Health plans are incorporating technologies to help them squeeze out administrative expenses from the premium revenue they bring in to meet medical loss ratio requirements designed to assure transparency and value for consumers' premiums. Under the Patient Protection and Affordable Care Act, large insurance companies must not spend more than 15 percent of premium revenue on administration and small insurers 20 percent, beginning this year.
Cox HealthPlans, a small payer in Missouri, has shaved its administrative expenses by 17 percent by automating more of its core activities. The deployment of an enterprise system with an open platform has enabled the insurer to add capabilities as needed to scale the business and trim weeks from some of its processes without hiring additional staff, The insurer, with more than 45,000 covered lives, is a subsidiary of Cox Health, the third largest health system in Missouri.
Jeff Bond, CEO of Cox HealthPlans, recently took some time to speak with Healthcare Payer News Senior Editor Mary Mosquera to talk about the company's efforts to automate in order to comply with PPACA's MLR requirements.
HPN: What has been the result of Cox HealthPlans using technology to bring down administrative costs to meet minimal loss ratio requirements?
Bond: We've gone from 9.5 percent of premium to 7.9 percent of premium for administrative costs. We anticipate further lowering that to 7.5 percent. Clearly, with these medical loss ratio requirements in place, administration costs are everything. The spread that we make between what we bring in as premium and what we keep as profits is based on what kind of administration expense we generate.
HPN: What kind of system are you using?
Bond: Cox employs an enterprise administration system, based on the Microsoft .NET open platform, to automate a lot of our activities. The marginal cost for us to bring covered lives into our company is very low. We can scale our business without incurring a lot of additional cost. Our prior system was very painful. Everything was a manual process. Now we have so many automated processes.
We're a small plan, but it gives us the footprint of a large plan. We can do anything that any large health insurance company in the U.S. can do and some cases more.
HPN: How has this system reduced administrative expenses in some of your core activities?
Bond: Our auto adjudication rate has increased to 92 percent from a 55 percent range before beginning to deploy the system five years ago. It determines if claims that come in are billed correctly, scans them and spools them into the system and applies business rules. If the claim has all the correct information on it, it pays automatically without anybody touching it. It makes for much happier doctors in our network because they get paid quicker. Our backlog at Cox HealthPlans averages five days. An industry average is more like 25-35 days.
Our phone system used to be burdened by a lot of inbound calls. We were able to put the constituent web service or portal in place that allows for members and providers to check on claim status online, which has dramatically decreased phone traffic and helped us to scale our business as well by not having to hire additional staff.
HPN: Has this system improved other activities?
Bond: We use a case management module to put some workflow processes in place that increased the generic dispensing rate on our pharmacy side. Our generic dispensing rate grew to an industry leading 80 percent from 56 percent.
HPN: What other technical components make Cox HealthPlans more efficient?
Bond: We have very detailed business rules on how to handle claims of inpatient stays and out-patient services. Business rules are the types of things that don't jump off the page, but they are critical. For example, a physician receives lab work as part of a patient's wellness exam. Cox has a rule in place that as long as the lab work was done within three days of the office visit the lab work is payable as part of the wellness exam.
If rules aren't detailed like that, the system doesn't know that the lab is part of a wellness exam and will charge the individual and put it towards the deductible. The claim won't be paid correctly, and then it has to be reworked. Without those types of rules in place, you have a snowballing effect where claims start backing up, and it can be a disaster.