Insurance and health plan providers have had unique opportunities and challenges in the last decade to scale market share and maximize profits, especially within Public Plan offerings, such as Medicaid and Medicare Advantage.
Several drivers have made industry growth extremely attainable due to the 1)expansion of health coverage through government program and subsidies, from the Accountable Care Act in 2010 to the recent Families First Coronavirus Response Act in 2020.Also, 2) the changing demographics in the U.S. has increased Medicare eligibility for those having retired from an employer offering health benefits. 3) Finally, multiple combinations (or M&A’s) across Payor, Pharma and Healthcare sectors has maximized opportunity for growth by creating unprecedented economies of scale. These factors have been further enabled through digital and automation that has made expansion technically easier.
For example, billing and insurance related costs for Medicaid and Medicare rose from $12B to $56B in one decade, from the years 2009 to 2019. This is an increase from 3.5% to 11.3% of total administrative costs for all of U.S. Healthcare System. By some estimates, this could increase next year by another $15B to $30B annually under the newly proposed $1.75T spending plan now being debated by lawmakers in Congress in Q1 of FY 2022. Proponents say this would fix the so-called Medicaid coverage gap by expanding health coverage for people in the twelve (12) or so states with lower Medicaid eligibility.
At first glance a plan’s performance metrics may seem to be doing well. But, strong per member per month (PMPM)numbers, Medical Loss Ratio trends, and corporate margins on their own don’t immediately translate into profitability without accounting for nuances such as administrative expenses and tax liabilities.
After medical delivery costs, administration or operation expense is the second largest expense driver in the healthcare system. There are four (4)primary reasons:
1) Rapid organic growth or through combinations rely on key operational areas such as Claims, Credentialling, Enrollment, and Customer Service to quickly ramp up member, provider management and compliance services, and then efficiently sustain those operations with high quality outcomes. These types of growth result in new processes, data and requirements that can overload systems & workforces, often adding extra cost, delays, or compliance challenges.
2) Health plan combinations often result in inheriting additional core information platforms or legacy systems. A series of acquisitions for an insurer could result a single business segment running operations on two, three or more Claims platforms, for instance. This dis-jointed infrastructure prevents an integrated operating view and slows organizations from observing true progress, making key decisions, and driving necessary, course-correcting actions.
3) With these barriers, additional headwinds occur resulting in lower profits when the true administration costs are accounted for. The downstream impacts include, for example, significant incorrect claims or delayed claims processing, which in turn generates higher recovery and appeals costs, higher interest liability, and missed processing turnaround times. This often results in lower quality rating scores, impacting CMS star bonus incentives, further eroding profits. A recent industry study estimated a high performing health plan had an average of 19.3% of claims incorrectly processed on the first pass (up 2% over the previous year), resulting in multiple over payments and under payments.
4) Changing healthcare legislation and regulation requirements driven at the federal government level. The major swings in policy changes typically come in 4–8-yearcycles when a new administration come into power.
The bottom line, the overall payer cost of incorrect claims is slated at $40B annually when considering the administrative costs, payment errors and cascading impacts, not including loss of goodwill with key stakeholders. One anecdote is impact on the cost of responding to single incorrect Claim inquiry, and providing the resolution to fix the cost or quality issue. For example, if a regional health plan normally takes 10,000 Claims related inbound calls per week at an average cost per call of $6-$7, and that volume doubles to 20,o00 due a systemic incorrect claims or backlog related issue, the added operational costs become enormous.
What actions can be taken to claw back the negative impacts? A strong operational transformation strategy must be deployed for Insurance and health plan leaders to balance the needs of the healthcare system, while delivering long-term profit margins to shareholders. We will briefly explore a 3-prong approach here involving a simplified Assess-Change-Improve strategy:
- Assess – An end-to-end assessment of the Delivery model should occur to define and benchmark all operational aspects. A variety of proven methods can be employed including Voice of the Customer, performance analytics, value stream mapping, and RFP/Contractual requirement mapping. The key is to engage with a proven consulting group with industry experience that can perform an objective assessment with recommendations in a reasonable time frame, usually 4-12 weeks depending on scope.
- Change–a strategy and roadmap must be carefully developed considering the required technical and operational requirements. During this phase, a proven and experience Solutions Integrator must be selected to design and build the technical solution. Prior to transformation change, it is imperative all operational performance indicators, SLA’s and implementation success metrics are locked in.
- Improve–a strong Continuous Improvement leadership must be established to drive behavioral change. This must be sponsored at the executive level, facilitated by team of expert change consultants working with operations leaders who buy-in and drive the future state without hesitation. It is during this stage that operational excellence measures are monitored and refined as the transformation roadmap unfolds.
Insurers’ growth in the public segments is accelerating, as plans continue to consolidate to leverage economies of scale and exploit federal funding to expand their membership base. Not all plans will successfully maximize shareholder return and value to customer, but the ones with a focused business transformation approach committed to the investment having with a sustainable mindset will be well ahead of the game.
