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Health Insurance Exchanges: Critical Success Factors for Payers
Published on : October 09, 2012 Email Print Return
Since the time President Obama passed PPACAinto legislation, its various clauses have been discussed at
length with regards to the impact they would have on US healthcare. Two components – Health insurance
exchanges and Accountable care organizations stand out in terms of their far reaching impact on U.S.
healthcare. These two aspects significantlyimpact the waypayers go about their business today. This article
focuses on how state and private health exchanges are disrupting U.S. healthcare and the critical factors for
payers to succeed in health exchanges.
Health insurance exchanges are online marketplaces where consumers can compare and purchase health
insurance coverage. Exchanges are expected to help the healthcare industry in bringing down the
complexities and costs along with providing consumers more choices in a transparent manner. Public
exchanges are governed by state and federal governments and private exchanges are governed by entities
such as payers and benefit administrators.
Through state health insurance exchanges, Americans can purchase coverage and possibly avail the
subsidies based on their income. People who earn less than 133 percent of the federal poverty level will be
eligible for Medicaid coverage and people who earn between 133 percent and 400 percent of federal poverty
line will be eligible for subsidies.
The Congressional Budget Office has estimated that approximately 24 million people would purchase the
coverage through state Exchanges by2019. PWC U.S. Health Research Institute report pegs policies offered
bystate health insurance exchanges at nearly$60 billion by2014 and nearly$200 billion by2019. The CBO
has projected that the premium assistance program will cost about $450 billion from 2014 to 2019.Along with
consumers, this is also good news for payers since it opens up a hitherto untapped market of uninsured
population.
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2. Products Development, Sales and Marketing to Individuals and Small group markets:
Ability to Cater to Medicaid Population:
Strong Disease Management and Care Management:
Establishing a Dominant Position in Private Exchanges:
Technology readiness:
About the Authors
Private health insurance exchanges as well are gradually disrupting the U.S. health insurance market by
enabling the shift from defined benefits to defined contribution. Employers have been facing ever rising
healthcare costs – healthcare costs have grown twice as fast as the consumer price index in recent years.
Because of this, employers have been exploring options such as defined contribution to limit their healthcare
expenses.
Health insurance exchanges will significantly impact the healthcare entities and more so the payers. Payers
will have to align with the change in focus from B2B model to B2C model and this entails payers to focus on
various aspects to succeed. Following are some of the keysuccess factors which payers will have to factor in
to tide over the changing fundamentals of U.S. healthcare due to the shift towards retail healthcare.
Payers are not accustomed to the retail approach towards health insurance that exchanges call for. With the
advent of exchanges, payers will have to understand the needs of individual purchasers to devise a wide
range of cost effective consumer oriented products and market these products to the target population; while
ensuring that they remain profitable by keeping medical loss ratios in check. Over years, payers are more
accustomed to selling the group plans to employers primarily through brokers and agents. With exchanges,
payers will have to adopt different strategies – focus on cost effective non- traditional marketing approaches
such as social media for marketing, education and outreach activities and also work with individuals who can
influence the decision of consumers.
Payers with greater exposure to individuals and small business segments such as WellPoint would have to
be well prepared ahead of time bytaking up extensive market research as theyalign their strategies to hold on
to the market share in this segment and further consolidate.
Payers will need to have strong presence in Medicaid segment to tap approximately 13 million people that
mayreceive the Medicaid coverage through exchanges starting 2014.
Awave of consolidation across the healthcare industry has already begun as the stakeholders are aligning
themselves to address significant changes being brought in by the Affordable Care Act. WellPoint is set to
acquireAmerigroup in a deal valued at $ 4.9 Billion to cater Medicare, Medicaid and dual eligibility.Aetna also
struck a deal at $5.7 Billion to acquire Coventryhealthcare to boost its presence in government business.
Payers’ focus on Medicaid business is fraught with risks as well - the Supreme Court ruling in June allows
states to opt out of Medicaid expansion. The CBOhas stated that 7 million uninsured will be covered through
the expansion, down from its prior estimate of 13 million. Payers may not be able to realize growth through
Medicaid business unless a substantial number of states go ahead with Medicaid expansion.
Many consumers that will purchase health insurance through state health exchanges are expected to be
uninsured. Payers will have to employ various strategies to ensure that education related to healthcare
options available is provided to this population. This can be accomplished by emphasis on wellness
programs, effective care management and disease management. Payers should build competencies by
acquiring and collaborating with disease management organizations which have succeeded in keeping
members healthy, and byusing care management analytics to improve care management. Payers could also
leverage upcoming models such as Accountable Care Organizations over time which will enable collaborative
care for the population.
Consumers expected to get the subsidies will prefer to buy their coverage on state exchanges; however
private exchanges could attract small and large employers looking for group enrollments with effective
marketing.
With strong marketing and a wide range of consumer oriented products, payers can work towards cornering
significant market share. Brokers mayalso playa significant role on private exchanges with regards to group
enrollments. Large insurers could invest in private exchange platforms to govern and offer the insurance
marketplace to employers which will help them remain ahead of the competition.
With the HIX platforms, payers can also compete with state exchanges in attracting the customers – many
states are not moving quick enough and a strong private exchange in such cases may generate significant
enrollments. In this context, we alreadysee insurers such as UHG, WellPoint, BCBS of Michigan investing in
private exchange platform connections.
Payers will have to focus on multiple fronts to ensure the technology readiness by upgrading IT systems to
support state as well as private health exchanges. Payers need to be compliant with state exchanges
requirements – devise the qualified health plan products, meet the medical loss ratio requirements, etc.
Payers’ IT systems need to be enhanced to communicate with exchanges for enrollment, premium
management and plan management data in real time to ensure smooth technologyintegration. Payers’ sales
and marketing systems also need to be aligned to support the exchanges. Technology readiness in time to
support integration with exchanges and operational readiness to support member management for new
members are critical factors given that payers who are ready early, with a strong overall strategy, will have
better chance at succeeding with the exchanges model.
The technology industry gradually has been shifting from desktops to smartphones and the organizations
which adapted to this fundamental shift are graduallyemerging as market leaders leaving behind the industry
leaders from desktop era. In the healthcare industry as well, we may witness a similar phenomenon where
the payers adapting the disruption caused by consumer driven retail healthcare effectively might lead the
healthcare insurance industry. Given the little time available for state exchanges to go live, it will be a race
against time for manypayers.
Apoorv Surkunte works as Manager with leading consulting and IT services
firm in Healthcare IT area. Apoorv has over 8 years of experience in
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3. Healthcare IT. His areas of interest include health reforms, healthcare
exchanges and healthcare innovations. Apoorv is certified Fellow, Academy of
Healthcare Management (FAHM) and Certified Project Management
Professional (PMP). Apoorv can be reached at Apoorv.surkunte@gmail.com
Harika Allada works as Senior Business Analyst in Healthcare IT field with
one of the largest Health insurance companies in USA and possesses more
than 7 years of experience. Her areas of interest include US health reforms,
Health Information networks and social media. Harika is certified Fellow,
Academy of Healthcare Management (FAHM) and can be reached at
harika.allada@gmail.com
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