HOW HEALTHCARE PAYERS EXCEEDED FEDERALLY-MANDATED MEDICAL LOSS RATIO WITH ESIGNATURES

EXECUTIVE SUMMARY Under federal mandates and public scrutiny, healthcare payers need strategic plans to reduce wasted administrative resources, prevent profit loss and keep premiums reasonable. Identifying the inefficiencies that can be solved with implementation of healthcare IT solutions, such as electronic signatures, is one answer. Modification of administrative processes with electronic signatures at the forefront has the potential to save insurance companies millions in excessive costs. Excessive administrative costs not only mean loss of profit and higher costs to consumers, but also risking additional expenses in the form of consumer rebates when the required Medical Loss Ratio is missed. These losses are entirely avoidable. This paper will discuss the business implications of the Affordable Care Act in greater detail.

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Insurers are forced by the 80/20 Rule to use their resources more efficiently.
-Prof. Timothy Stoltzfus Jost

MEDICAL LOSS RATIO: NOW DIFFERENTIATES HEALTHCARE PAYERS

The Patient Protection and Affordable Care Act (PPACA) enforces a policy called the 80/20 Rule. Also commonly known as the Medical Loss Ratio (MLR) Rule, this policy regulates the percentage of health insurance premium dollars that can be spent on things other than healthcare. Healthcare payers are now required to make their medical loss ratio public record. Medical costs seem to be growing at historically low rates, health insurance premiums have up until very recently not reflected that, according to Timothy Stoltzfus Jost, J.D. who holds the Robert L. Willett Family Professorship of Law at grow even though medical costs arent growing so fast. A leading expert in health law, Professor Josts most recent works on the topic include Health Care at Risk: A Critique of the Consumer-Driven Movement. He identifies two beneficial effects the medical loss ratio requirements have had for consumers. It forces the insurers to align their premiums with their incurred claims, with their costs, and theres some evidence that at least last year their premiums have come down a little bit so I think that reflects that, according to Professor Jost. The other issue is efficiency. Insurers are forced by the 80/20 Rule to use their resources more efficiently. Starting in 2012, healthcare payers across the country were required to submit annual MLR reports on all coverage provided within the previous year to the Department of Health and Human Services (HHS) by a June 1 deadline. If a payer spent more than 20 percent of premium dollars on administrative costs, that payer had to provide rebates to its consumers by August 1. 80% Healthcare & Quality 20% Admin

MLR Mandate

Washington and Lee University. Health insurance premiums have continued to

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Insurance Companies need to plan to operate their organizations as efficiently as possible.

-Prof. Timothy Stoltzfus Jost

AVERAGE HEALTH PAYER REBATES PER FAMILY IN ALL MARKETS (2012) 1

$50 or less2

$51 - $100

$101 - $1513

$152 - $200

$200 or more4

1. Data based on U.S. Department of Health and Human Services report published on June 21, 2012. (URL: http://ombud.com/r/y3) 2. New Mexico and Rhode Island had the lowest average rebate, $0 per family. 3. The average health payer rebate per family in the United States was $151. 4. Virginia had the largest average rebate, $807 per family.

Additionally, that payer must send a letter to its consumers explaining the 80/20 Rule, the difference between that goal and the payers MLR and the percentage consumers should expect in rebates. For this first year, payers who met or exceeded the standard were also required to send a notice to consumers. On top of those regulations, premium rate increases of 10 percent or more are subject to a review process in which additional documentation is required and the payers MLR is further scrutinized. Federally-approved states have the power to approve or deny those requests. As the HHS gets underway managing the scrutiny, one such state can be viewed as a model for methodology - Iowa.

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Healthcare payer spending is being publicly scrutinized.

