Insurance Exchange Enablement Heats Up as the Clock Ticks Down

Today’s news that Wellpoint and two other Blues (HCSC and BCSB MI) acquired a 78% stake in Health Insurance Exchange vendor Bloom Health is not the first – and won’t be the last – move in what is sure to be a consolidating market.

The Accountable Care Act (ACA or Obamacare) requires each state to establish an online shopping portal, known as a Health Insurance Exchange (HIX) for individuals and small groups to purchase health insurance no later than January 1 2014. We have written and blogged extensively on the topic. In our estimates, HHS and the states will need to spend in the neighborhood of $4-$6 billion dollars on technologies order to create these exchanges. In addition to the ACA HIX, there is perhaps a bigger market opportunity in the private sector to create non-government sponsored insurance exchanges, creating even a bigger market opportunity. Bloom Health is one of many vendors specializing in the private exchange market.

Wellpoint, the Blues, and in fact all health insurance companies are making the individual and small group markets a top priority for new business and growth initiatives. These markets will explode in growth due to the Obamacare legislation and the carriers recognize the opportunity and the challenge with tapping this market.

The insurance exchanges, both public and private, will be the primary vehicles to reach into the individual and small group markets. Wellpoint’s move on Bloom, and Optum’s acquisition of Connextions, is recognition of this fact.

In addition to the Connextions and Bloom transactions, the vendor community is also coming together to help create insurance exchanges. Accenture’s acquisition of Duck Creek, announced partnerships from Oracle, Microsoft, CSC and others such as Maximus’ partnership with Connecture, portend of additional transactions to come in the space.

Insurance companies need help in positioning into the individual market, and also need technology to help them more effectively participate in the public and private exchanges.  Several vendors are positioning into the market but only a few have broad, proven experience with exchanges.

Companies like eHealth and Extend Health, which have consumer engagement and online shopping capabilities from market adjacencies (a leading online brokerage for eHealth and a robust Medicare exchange from Extend) will be important players in the new world of insurance exchanges. Other players like DestinationRx are similarly active in the exchange marketplace, working with HHS and multiple insurance plans, and will have a meaningful impact on the public and private HIX marketplace.  These vendors already have a head start in exchange operations, plan comparison features and tools to help consumers sort through the confusing world of insurance costs and coverage.

TripleTree’s recent HIX research report lays out a number of vendors that are currently engaged in HIX solutions. The report concludes that no vendor provides a complete solution.  Given the importance of the exchanges and the immediate market opportunity, no doubt consolidation will continue.

Have a good week.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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The Clock is Ticking for Public Health Insurance Exchanges

The success of Obamacare relies entirely on every state having a health insurance exchange as mandated by the Affordable Care Act (ACA) up and running no later January 1, 2014.

By early 2013, the federal government (via Health and Human Services (HHS)) will make a determination as to each state’s readiness to bring their health insurance exchange online. Lack of readiness by the January 1, 2014 deadline means HHS will take over the implementation and operation of each exchange.

The clock is ticking…

We are following closely the progress that is being made by the states are convinced that only a handful will be ready by the deadline.   Moreover, we question whether HHS will be able to step in and offer their working version of an exchange either, or if that federal exchange will even be legally able to offer subsidized policies.

While we are not prepared to unilaterally conclude that ACA’s exchange deadline won’t be met by any state, a former HHS secretary is equally skeptical.

We want exchanges to succeed and believe they ultimately will (in some form).  Our reviews of the exchange initiatives have included studying the Early Innovator grants and interviewing state policy administrators and vendors selling into the exchange concept.  The amount of work that will need to be done in order to get the public exchanges stood up by 2014 is daunting.

TripleTree’s recent report on exchanges, HIX: An assessment of the complexities and opportunities emanating from the ACA’s public health insurance exchange concept introduces these challenges and some innovative solutions that could emerge as part of the solutions.  Since then however, the planning, procurement and testing are in the early innings; and operational integration is far from reality.   Unfortunately very few states have a demonstrated ability to pull off the kind of implementation prowess needed to come online, on time.

Putting politics and policy aside, there are at least three major challenges that each state will need to overcome (quickly) if the public exchanges have any chance of meeting the 2014 deadline:

1. States need more clarity on what they are building even though many states have RFPs out for technology and have drafted high level architectures.  There is universal uncertainty and lack of guidance from HHS on major issues such as to exactly how payments and subsidies will be processed  or how the carriers will integrate their workflow into the exchanges
2. States lack successful architectural models and commercially proven technical capabilities because there is no working model of an exchange. Those charged with building the models – the Early Innovator grantees – are far from ready, or have dropped out of the program and/or returned their remaining funds.  The often cited Massachusetts and Utah models fall short of the ACA requirements (as do the Medicare exchanges).   And no vendor has a turnkey solution.
3. States need more time – Given the massive scale and complexity of the exchanges and the integration that needs to be done with existing state and federal systems, it will be next to impossible to build an automated exchange as envisioned by the ACA in the next 16 months.

