Health Insurance Exchanges: Early Lessons from Real-World AssessmentsSucceeding 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 SummaryWith key elements of the health insurance exchange (HIX) landscape becoming more defined, early lessons are emerging among leading payers that are critical to successful par-ticipation. For instance:

• States have declared which exchange models they will adopt, with 19 announcing they will run state-based exchanges, seven planning partnership exchanges with the federal government and the rest defaulting to the federal exchange.

• The Health and Human Services (HHS) department has released guidelines that the federal and state exchanges will use for defining qualified health plans (QHPs).

Yet other important components introduced by the Patient Protection and Affordable Care Act (PPACA), such as “navigators,” are still not well defined, nor are their implications completely clear.

Based on our participation in exchange work-shops and meetings, we see payers moving

forward with their plans to participate in HIXs or evaluating whether to do so, particularly in the individual plan market. This white paper shares initial lessons about how best to rethink business models, reinvent processes and rewire technol-ogy to succeed in the HIX marketplace.

Applied Learnings Lesson 1: The certification of QHPs requires payers to analyze provisions and monitor continually-shifting state requirements.

Several states are currently analyzing PPACA’s coverage requirements and defining the QHP certification process that best fits their needs. Establishing these processes is tedious, and health plans must manage changing certifica-tion requirements and shifting timelines. They must also be prepared to continually exchange and revise plan/product offering information with state agencies. Health plans must invest sig-nificant effort in analyzing specific state require-ments across all facets of certification.

Certain states will be “active purchasers,” so that only the QHPs with which the state has

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contracted may offer products on the state’s exchange. Other states are adopting the clear-inghouse model, meaning they will allow any plan

to offer products through their exchange, as long as the plan meets established minimum criteria (including those from the Utilization Review Accredi-tation Commission and the National Committee for Quality Assurance) and continues to comply with the rules set by the state’s department of insurance and certain other state-mandat-ed requirements.

Payers must be intimately familiar with the provisions of a state’s selected essential health benefits or benchmark

health plan (BHP) to design products meeting those standards. States may tailor the federal definitions of BHP compliance within the defined provisions. For instance, a state may decide to offer dental/vision coverage as a supplement or embed it within the product.

As payers take into consideration the state’s BHP, they will need to focus on defining their

products to meet these requirements, while also tailoring offerings to meet the desired consumer population. The marketing strategy must also be tailored accordingly, with an increased emphasis on plan management-related activities. This will include understanding the National Association of Insurance Commissioners (NAIC) System for Electronic Rate and Form Filing (SERFF) or other state-defined submission processes, including designated templates and defining how network/rate information will be uploaded.

Lesson 2: Payers will reinvent sales and marketing processes to accommodate the shift to

“navigators” within the individual market.

Navigators — those agencies and individuals trained to explain plan options to consumers seeking insurance — will be major forces and facil-itators in the individual insurance market. Health plans must engage these market participants, but with new business models, given that navigators may not receive any direct or indirect payments from health insurers, and insurers are explicitly prohibited from being navigators.

Navigators are funded through grants provided by state HIX funds and must demonstrate they have existing relationships, or could establish relation-

As payers take into consideration the state’s BHP, they will need to focus on defining their

products to meet these requirements,

while also tailoring offerings to meet the

desired consumer population.

Figure 1

QHP Certification Process Timelines and Actions

Plan filings due to exchanges

QHP certification process may vary depending on the requirements of individual states

January ‘13 March ‘13 April ‘13 June ‘13 July ‘13 October ‘13

Minimum Federal Requirements for Qualified Health Plans

Carrier Authorization and Benefit Design Qualification Requirements

Step 1 Step 2 Step 3 Step 4 Step 5

Submit plan certification information to HIX for final certification.

Participate in the HIX quality assessment process.