HOW IOWA REGULATES HEALTH PREMIUMS AND LESSONS FOR PPACA IMPLEMENTATION
The Iowa State Legislature created the position of Iowa Consumer Advocate within the Iowa Insurance Division in 2008. Since then, the Iowa legislature has mandated public hearings and personal notifications for premium rate increases greater than the annual average health spending growth rate published by the Centers of Medicaid and Medicare Services (CMS). According to Angel Robinson, Customer Advocate, Iowa Insurance Division, Our changes actually were not brought about by the ACA. They were brought about by our state legislature before the ACA was even implemented [as a result of] consumer complaints about not being able to participate in a rate increase process. Consumers were receiving rate increases. They felt that they didnt have proper notice and that they were not being considered in the decision-making process for approving rates, so the legislatures response was to create this particular law. A precursor to the Affordable Care Act, Iowa law essentially mandates greater transparency, requiring healthcare payers to provide an explanation for the proposed increase via personal notices to consumers. This includes a ranking and quantification of all factors causing the rate increases in consumer-friendly terminology, according to Ms. Robinson. Wellmark Blue Cross Blue Shield of Iowa was the only health payer in Iowa to request a rate increase above the average annual health spending growth rate (as published by CMS) for 2012 and therefore the only payer required by Iowa law to participate in this process for 2012 rate increases. This year, Ms. Robinson has seen a decrease in the number of comments she has received prior to the hearing. She thinks this is primarily due to consumers belief that the payer will get a rate increase of some amount regardless of consumer input. Despite this, Ms. Robinson does note an increase in complaints in one area: healthcare reforms effect on rate increases. Whether healthcare payers are ready or not their spending is being scrutinized. Iowa consumers have been analyzing Wellmark Blue Cross Blue Shield of Iowas

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Iowa Health Insurance Costs Report:

http://ombud.com/r/y7

administrative expenses in relation to premium dollars for a few years now. These regulations now apply to healthcare payers across the US - not all of whom are as prepared as Wellmark.

WELLMARK BCBS REDUCING PAPERWORK AND PERFORMING WELL UNDER SCRUTINY

Wellmark has performed well under this increased scrutiny, partially as a result of being ahead of the curve in implementing technologies to reduce excessive administrative expenses.

WELLMARKS MLR VS STANDARD (2011) 5

Wellmarks MLR Individual Market Small Group Market Large Group Market 90.2% 80.9% 88.9% MLR Standard 67% 80% 85%

5. As reported by the HHS (URL: http://ombud.com/r/y4)

Despite decreased administrative costs, Wellmark Blue Cross Blue Shield of Iowa has once again requested rate increases for 2013. All have been posted to their company profile on the federal healthcare website (URL: http://ombud.com/r/y5), and one is outlined below.

A WELLMARK REQUESTED RATE INCREASE (2013)

It is important to note the per-member-per-month administrative expenses cover costs that have decreased for Wellmark. This payer has already implemented healthcare IT solutions such as electronic signatures as a preventive measure to keep administrative costs reasonable. Ombud, Inc. www.ombud.com 5 1877 Broadway, Boulder, CO 80302

Administrative costs in aggregate have decreased as a percent of premium from the prior rating period.
-Wellmark BCBS of Iowa

According to Wellmarks written explanation of the requested rate increase, Administrative costs in aggregate have decreased as a percent of premium from the prior rating period. Changes in distribution costs are the main driver of this change in administrative cost. Wellmark uses DocuSign to replace manual, paper-based administrative processes to eliminate excessive expenses with legally-binding electronic signatures. ESignatures have been part of the solution to achieve compliance, increase efficiency and save resources. They have exceeded the government-mandated MLR and reduced the need for printing, faxing, scanning and shipping documents. Keeping those reduced administrative costs in mind, it is additionally important to look at Wellmarks 2013 requested rate increase in context with their 2012 administrative expenses. In 2012, Wellmarks administrative expenses ranged from $29.27 to a whopping $92.80 per member per month all while staying within a range of 9.02 to 13.81 percent of premium dollars. Although the percentages remain low, the actual dollar amounts of administrative costs remain high even for payers making an effort to cut administrative costs.