In our report, we also introduced the notion of private entities that may have the acumen and motivation to bring an insurance exchange online by the 2014 deadline.  We speculated that the private exchanges would start to roll-out in the second half of 2011 and even identified some of the likely players that would have compelling capabilities to drive the private exchange concept.

Our research asserted the real opportunities for the private sector to capitalize on the HIX mandate through a market-aligned solution that will have more impact to improve health insurance access than the federal mandates.  We are excited to see and will continue to watch the early launches of the private exchanges and believe the states and public HIX will benefit from modeling their efforts and approaches around the early successes from the private exchanges.

Let us know what you think.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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A Big Week for ACOs

Given that this Friday is the deadline for applying for CMS ACO “Pioneer” status and is also the assumed release date for the final ACO regulations, this is sure to be a busy week for ACO news.

And as if we needed more proof that still no one knows how ACO adoption is going to shake out, we took note of the following last week:  on August 19^th, Forbes published a blog post titled “How ObamaCare is Destroying Accountable Care Organizations.”   (This was based on a post by noted healthcare policy analyst John Goodman: “Health Care Schizophrenia” )

As a key argument, the post cites how an innovative medical group in Texas called IntegraNet wouldn’t qualify for CMS ACO status, despite all the good work they are doing around measuring practicing evidence-based medicine and driving down costs because they rely on a Fee-for-Service model.

One week later, on August 26th, guess what happens?  IntegraNet became one of the first groups in the country to formally apply for ACO designation.  (To be completely fair to Goodman and to Forbes, IntegraNet clearly states that they are applying early in order to have some influence on the “burdensome rules” imposed in the regulation).

However this drama plays out, we here at TripleTree have been thinking a bit about the broader picture.  While most of the drama and headline news (and criticism!) is happening at the federal level of the CMS ACO program, there are a number of hospitals and physician groups that have quietly undertaken their own shared savings and bundled payments experiments.

In fact, Modern Healthcare published its first survey of accountable care organizations this week, identifying 13 ACOs respondents around the country (this despite the fact that CMS ACO program does not launch until 2012). To us, these experiments are the real market opportunity for ACOs, and one that has finally gotten some deserved attention on the back of the government’s healthcare reform legislation.

In fact, a great example can be seen here in our backyard with Fairview Health System’s developing relationship with the payer Medica.  A case study can be found here, but in short:  Fairview, a seven-hospital system with 49 clinics and 450 employed physicians, and Medica, with 1.6m members in the upper Midwest, decided that they could seek a more mutually beneficial relationship.  In 2009, they entered into a contract that pays Fairview based on the achievement of defined outcomes for quality and total risk-adjusted cost of care based on Fairview’s performance on certain diabetes and vascular care measures.  Essentially, if Medica members have better outcomes and lower costs than the community at large, Fairview shares in those savings.  Preliminary data is encouraging, though the relationship is requiring a “total cultural transformation” on the hospital system’s part, including a total redesign of workflow, compensation, and responsibilities. (Just think of what kind of transformation will be required to measure and achieve CMS’s 65 proposed quality measurements!)

While these quiet moves will never get the attention that Highmark’s acquisition of West Penn Alleghany that we profiled recently, this the real story of the ACO debate going on right now.  These experimental relationships between providers and payers are the ones that will prove if shared savings and bundled payments can truly bend the proverbial cost curve.

Let us know what you think.

Conor Green

Conor Green is a Vice President at TripleTree covering the healthcare industry, and specializing in revenue cycle management and tech-enabled business services. You can email Conor at cgreen@triple-tree.com.

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While Obamacare Exchanges Remain Controversial; Opportunities Exist for Commercial Insurance Exchanges

With the seating of the new Congress, much attention has been given to the Republican pledge to repeal Obamacare, or at least their desire to defund major parts of the Patient Protection and Affordable Care Act (PPACA). High on the list of defunding targets are the state mandated health insurance exchanges (section 1311).

The state exchanges are designed to be a marketplace where people not covered through their employers would shop for and purchase health insurance, and if qualified, would receive subsidies.  The PPACA mandates that all states must establish insurance exchanges for individuals to purchase insurance by 2014, or the Department of Health and Human Services (HHS) will establish and run the exchange for the states who aren’t compliant.

The exchanges remain one of the most controversial aspects of the PPACA because of the large unfunded mandates they place on the states, in addition:

• The exchanges are the vehicle for supporting the Individual Mandate (the portion of the Reform Act that requires all US citizens to be covered under health insurance), and because of the very ambiguous rules legislated in the establishment of the exchanges.
• Half of the U.S. State Attorneys General are suing the federal government to block the mandate to implement insurance exchanges, claiming the rules are too ambiguous, that the unfunded mandate will bankrupt the states, and that the mandate is an overreach of federal powers.

The national debate on healthcare and popular sentiment to make health insurance more accessible and affordable has forced the health insurance companies to re-think how they market and sell their products.  As we have spoken about many times in the last year, the health insurance market is at the forefront of a fundamental shift to a retail business model from its legacy wholesale roots.