• Be licensed and in good standing.• Comply with exchange procedures, processes and requirements.• Offer products that are in the interest of qualified individuals and employers.• Adhere to financial management standards (i.e., risk adjustment, reinsurance, etc.).• Adhere to enrollment standards.• Adhere to network adequacy standards.

• Adhere to essential health benefits requirements.• Meet reporting requirements (i.e., quality improvement reporting, enrollment reports, etc.).• Gain accreditation within the timeframes established by the exchange.• Meet marketing standards (i.e., notice requirements, plain language standards, etc.).• Meet requirement on segregation of abortion funds.• Meet transparency requirements.

Exchange coverage becomes effective

Provider availability plan for network

Health plan submission April 1

Network access reporting additional certification data

Complete HIX participation intent form.

Complete HIX business agreement.

Submit benefit designs, forms and rates to insurance administration for review/approval.

January ’14

Final certification of QHPs Enrollment begins

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ships, with employers and employees, uninsured and underinsured consumers, or self-employed individuals likely to qualify for enrollment in a HIX.

Payers must ensure that navigators are aware of their range of plans and benefits, as well as which market segment they serve. Given that it is still unclear who will emerge as navigators, many of our clients have made this a lower priority area but still are determining how best to provide product information to this new channel.

Lesson 3: Payers must redefine their quote-to-card process for seamless

integration with exchanges.

HIXs will disrupt the industry’s quote-to-card mechanism, requiring payers to reinvent the

entire process, with a special emphasis on enrollment, a key functionality for exchange par-ticipation.

Payers will receive an enhanced 834 enrollment file on a pre-defined frequency from an exchange. However, certain exchanges may choose to forward the individual request directly to payer Web sites. It is critical to address all of the cross-functional requirements for enrollment and eligibility, as well as their potential impact on the simplified codification of plan benefits, to meet the basic formulas required by the ACA’s product levels (platinum,

gold, silver and bronze). For example, determin-ing eligibility of which subsidies a consumer may qualify for could have a significant impact on the decision-making process relative to plan selection and associated benefits.

Leading health plans are preparing for the following possible scenarios specifically for individual enrollments:

• The exchange manages eligibility and plan enrollment. The HIX determines an individ-ual’s eligibility to receive a subsidized health plan and, subsequently, may elect to manage the individual’s enrollment. If a state elects to manage enrollment, payers should expect to receive an 834 transaction file from the exchange (or associated government entity) that will be used for plan enrollments.

Because the 834 file has been recently enhanced to include additional elements to support exchange-related transactions, including initial premium information, some of our larger payer customers are already analyzing these elements and assessing the impact on their IT systems.

• The exchange redirects individuals to the payer Web site. If a state chooses not to manage enrollment itself, the HIX would direct individuals who have selected a plan to a payer’s Web site for enrollment and premium payment. In this scenario, a payer will need to manage the hand-off of the consumer from the HIX to its payment tool; accept and process the payment; and conduct reconciliation using an 834 transaction file with the HIX after enrollment.

Although some larger payers have the ability to offer products on a private insurance exchange, smaller local/community health payers may have to enhance their abilities to accept transaction routing from their state and create interfaces to ensure seamless consumer transitions to their portals.

Lesson 4: There is no “one size fits all;” a complex premium and subsidies reconciliation process requires payers to

enhance their financial operations capabilities.

Reconciling premiums, individual advance premium tax credits and cost-sharing subsidy payments in a HIX will be a complex process, potentially involving interactions with individu-als, states, HIX operators and the U.S. Treasury Department. A smooth, streamlined reconcili-ation process that works well with various HIX models will be vital. Health plans must assess their current billing capabilities and analyze exchange-specific provisions that they must accommodate.

While a majority of states are deferring premium billing to payers, a few state exchanges (such as Washington and Nevada) have decided to support premium aggregation. Depending on the exchange, payers will need to configure their billing systems to accept or send an enhanced HIX 820 (HIX payment file) from or to an exchange at a predefined frequency.

