Many observers agree that the Patient Protection and Affordable Care Act of 2010 could have been worse for health insurers. But even such faint praise may change as the impact of the law's provisions are felt in practice rather than theory. Regardless of how one rates the law subjectively, though, it will wreak enormous changes in the way insurers do business, and those changes will have a huge impact on carriers' technology spending.
Among the details that a more onerous healthcare reform proposal may have included is the repeal of the McCarran-Ferguson Act or provisions thereof related to insurers' antitrust exemption. But the biggest bullet dodged by the insurance industry was a so-called public option that would put insurers in direct competition with the United States government, according to Greg Scott, a principal in Deloitte's (New York) health care plans practice. "Certainly there were some proposals which, if enacted, would have had much more unfavorable consequences, and public option is first among those," he says.
Upon the signing of the Patient Protection and Affordable Care Act on March 23, several insurers issued statements praising the law's goal of extending coverage but deploring that it inadequately addressed underlying costs. The idea was elaborated on in a written statement from Karen Ignagni, president and CEO of Washington, D.C.-based America's Health Insurance Plans (AHIP). "Ensuring that all Americans have access to coverage is a significant step forward for our country, but these reforms will only be sustainable if they are paired with real efforts to contain costs," Ignagni wrote. "Ultimately," she added later in the statement, "the success of healthcare reform will depend on whether or not soaring costs are brought under control and coverage becomes more affordable for working families and small businesses."
Among the provisions of the law that will significantly impact insurers costs, according to Deloitte's Scott, are cuts in Medicare business, which represents a significant revenue stream for the industry. The Act also calls for the establishment of health insurance "exchanges," where otherwise uninsured individuals can shop for insurance plans, he notes.
"The hope is that these become a kind of Orbitz or Expedia for health insurance, where people can compare and shop for what's best for them," Scott says. "There will be different tiers of policies, with different price points. ... Insurers will compete to have their policies on this 'Travelocity' of insurance products."
The Act also requires insurers to undertake "administrative simplification," which changes the rules for how insurers interact with providers for transactions including verifying eligibility, submitting claims, checking claim status and receiving remittances, Scott reports. "Those will be significantly streamlined and standardized, requiring significant technology investment on the part of insurers," he comments. Health insurance industry estimates for the costs of administrative simplification alone are north of $2 billion, Scott says, adding, "We think the costs could be significantly higher, perhaps by as much as 50 percent."
The combined demands of the Patient Protection and Affordable Care Act amount to a mandate for technology modernization, according to Kunal Pandya, a Chicago-based senior analyst with Aite Group. The law will require broad investment in core claims and policy administration systems, e-commerce and customer service technology, and underwriting systems, he asserts. Given the law's demands to cover actuarially demanding categories of insureds, such as individuals with pre-existing conditions, Pandya adds, "It's going to cause a big stir around the underwriting process especially."
Insurers are ill-prepared to deal with these demands, contends Paul Roma, principal and national technology lead within Deloitte's health plans practice. "The commercial industry did not believe that this legislation was going to pass, and I think that has left many of them flatfooted in terms of changes the law requires," he comments. "Every provision has technology implications; the technology impacts are absolutely massive, and they are end-to-end."
Administrative simplification, combined with the law's requirement that insurers spend 85 cents or 80 cents of every premium dollar on medical care for small and large group markets, respectively, will result in the need to reduce administrative costs significantly, Roma believes. That demand comes at a time when insurers are being required to cover more people for less money because of limits based on medical loss ratio, he emphasizes. "It's literally an end-to-end renovation of the value chain, while you are simultaneously making sure to maximize efficiency -- or you're going out of business," Roma states.
Insurers will struggle to reconcile these antagonistic demands, and some may not survive, Roma suggests, noting that among those that do survive, some will likely seek partners to gain scale. "The health insurance industry already has change fatigue," he says. "I don't think anyone has a final answer, or even a good line of thinking, but it's likely that the reform and related developments will cause an increase in mergers and acquisitions."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio