Executing on the Individual Mandate

Executing on the Individual Mandate Opportunities and Challenges for Healthcare Payers ORACLE WHITE PAPER JULY 2014

Table of Contents Executive Overview 1 Introduction 1 A New Blend of Public and Private 2 From B-to-B, to B-to-C 2 A Platform for Growth 3 When Best Practices Are Not Enough 5 Conclusion 5 EXECUTING ON THE INDIVIDUAL MANDATE: OPPORTUNITIES AND CHALLENGES FOR HEALTHCARE PAYERS

Executive Overview In June 2012, the Supreme Court upheld the Patient Protection and Affordable Care Act, eliminating some of the uncertainty around healthcare reform in the United States. Now, doctors, hospitals, plans, pharmacies and payers all need to comply with new and sweeping legislation that still is taking shape. And they don t have much time to devise strategies to survive and grow in this fast-changing environment. The Affordable Care Act provides for every American to have health insurance and gives states a say in whether they establish an exchange or participate in the federal exchange. The result will be a dramatic increase in the number of people who will be covered across the system. This individual mandate creates an opportunity for disruptive innovation in all areas of the healthcare payer s business. To succeed, payers need to learn to interface directly with end users, and they need an IT infrastructure that s flexible enough to accommodate new customers and roll out new products quickly. Enrollment, pricing, enterprise data management, billing, alternative reimbursement, integration strategy and customer servicing all will have to adapt. Change is a given in the healthcare industry of the future. Payers that take steps to ensure enterprise agility today will be able to respond as healthcare reform proceeds. Introduction Ready or not, healthcare reform is underway in the United States. The pace is fast, and by most accounts, the effects will be far-reaching. Big companies are acquiring new capabilities; new competitors are entering the market; and everyone needs to figure out how to comply with the 2010 Affordable Care Act, which was upheld by the U.S. Supreme Court in June 2012. Consider some of the recent headlines:» In the first quarter of 2013, WellPoint Inc., the second largest health insurer in the United States, is poised to become the largest private Medicaid company as it absorbs Amerigroup Corp. in a deal worth $4.46 billion.» By 2016, Medicaid, along with the Children s Health Insurance Program (CHIP), will cover an additional 17 million individuals, mostly low-income adults, leading to a significant reduction in the number of uninsured people. 1» Payers and providers in the state of Massachusetts are looking at new ways of paying for healthcare.» Aetna has completed its acquisition of Medicity, a health information exchange technology company.» Google Health has come and gone.» Employees in Minnesota say they want expanded choice in healthcare benefits. As they navigate through the market disruption, payers are advised to make careful choices in how they implement health reform. The individual market holds abundant opportunities for payers to provide product and service offerings that retain profitability and growth but as with every opportunity, there is associated risk. While states debate whether to expand Medicaid, launch health insurance exchanges, or both, payers have less than 18 months 1 http://www.kff.org/medicaid/quicktake_aca_medicaid.cfm 1 EXECUTING ON THE INDIVIDUAL MANDATE: OPPORTUNITIES AND CHALLENGES FOR HEALTHCARE PAYERS

to plan their strategies, change their infrastructure and launch new products to capture market share. Flexible IT systems that enable unprecedented business agility will be critical to their success. A New Blend of Public and Private Since the inception of Medicare, the U.S has had a hybrid healthcare system that blends government-run and private systems. The Affordable Care Act provides for every American to have health insurance and gives states a say in whether they establish an exchange or participate in the federal exchange. (The penalty for not establishing an exchange is not receiving Medicaid expansion money.) Additionally, the law raises the age limit for dependents who receive benefits, waives pre-existing conditions and establishes the individual mandate as the engine for growth. Whatever the balance between state and federal exchanges and expanded Medicaid programs, there will be a dramatic increase in the number of people who will be covered across the system. The law raises the income requirements for people who are 100 percent of the poverty level, and that s going to create 15 to 18 million people who have subsidized healthcare, says Robert Dunn, executive vice president and chief development officer, TMG Health, a provider of technology solutions for government-sponsored health plans. Many small and medium businesses will opt out and tell their employees to go out on the exchanges and buy their own plans, he explains. All of this spells opportunity for innovators. This new market needs new services, says Perry Cohen, CEO of The Pharmacy Group, which consults with associations, healthcare services, information technology providers, payers and pharmaceutical companies. Insurers, hospitals, doctors and pharmacies must now determine how the legislation affects them and what they need to do to comply. The impact will be far-reaching, touching all areas of the business, including:» Administrative and financial» Product strategy and portfolio» Outreach, marketing and sales» Network management» Medical management» Member experience and engagement» Retail and distribution strategy» Forecasting and projections» Governance, change management and transition From B-to-B, to B-to-C Long accustomed to business-to-business transactions, payers must now learn to interface directly with end users. And they must learn the nuances of local markets. What works in Los Angeles may not fly in Sacramento, Cohen says. B-to-C models require a fundamental shift in how payers do business, affecting contracts, billing, marketing and communications, IT infrastructure and more. Payers should ask themselves some of these questions:» How will we market to individuals?» How can we use health insurance exchanges as a new sales channel?» How will we make our offerings readily available to consumers? Can we offer online enrollment and benefits management? 2 EXECUTING ON THE INDIVIDUAL MANDATE: OPPORTUNITIES AND CHALLENGES FOR HEALTHCARE PAYERS