Several of our payer clients are looking for an off-the-shelf billing product or a billing clearing-house that will provide the ability to interface with different HIX billing models to avoid complex enhancements to their billing systems.

It is critical to address all of the cross-functional

requirements for enrollment and

eligibility, as well as their potential impact

on the simplified codification of plan

benefits, to meet the basic formulas

required by the ACA’s product levels.

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At a broader level, health plans need to prepare for the following emerging scenarios:

• The exchange manages collection and aggre-gation. The HIX collects individual premium payments from the subset of members who choose to remit payments to the exchange, aggregates the collected payments and forwards them to issuers. The payer’s role is largely limited to reconciliation with the exchange.

• The billing vendor manages collection and aggregation. An exchange contracts the management of individual premium payment processing and aggregation for a subset of members who opt to remit payments to the HIX. Again, a payer’s billing role is generally limited to reconciliation with the exchange.

• Direct payment approach. The exchange would leverage the payers’ existing payment

processing infrastructure and direct HIX members to remit premium payments directly to a payer. The HIX will provide consumer assistance for unresolved billing questions and other issues. Payer premium billing would be modified to clearly identify both the HIX and health plan on the bill, as well as the federal tax credit that reduces the premium obligation to the consumer.

In this model, payer finance functionality will need to be considered to reconcile advanced premium tax credits and cost share reductions.

Lesson 5: Plans must start preparing early for the complexities of managing cost share reductions (CSR).

Payers must project/anticipate cost-sharing expenditures to which eligible consumers are entitled and then submit them to the exchange or other designated government organizations for refunds on a regular basis. This process will be similar to the Medicare Low Income Subsidy (LIS) programs, which will provide a good starting point for health plans already managing similar programs. Health plans will have to either build an ability to enact cost-share tracking within their current claims system or look at additional

products or extensions to existing systems that are under development to address this matter.

While the silver bullet to CSR is still missing, plans are assessing a variety of options. Scenarios under evaluation include the use of accumula-tors and shadow claims. Regardless of which method or approach is used, it is important that plans take into consideration the needed recon-ciliation between CSR projections and actuals to ensure plans receive their appropriate allocation of government funds to augment consumer costs.

Lesson 6: Exchanges will provide a gateway for Medicaid service plans to enter commercial health insurance operations.

Several of our Medicaid health plan clients see HIXs opening an opportunity to enter the commercial market. The HIX market provides significant opportunity to gain a share of the uninsured population that falls between 133% to 400% of the federal poverty level (FPL) and thus are eligible for subsidies.

Specifically, Medicaid plans considering entering the health insurance exchange are focused on retaining their existing Medicaid consumer base, which may vacillate or “churn” between Medicaid and the commercial products offered on the exchange throughout the year. Approxi-mately 30%1 of the specific population that is 133% to 250% of the FPL (otherwise known as the “Medicaid Up” population) will churn between expanded Medicaid and commercial exchange products.

At the same time, Medicaid health plans want to not only retain their current members that may be in play in the HIX market, but also target new entrants that will be added due to the expanded Medicaid bracket.

Medicaid service plans must make a strong, clear business case for entering the commercial market and vet HIX participation options. The commercial market’s dynamics, business abilities, products and IT infrastructure requirements are significantly different from their existing Medicaid systems.

Plans are conducting detailed vendor analyses to identify IT partners that will help enable their transformation to a commercial model. This will require new and upgraded capabilities, especially in enrollments, claims, billing and member services.

Health plans will have to either

build an ability to enact cost share

tracking within their current claims

system or look at additional products

or extensions to existing systems

that are under development to

address this matter.

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Lesson 7: Risk management, although a priority, may not be a day-one activity.

We believe that critical activities such as configur-ing enrollments, setting up billing and managing financials will take priority over risk management. However, payers must closely follow the risk program regulations that will be released in the coming months and prepare for them as the HIX open enrollment date approaches.

