Although private exchanges exist today, the Affordable Care Act shines a greater spotlight on the "healthcare exchange" model. Many commercial payers are considering private exchanges as part of their channel strategy. Private exchange requirements continue to evolve alongside public exchanges, particularly on plan pricing.
At the same time, payers are already transitioning their competitive strategies from targeting the healthiest individuals to balancing risk pooling across a larger individual group market, including those with pre-existing conditions. Payers will need to execute this change to their risk and rating tactics in a dynamic e-commerce marketplace directly competing for individual and small groups on value and price.
These dynamics are creating a market for web rating and underwriting applications that insurance payers must strongly consider as replacements for existing legacy infrastructure and manual business processes as they attempt to attract and retain consumer attention in these new marketplaces.
Private enterprises are setting out to extend benefits insurance payers can offer their employer and individual customers beyond ACA requirements. Private exchanges offer a direct consumer channel where insurance payers may extend product revenues beyond healthcare into other lines of business including financial services.
The market is evolving, and private exchanges continue to emerge as viable options. Insurance payers not considering participating could be missing an opportunity to attract new membership and offer their employer customers a channel to avoid ACA penalties in advance of the 2015 deadline. Market incumbents have laid a go-to-market strategy from which new entrants can build.
Central to the strategy is simplifying plan options while delivering enough choice and product differentiation that build off minimum essential health care plan and wellness requirements. However, key to differentiation is bundling retail products (i.e., dental or life) that consumers look for in a benefit package.
On the technology front, upgrading rating and risk technology will enable insurance payers to deliver on the different levels of plan design needs. Payers can improve audit and compliance process efficiency and deliver strong product, rating, and pricing complexity change management that ACA and the marketplace will demand.
Risk and rating are critical
Risk and rating applications are central to payers being able to provide plan designs that meet new rating criteria, enable regulatory compliance and management of coverage requirements. Outdated rating systems and spreadsheet manipulation do not provide the most current features or required security that a modern rating system can deliver. With ACA underway, it is time for payers to consider upgrading their rating and underwriting systems to prepare them to move from a group focus to one that embraces the consumer, while gaining a competitive advantage.
An enterprise rating system should support all market segments, from individual to small and large group. When choosing an enterprise rating engine, payers should:
- Evaluate how the system handles rule definition and management. Some applications offer business users the ability to maintain and define the rating rules, underwriting rules, rating algorithms, and tables. A good rating system should support company-specific underwriting rules, rating rule definitions, and form determination rules.
- Consider a rating system that can provide infinite segmentation/tiers options. Rating tiers allow payers to develop specific risk factors that can increase or decrease an insured's premium. With ACA, payers need to segment the market more granularly. They may need to concentrate on specific market segments to differentiate themselves from competitors.
- Evaluate its testing, debugging, and modeling tools. Many insurers rely on ratings provided through their policy administration systems, but most of those legacy systems lack the technology to thoroughly test and debug rates. Modern rating systems provide better reporting tools, such as debugging reports, that show every detail of the logic used to create a rate. These reports allow users to identify errors and/or areas to refine.
- Determine quality of the system's modeling tools, which allow users to compare the effects of a program change against existing book of business. Modeling tools also allow users to understand the impact of specific changes in the rating tables, rules, and algorithms on the overall book of business to improve the rating accuracy.