» How do we create tailored products for market segments in the individual space that are consistent with provider contracting strategies?» What new programs can we put in place for consumers to manage their own healthcare choices? Addressing these questions takes time to plan and budget to execute, yet states must have their exchanges ready for open enrollment by October 2013. Payers find themselves in a dynamic market for the first time, and they don t have the luxury of time to deliberate, says Peter Schmidt, senior director, Oracle. STEPS TO EXECUTE ON THE INDIVIDUAL MANDATE Empower a team to come up with an innovative approach to the individual market opportunity Plan your go to market strategy Evaluate your IT infrastructure for flexibility and agility Get familiar with available solutions Explore opportunities to gather and analyze information within and beyond the enterprise Decide whether to build or buy new technology solutions Appoint a customer experience manager Execute on the plan and scale the solution Stay informed about changes in the law A Platform for Growth In executing on the individual mandate, payers need to take a hard look at their underlying IT infrastructure. Is it flexible enough to accommodate new customers and roll out new products quickly? Are systems configurable, so they do not require custom coding when the business needs change? Increasingly, agile enterprise systems that interoperate with exchanges will be essential to success. Moreover, in a B-to-C world, rules-driven systems that automate decisions related to eligibility and claims are the best way to gain efficiencies and scale the model. Here are some of areas within IT that will need to adapt to the new business environment:» Enrollment. Payers need to offer individuals a method to enroll online, whether through the exchanges or through their own Web portals. Many plans are working to roll out a Quote-to-Card capability: providing an online quote, signing up a member and issuing policy documents including a membership card. When offering enrollment via the exchanges, individuals must be able to compare plans, benefits and pricing; think Travelocity for health insurance. The applications involved in providing this service include CRM, rating and underwriting, membership databases and a document issuance system.» Pricing. With online distribution and enrollment will come new demands for more competitive pricing. Many payers already are looking at offering different levels of coverage (for example, Bronze, Silver or Gold ). In addition, payers will increasingly look to bundle related services (for example, all the individual services associated with a knee replacement). Pricing applications will be required to handle these new models.» Enterprise Data Management (MDM) for Members/Groups. An expanding membership base will necessitate enterprise-level data management that can scale as membership grows. An MDM system must make data available to multiple systems throughout the payer s environment, including CRM, billing, policy administration, claims and analytics/reporting systems.» Billing, Payment, Subsidy & Reconciliation. Payers will need systems that can handle individual, group and split billing, where members are covered in part by Medicaid. Post-processes to enable reconciliation of premium payments will be required. 3 EXECUTING ON THE INDIVIDUAL MANDATE: OPPORTUNITIES AND CHALLENGES FOR HEALTHCARE PAYERS

» Customer Servicing. Successful payers will find ways to put members first. The challenge is that customers expect to do business with you in more ways than ever before, says Johan Rook, European consulting director for Oracle. This includes Web, mobile, tablet, social media, and kiosk channels, in addition to the traditional call center. Customer experience management software can provide this consistent member experience across all channels. In addition, a rules-driven, highly automated claims system can improve member service by accelerating claims processing time and processing claims with fewer errors.» Alternative Reimbursement. In an effort to slow rising healthcare costs, many states are introducing payment reform legislation, such as that introduced by Massachusetts in August 2012. Rather than the traditional fee for service model, states may mandate capitated services, where providers are compensated over a given period of time. Some standard applications for core administration may not be able to track and generate capitation payments automatically. In light of payment reform, payers will face a growing need for standard applications that automate this process.» Integration Strategy. Payers will need the ability to tie into state and federal exchanges. Even before the Supreme Court decision was handed down, a number of states had set up health exchanges using federal stimulus funding. These early adopters are moving fast to overhaul their healthcare systems with the support of federal programs. Oracle has been helping these pioneers set up their exchanges and also helping payers integrate into the new systems. (See Figure 1 for a sample integration structure.) The promise of healthcare IT is to enable effective decision making at the point of care. In order to transform healthcare into a more normal economic market, we need the support of technology, says Eric Schultz, president and CEO, Harvard Pilgrim Health Care. With the right systems in place, health insurance companies can help individuals make better decisions. Figure 1. Example of a platform for growth, showing sample integration with a health insurance exchange 4 EXECUTING ON THE INDIVIDUAL MANDATE: OPPORTUNITIES AND CHALLENGES FOR HEALTHCARE PAYERS

When Best Practices Are Not Enough In a fast-changing U.S. health insurance market, it won t be enough for payers to adopt best practices. Companies will have to innovate so they can provide consistent, affordable access to care that is truly patient-centered, says Dr. John Kenagy, author of Designed to Adapt: Leading Healthcare in Challenging Times. How do they do this? Design a place to create something new, Kenagy advises. Make it safe to think outside the norms and get closer to the customer. His adaptive design concept calls for rapidly testing, validating and improving iterations of experimentation in real time. Once the team has proved the concept, it s time to scale the capability. One place to look: the CIO s office and the IT department. There are gigantic opportunities in information technology for healthcare, he says. Conclusion The Patient Protection and Affordable Care Act takes one major uncertainty out of the equation and clarifies the opportunity for payers. Many of the details remain blurry, but that only provides added fuel for disruptive innovation. The law will be tweaked, and regulations will change for years to come, and the November 2012 elections could change the course of healthcare reform all over again. However the details play out, payers should prepare to adapt as the circumstances change. The days are surely numbered for yesterday s slow-moving entities. This is a new chapter. You either keep evolving or get left in the dust, Schultz cautions. Adds Dunn: The federal government is looking for the smartest and bravest companies to step up and take over the system. This is a real opportunity to show American ingenuity. For more information on Oracle Insurance solutions for healthcare payers, please visit oracle.com/insurance or call +1.800.735.6620. 5 EXECUTING ON THE INDIVIDUAL MANDATE: OPPORTUNITIES AND CHALLENGES FOR HEALTHCARE PAYERS

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