The PPACA includes provisions intended to mitigate risk to payers through three programs: risk corridors, reinsurance (both of which are temporary) and a permanent risk adjustment program. These are designed to help plans manage the risks of insuring populations with poorer health and thus higher costs and level the playing field among plans. The risk programs in general call for health plans serving mostly healthy populations to provide some of their

Figure 2

Core Medicaid Service Plan Functional Enhancements for Commercial Health Plan Success

Medicaid Commercial (Exchange LoB)

Enrollment

• Individual enrollment: Each individual enrolled as a member.

• Target population: 0%-133% of federal poverty level.

• Group enrollment: Individuals may enroll as family/group of dependents.

• Target population:

> 137%-250% of federal poverty level (both APTC and CSR are applicable).

> 250%-400% of federal poverty level (only APTC is applicable).

Billing

• Does not require billing of premiums to members.

• Largely funded by state government.

• No delinquency issue due to state funding.

• Premium billing is a core function for a commercial insurance product.

• Requires reconciliation of APTC from federal government for individuals receiving subsidies.

• Delinquency handling.

Brokers/ Navigators/

Advisors

• State or its brokers enroll individual based on eligibility.

• No concept of navigators or advisors.

• Consumers enroll themselves and may be eligible for subsidies or be enrolled by brokers.

• Navigators will assist members in decision-making at the point of selection of the plan on the HIX.

Claims • Medicaid involves zero or minimal cost-sharing with members.

• No delinquency issue due to government sponsorship.

• Commercial insurance products will have CSR in the form of co-pays or deductibles.

• COB, claims processing for delinquent members.

• Checking for family accumulators.

Finance• Only private reinsurance programs are

available.• Government reinsurance programs and other

risk management programs (risk adjustment and risk corridors programs), in addition to private reinsurance programs.

Reporting

• Medicaid requires periodic reporting to the state in the areas of enrollment, claims, provider networks, financial per-formance, medical management, etc.

• Additional requirements to report to the HIX on APTC, CSR, risk management.

• Member delinquency, exchange user fees, reim-bursement and rebates, etc.

Product/ Pricing

• The plan/product needs to comply with state requirements (with state-to-state variations) in the pre-HIX world.

• QHP standards to be met.

• Approval of the HIX/DHHS needed before the plan/product is listed/hosted on the HIX.

• Segregate plans /products by actuarial value.

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.

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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.

Footnote1 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/.

excess premiums to health plans enrolling less healthy populations, as determined by a HIX. It is important to understand the provisions of these risk programs to begin risk containment planning.

HIXs will need to calculate, manage and mitigate the risk/pricing of their products and will require

payers to periodically submit encounter/claims data to state or federal agencies and to track and reconcile financials on a continuing basis.

Health plans will also need to consider the integration points for the different risk programs, both temporary and permanent, that will be managed at both the state and federal levels. These

integration points could be manual or involve uploading encounter/claim history information on a file server to be processed by the administrator.

Prepare for the HIX Influence NowHIXs will change the health insurance market for all payers and consumers. We expect HIXs to introduce streamlined models for plan compari-sons, better designed and more efficient admin-istrative processes, and pathways for increased numbers of individuals to purchase health plans via HIXs or similar models, such as private exchanges.

For plans evaluating HIX participation, it will be important to implement the emerging lessons we have described above. Even plans uncertain about HIX participation should carefully review and implement these early lessons, with the under-standing that the markets in which they operate will be heavily shaped by HIXs and their practices. Rethinking business models reshaped by consum-erism, reinventing processes to better service individuals and rewiring systems to collect and provide data will be inescapable activities for any payer to succeed in the HIX-influenced market.

Health plans will also need to consider the

integration points for the different

risk programs, both temporary and

permanent, that will be managed at both the

state and federal levels.

About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 156,700 employees as of December 31, 2012, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.

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About the AuthorsRaj 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.