Despite the public scrutiny being paid to the insurance exchange mandate and congressional risks to rejigger the entire legislation, TripleTree is seeing a much more interesting dynamic forming in the healthcare insurance marketplace – early steps to establish alternative insurance exchange marketplaces by commercial entities.

A commercial healthcare exchange is a private venture between one or more insurance companies and a retailer (such as Walmart), bank, property and casualty insurance company.  It could in reality, include a range of consumer-oriented entity that unite to create a health insurance marketplace.

In the individual and small group market, consumers may find much higher value (and savings) in bundled insurance products (i.e. property, auto, life and health) than they would in singulary buying health insurance in the state dictated and controlled exchange.   Complicating things, this is especially true for consumers that would not qualify for the federal or state subsidies that can only be received if insurance is purchased in the public state exchange.

Today, most property and casualty holders get a discount for carrying multiple policies from the same carrier (e.g. homeowners and auto combined might yield a 15% discount on both policies).   Our research has led to many discussions with property and casualty insurers interested in bundling health insurance though a partnership (rather than direct underwriting).  Their goal?…aggregate and manage a larger share of consumer spend on insurance products.

Similarly, we are aware of large national retailers seeking to implement a proprietary insurance marketplace of as a way of extending a service mix to their customers, building brand loyalty and retaining customers within their own pharmacies.  While some retailers may form single entity partnerships, others see themselves as a marketplace for multiple carriers competing for business.  We anticipate seeing these commercial insurance exchange marketplaces begin rolling out sometime in 2011.

Though these commercial exchanges may not solve the adverse selection problem that the PPACA exchanges were designed to address, they should prove a successful partnership for the retailer and the insurance company that otherwise has difficulty marketing directly to consumers.  While states dither and politics hinder the roll-out of the public exchanges, many forward thinking commercial business recognize the market opportunity to provide a better insurance buying experience and are moving quickly to meet a market need – the way that free economies are supposed to work.

This is a thorny, emotional issue – and our research and sell-side mandates are paying close attention as technology-based solutions emerge.

Let us know what you think and have a great week!

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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Mini-Med Plans & Unintended Consequences of Health Reform – 10/01/10

The gap between health insurance affordability and accessibility may have just become wider. Current economic conditions are driving employers to consider hiring hourly and part time workers and labor statistics underpin that this trend may persist for some time.

For some time, health insurers have offered “mini-med” plans as an inexpensive way to cover basic medical needs (primary care doctor visits, or prescriptions) for part-time or hourly employees who otherwise could not afford or necessarily want full coverage insurance (e.g. a major medical plan).

Health Reform (aka ObamaCare) has set in motion a series of dictates from agencies like the National Association of Insurance Commissioners, a coalition of state insurance regulators. High on this organization’s list of priorities is how to address the Medical Loss Ratio (MLR) constraints being thrust on health plans. The MLR is a financial metric that calculates the percentage of premium dollars that are directed to medical costs versus general business and administrative overhead. The ratios aren’t yet finalized and will vary by size of employer from 80% – 85% (which is a higher, more efficient ratio than found in most health plans where some industry sources cite an average MLR in the mid seventies); but it is clear that those who don’t meet federal thresholds, will pay a penalty (possibly in rebates to members).

Yesterday, news broke through various sources that McDonald’s Corporation may be considering dropping its mini-med health plan for nearly 30,000 workers unless the MLR constraints for its health plan (BCS Insurance Group) are modified. The news, as reported in Wall Street Journal, stated “last week, a senior McDonald’s official informed the Department of Health and Human Services that the restaurant chain’s insurer won’t meet a 2011 requirement to spend at least 80% to 85% of its premium revenue on medical care.” The rationale for missing this threshold stems simply from the nature of employment in the food service industry…high turnover; low claims revenue and high administrative costs.

The debate continues as additional posts and stories emerge which both support and debunk what the Journals and other outlets initially reported.

Regardless, it brings to light a few realities:

• Small health plans and specialty plans will consider exiting the market altogether
• Effectively modeling the impacts of health reform is absurdly difficult
• Federal spending on simply “explaining” to the U.S. citizenry what the heck is going in will cost billions (if not more)
• In their quest to become more efficient, health plans continually scramble for solutions to address product marketing, pricing and packaging aimed at consumers, and not employers or groups
• Employers will need to quickly begin a steady campaign of internal messaging to concerned employees
• Self-insured employers (e.g. Wal-Mart) will look increasingly brilliant as they side-step these federally placed economic land mines
• Mini-med plans will likely fade from memory in the next three years

Let us know what you think, and have a great weekend!

Chris Hoffmann

Chris Hoffmann is Research Director at TripleTree covering Cloud, SaaS and enterprise applications and specializes in CRM, loyalty and collaboration solutions across numerous industries. Follow Chris on Twitter or e-mail him at choffmann@triple-tree.com.

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