Most health insurers’ legacy environments aren’t transparent enough or adequately configurable. They find it a challenge to discover leakage and tighten adjudication processes.
Real-time data orchestration is also a growing requirement for insurers in Australia. This is especially as the push for pricing transparency, data analytics, and improved digital member experiences gain momentum. Investments in CRM and CX strategies require invaluable core insurance data to enrich content and convey the insight members need to feel empowered with their Health Insurance. De-siloing this data drives digital strategies and fuels performance analytics and propensity modeling. These digital strategies allow quicker decision-making to the next best actions right across the value chain.
Not an all-or-nothing proposition
Many organizations continue to think about innovation as an all-or-nothing proposition. Innovation is often characterized by initiatives that extend multiple years, cost tens of millions of dollars, and introduce an inordinate amount of risk that can outweigh the benefits of the investment. Thankfully, this mindset is increasingly outdated.
Modern solutions, especially those that are cloud-based, support an iterative approach to innovation that delivers rapid and visible results and enables organizations to build on these early wins.
For example, an insurer might want to start with transforming claims adjudication with a specific contract group of providers and only for particular services—which might represent 30% of claims in a specific area. Or, a payer might look at a particular area of a broader core process, such as member enrolment identification. A case in point is a firm that faced a nearly 40% error rate in issuing membership cards. The organization decided to focus on transformation in this very distinct but essential process. Its journey led it to explore fundamental questions. These questions include whether physical cards are even needed today as new technologies, such as biometrics, are increasingly plausible solutions. Such technologies could eliminate errors and the costs associated with them while improving the member experience and reducing the potential for fraud.
Similarly, an insurer might seek to gain greater precision in how it quantifies wellness concerning a member’s claim profile. With a more accurate and developed profile of risk, wellness, and advanced analytics, payers could then financially model, proactively manage care pathways, and manage the claims expense—at an individual member profile, cohort profile, and more extensive population group profiles. This ability changes the health plan provider from being a claims payer to a predictive payer with the power to manage its portfolio with greater precision.
Driving to this goal, we see insurers team up with behavioural wellness programs and fitness device manufacturers. They innovate to capture and leverage real-time and longer-trend wellness and activity data to support healthier members. In September 2019, US payer Humana announced an expanded partnership of this type with Fitbit. They add the wearable technology maker’s new health coaching solution as an offering for the insurer’s employer clients. The result is higher value and health for members, payers, and society as a whole.
It’s time to stoke the innovation engine! For more information on how Oracle Health Insurance can power your innovation journey.
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