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Sudden change requires plans to weigh financial impact
The overarching model that health plans must address in 2014 is how to serve needs of their members and potential members and maintain affordability. The model is evident across the board in for-profit and not-for-profit plans alike.
“I really do believe plans are trying to meet the needs of the consumers,” says Ashraf Shehata, national health plan leader for healthcare and lifescience for KPMG. “There has been a big wave of consumerism over the last several years.”
Shehata says the long-term discussion must center on how to make plans affordable for consumers, and reform is igniting a spark of change in the industry towards that end.
The government wants to be more consumer-centric, too, he says, but some solutions also cause ripple effects that impact health plans financially. For example, last month, when President Obama opened up the opportunity for plans to extend their non-grandfathered policies, those that wanted to do so had immediate local and administrative challenges to tackle.
Most of the provisions in the Affordable Care Act have a predetermined timeline for planning and execution, but the sudden change on the plan extensions requires plans to weigh financial impact and make instant decisions.
There are three key areas that plans have to address:
State regulators have to agree to allow extensions and extended plan premiums have to be reviewed by their respective states;
New logic has to be programmed into claims systems to allow plan extensions; and
Members must be made aware of the changes.
State support of plan extension varies. For example, Minnesota quickly decided against it, most likely because it has a state-based health insurance exchange, MNsure. The state exchange needs to build up its risk pool to make the market work for insurers, and the non-grandfathered plan members are a key source of exchange members.
North Carolina, however, is allowing the extension. Blue Cross and Blue Shield of North Carolina was the first insurer to announce it would offer the option and quickly filed the paperwork. Extended plans are expected to have a range of premium increases for 2014.
“Just because you can keep your plan for another year, doesn’t mean you can keep it for the same price,” Shehata says.
The actuarial process to define plan premiums and drive the rate review process through state regulators often takes upwards of six months. To suddenly make a change in a product portfolio requires the cooperation of states and insurers to expedite the administrative work.
“We’re always reminded that healthcare is a state by state and market by market decision,” Shehata says.
Shehata says the administrative work must also include reprogramming of claim systems to include the extended plans’ eligibility criteria, provider networks, plan design and other codes that have been previously written out of the systems.
“It isn’t just a simple rip and replace,” he says. “A lot of these systems have to be reinstated, they have to be retested, and there is a considerable amount of heavy lifting.”
It’s especially costly to rework technology systems on the fly. Most plans budget for such IT expenses on an annual basis, and with the unanticipated extension of non-grandfathered plans, the costs, too, are unanticipated. Resources would most likely be reallocated from other projects, Shehata says.
“In addition to some of the overall business and market forces around plan design and plan pricing, there is an immediate impact on resource allocation, costing and funding for plans to reinstate some of these expired policies back into their claims systems,” he says.
For some plans, the administrative cost burden could create an additional financial problem. The ACA rule that requires plans to maintain medical loss ratios (MLR) of 80% (individual and small group markets) or 85% (large group markets) took effect in 2011. For the 2012 coverage year, plans issued rebates totaling $1.1 billion, according to the Kaiser Family Foundation. And 2013 rebates are expected to be $571 million across all markets, but could climb higher in light of the new administrative rework associated with plan extensions.
By spending more on unexpected reprogramming of claim systems, plans could be in danger of exceeding MLR thresholds and owing rebates to members.
Plans are obligated to inform members of all their coverage choices, including exchange marketplaces, when sending notification about the non-grandfathered plans. Federal officials created a specific format for plans to follow in the communications.
“You can imagine there’s going to be a lot of operational dislocation on this,” he says.
For example, plans will see a significant spike in call volume after members receive their notifications. The spike would only add to the already anticipated increase in call volume associated with open enrollment.
Shehata says the agents and brokers that field some of the open enrollment calls are also in need of clarification, so plans must add that operational support as well.
The confusing plan changes and the overburdened call centers come at a critical time when plans really want to be building up loyalty and member retention. When a member interacts with a call center or receives a letter, the experience personalizes the plan’s brand for the member.