MILLIONS OF DOLLARS IN ADMINISTRATIVE SAVINGS FOR HEALTHCARE PAYERS

According to HHS, health insurance rate regulations in the state of Iowa saved 6,929 consumers in the small group market $1,125,000 last year. Each payer could save that amount with electronic signatures. Payers, such as United HealthCare, have seen electronic signature ROIs of one million dollars in the first year on paper-related costs alone. Payers are currently receiving incomplete paper documents in the mail that must be returned and resubmitted. Because field completion can be required for submission of electronic forms, contract turnaround time is reduced from days to minutes. Prior to eSignatures, it took United HealthCare an average of 32.5 days to add a provider to their network. This meant they received a completed paper contract in the mail, ready to countersign and return to the doctor. ESignatures has cut that time from more than one month to two days, according to Marvin Clark, a Six Sigma Consultant at United HealthCare with about 16 years of experience in the Ombud, Inc. www.ombud.com 6 1877 Broadway, Boulder, CO 80302

healthcare industry.

ESignatures are essential for affordable healthcare to be a reality for Americans.

This drastic decrease in turnaround time also changed other metrics, according to Mr. Clark. Previously, the processes of credentialing providers and signing contracts took place simultaneously, with fingers crossed that both would be completed at about the same time. Now the provider must be credentialed before a contract is sent because the process moves so quickly. Those dollar and time savings extend out of the office for even greater environmental savings. According to Mr. Clark, if he stacked the paper eSignatures has saved United HealthCare, that stack of 3.5 million sheets of paper would be 109 stories tall taller than the Empire State Building. Were taking trucks off the road; the environmental savings is tremendous, according to Mr. Clark. Healthcare payers are completing administrative tasks in less time, with less wasted resources, at a lower cost. This means lower costs transferred to consumers and greater potential for affordable care. That is just one aspect of the potential savings eSignatures has to offer healthcare payers.

IMPLEMENTING HEALTHCARE IT: ESSENTIAL TO MAINTAIN COMPETITIVE ADVANTAGE

In regards to health insurance, the Affordable Care Act essentially mandates greater transparency. These new regulations benefit consumers in several ways: 1. 2. 3. The government enforces returns of premium dollars to consumers if those dollars were spent inappropriately. The government regulates the percentage increase of premium dollars with public hearings. Consumers can actually compare the way multiple healthcare payers spend premium dollars on healthcare and administrative costs. These ratios can be influential in deciding which payer to choose.

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Low admin costs are required to maintain a competitive advantage.

This transparency means more administrative tasks are required for compliance. Record MLR Report MLR
Notify and/or Refund Consumers Request Premium Increases Inform Consumers

As a result, healthcare payers publicly benefit from reducing the inefficiencies in their administrative processes sooner rather than later. Strategic planning to reduce wasted resources (both time and money) in administrative processes could be the game changer. Smart payers have already begun implementing the latest healthcare IT to cut those administrative costs that are entirely avoidable to the tune of millions of dollars in savings. Insurance companies need to plan to operate their organizations as efficiently as possible, according to Professor Jost. Sure, thats just smart business, but come 2014, MLR compliance will be last on healthcare payers compliance check list. At that time, the MLR will change to a three-year average, and other federal programs will be applied prior to the MLR. If insurers need to do strategic planning for anything, its trying to figure out how those programs are going to affect their business, according to Prof. Jost. Low administrative costs are no longer just good business practices. Low administrative costs are required to be competitive in the market. Plus, time is running out to implement a strategic plan to improve processes, eliminate excessive administrative costs and establish transparency for compliance. While there is still a lot of room for growth in the successful implementation of paperless technologies and streamlining the paperwork approval process, electronic signatures are essential to making affordable care a reality for more Americans.

ADDITIONAL RESOURCES
Fereral government website managed by the U.S. Department of Health and Human Service: http://www.healthcare.gov Iowa Insurance Consumer Advocate website: http://insuranceca.iowa.gov

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