Fiscal fitness in the healthcare payer industry requires an increasingly precarious balancing act.
The Affordable Care Act’s medical loss ratio (MLR) rules place strict requirements on the minimum amount that payers must spend on medical claims and quality improvements while capping total administrative costs—including profits. Insurers that fail to meet the guidelines face penalties (delivered in the form of rebates), which have totaled nearly $4 billion since 2012. And the penalties continue to mount. In 2019, insurers paid $1.37 billion based on revenue and spending for 2016-2018—the highest total rebate amount since the MLR rebate program began.
While Medicare Advantage and Medicaid managed care programs present attractive pockets of opportunity for growth (since they aren’t subject to MLR rules), payers must still compete to win contracts. Competition is building as individual states and the Federal government require payers to demonstrate consistently stronger value. Further complicating the landscape, members and plan sponsors expect new levels of personalized service, convenience, engagement, and—increasingly—price transparency.
Legacy infrastructure is simply not equipped for the enormous rigors of today’s modern payer 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 U.S. payer market, starting with policy administration. New rules, including those related to Medicare Advantage, offer plans tremendous opportunity to differentiate themselves. Many payers, however, do not have the agility needed to quickly configure, price, and deliver new benefits due to hardcoded legacy systems. They also may lack analytical capabilities needed to determine which additional benefits could offer the greatest incentive to current members and pools of prospective members—while optimizing cost and margin considerations.
Revenue management and billing transformation also offers opportunity to drive greater efficiency and market differentiation. Payers seek to expand their ability to offer and administer flexible provider payment options, such as bonuses for performance and outcomes, and they need end-to-end solutions that can support these goals. In addition, payers, looking to respond to members’ elevated expectations, seek to offer flexible and modern billing options, including preferred payment dates. 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. More than 7% of claims are not paid correctly the first time, second time, or third time, according to the American Medical Association National Health Insurer Report Card. And, the cost of remediation exceeds $43 billion annually. That figure represents simply the direct financial costs and does not take into account accompanying compliance and reputational risk. Extended remediation wastes time and money. It also impedes providers’ ability to effectively manage their revenue cycle, erodes their confidence in payers, and creates a barrier to closer strategic alignment. Most payers’ legacy environments contain multiple claims adjudication systems, which complicates and slows the process, while introducing the potential for errors.
Real-time claims adjudication is a growing requirement for payers in the U.S. market, especially as the push for pricing transparency gains momentum. Earlier this year, President Trump issued an executive order on healthcare price and quality transparency. Its goal is to help consumers know the prices and quality of a good or service and to make informed decisions about their healthcare. Real-time claims adjudication is an important step toward the goal of pricing transparency. It also can prove immensely beneficial to providers as the industry moves toward higher-deductible plans, in which the onus is on providers to collect a growing portion of their revenue directly from their patients. Real-time claims adjudication can enable providers to immediately calculate the total responsibility of the patient and collect payment at the time of service. Legacy systems that support only batch processing prevent many payers from elevating their business to the next level with real-time adjudication.
Not an all-or-nothing proposition
Many organizations continue to think about innovation as an all-or-nothing proposition, 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 in a specific metropolitan area and only for office visits—which might represent 30% of claims for a specific area. Or, a payer might look at a very specific area of a broader core process, such as enrollment identification. Case in point is a firm that faced a nearly 40% error rate for enrollment cards. The organization decided to focus on transformation in this very distinct, but important, process. Its journey led it to explore fundamental questions, including whether insurance 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 in relation to a member’s claim profile. With a more accurate and developed profile of risk and 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 larger 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’re seeing payers teaming up with fitness device manufacturers to capture and leverage real-time and longer-trend wellness and activity data to support healthier members. In September 2019, Humana announced an expanded partnership of this type with Fitbit, adding the wearable technology maker's new health coaching solution as an offering for the insurer's employer clients. The end result is greater 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.