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.

1. • Cognizant 20-20 Insights
Health Insurance Exchanges: Early
Lessons from Real-World Assessments
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.
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. 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 to
offerings 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. 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 fits
their 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 codification
required 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. 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” between
their 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 the
additional 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 may
address 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. Core Medicaid Service Plan Functional Enhancements for
Commercial Health Plan Success
To participate in exchanges, health plans offering Medicaid services would need to develop/upgrade
capabilities across the value chain. Here is an overview across some of the critical functions for exchange
participation.
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 are
We believe that critical activities such as configur- temporary) and a permanent risk adjustment
ing enrollments, setting up billing and managing program. These are designed to help plans
financials will take priority over risk management. manage the risks of insuring populations with
However, payers must closely follow the risk poorer health and thus higher costs and level
program regulations that will be released in the the playing field among plans. The risk programs
coming months and prepare for them as the HIX in general call for health plans serving mostly
open enrollment date approaches. healthy populations to provide some of their
cognizant 20-20 insights 5

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 service
state 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, http://healthaffairs.org/blog/2011/02/04/frequent-churning-predicted-between-medicaid-
and-exchanges/.
References
• New York Health Benefit Exchange Official Web site, http://healthbenefitexchange.ny.gov/.
• California Health Exchange Official Web site, http://www.healthexchange.ca.gov/.
• Maryland Health Benefit Exchange Official Web site, http://marylandhbe.com/.
• Kaiser Health Reform, http://healthreform.kff.org/.
• N. C. Aizenman, “For Insurance Exchanges, States Need ‘Navigators’ — and Hiring Them is a Huge
Task,” The Washington Post, Feb. 4, 2013, http://www.washingtonpost.com/national/health-science/
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,
http://www.cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.
• “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. About the Authors
Raj Sundara is a Partner with Cognizant Healthcare Business Consulting. Raj brings close to 20 years of
experience across numerous industries, with a specific focus on healthcare. His responsibilities include
enterprise program management, business process improvements, developing business architecture
and IT strategy. Raj handles strategic consulting work and is the service line leader for health insurance
exchanges, retailing, regulatory compliance, healthcare reform and claims and enrollment operations
optimization. Raj holds a master’s in technology management from the Wharton Business School. He
can be reached at Sundara.Rajesh@cognizant.com.
Ardhendu Bhatia is a Manager within Cognizant Healthcare Business Consulting. His experience spans
consulting, project/portfolio management and healthcare IT operations, including multiple large
business 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, regulatory
compliance, consumer-driven healthcare and healthcare reform. He received his master’s in information
systems management from Carnegie Mellon University. Ardhendu can be reached at Ardhendu.Bhatia@
cognizant.com.
Amer Gaffar is a Manager within Cognizant Healthcare Business Consulting, with more than 11 years
of 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 extensive
experience across the payer and provider value chains in both the public and private sectors. He received
his master’s in health policy and administration from the University of Illinois and is a certified project
management professional. Amer an be reached at Amer.Gaffar@cognizant.com.
About Cognizant
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