Managing Transformative Insurance Reform
Earlier today, US President Barack Obama signed into law a healthcare reform bill that will mandate major fundamental change in how the insurance industry does business. The battle for reform has been contentious and in some cases downright ugly, but regardless of political persuasion, it will soon become a reality. Across the marketplace, every pundit is commenting on what’s in the bill—read it here but the key points for insurer’s and the changes that will impact them fall into buckets:
· Coverage: Expand coverage to 32 million Americans who are currently uninsured.
· Introduction of Health Insurance Exchanges: The uninsured and self-employed would be able to purchase insurance through state-based exchanges with subsidies available to individuals and families with income between the 133 percent and 400 percent of poverty level.
· Launch of Subsidies: Individuals and families who make between 100 percent – 400 percent of the Federal Poverty Level (FPL) and want to purchase their own health insurance on an exchange are eligible for subsidies. They cannot be eligible for Medicare, Medicaid and cannot be covered by an employer. Eligible buyers receive premium credits and there is a cap for how much they
· Insurance Reforms: No denial for preexisting conditions and children can stay on their parent's insurance plans until age 26th.
· Individual and Employee Mandates: In 2014, everyone must purchase health insurance or face a $695 annual fine. There are some exceptions for low-income people.
But is the industry ready? From a technological standpoint, the answer seems to be a resounding "No". Primarily because the insurance industry is by and large still an industry constrained by two realities:
1) At the heart of the industry is a massive amount of data
2) The majority of this data is still collected, processed and shared with external partners using highly manual, paper-based methods
With this new legislation, more than 30 million Americans who are currently uninsured are expected to be added to the insurance rolls. For insurers, many of whom are still relying on manual processes and outdated legacy systems this tidal wave of new customers will represent both an opportunity and a significant challenge to their existing business models. The opportunity is obvious—millions of new customers to buy insurance products and services.
But even before the law takes effect, insurance carriers will face a variety of challenges, including extended regulatory oversight, rising customer expectations, additional external business partners and increased competition. To succeed in this transformative and complex environment, leading insurance companies will need to focus on rapidly identifying and implementing solutions that can help them to manage the collection, reporting and distribution of data from new sources using new channels across the trading partner ecosystem. The current IT model used by most insurers is not ready for this type of challenge.
Automating the processes that are used to on-board new customers, will be critical to helping insurers to rapidly respond to the challenges and opportunities of the creating a more streamlined, more efficient and still profitable business-to-business (B2B0 environment. Solutions that help insurers drive innovation while also introducing scalability, flexibility and transparency into their processes—particularly external processes–will be critical for survival and growth. IT will have to support the business like it has never done before; by instituting new solutions that streamline business processes, improve performance and support new customers and trading partners. However, given the recent economic struggles of the past two years, no one expects an avalanche of new money to flood into IT budgets and some tough decisions will need to be made to support any new initiatives.
Technology should help not hinder insurer’s strategic and operational business decisions. But with constrained budgets; how does IT provide the innovation and support now mandated by new law? Insurers, like many others in the financial services industry are already considering Managed services as the answer.
When asked during a recent multi-client research project conducted by Forrester Research, what business issues were motivating a strategic change in their operational model, some of the top drivers from financial services respondents were the need for real-time visibility with business partners by exchanging electronic documents as well as the ability to extend internal processes to include external partners to increase business agility. However, IT executives were also concerned with reducing rising costs and creating more effective connectivity with ERP systems.
With an anticipated influx of new customers over the next 24-36 months, as insurance IT organizations will need to look for a provider who can address the disparate needs of internal and external business stakeholders. Without going into an extended sales pitch, it appears that more and more organizations are reconizing the value of managed services and Software-as-a-Service (SaaS) applications to help drive down costs, and free IT staff to actually focus on projects that deliver bottom line business value. The definition of managed services is the practice of transferring day-to-day related management responsibility as a strategic method for improved effective and efficient operations. And as you look at the insurance space, all of these drivers speak directly to the benefits of managed services whose core purpose is to help organizations manage costs and extend efficiencies by allowing them to outsource those areas of connectivity that are not essential to their core competencies.