Preparing for the growth of the retail market, while trying to maintain profit margins under the medical loss ratio requirements, some insurers are chucking their old administration, claims and sales systems in favor of more web-based and automated software.
To help serve this new market, Blue Cross Blue Shield of Kansas City and Blue Cross Blue Shield of North Carolina created Topaz Shared Services LLC last year using Wisonsin-based Connecture's InsureAdvantage web-based administration software, with some IT components provided by the Denver-based TriZetto Group. A lot of health insurance software and IT systems are relics from the 1990s. Insurers would use different software from different vendors for different functions -- one for claims and one for sales. And they were built to process claims for HMOs and PPOs.
As state-based insurance exchanges come online in 2014, there'll be a lot of choices for consumers, many of them first-time insurance buyers. Marketing, selling and processing all those individual plans will bring more complex administration, said Kevin Sparks, group executive of internal operations at Blue Cross Blue Shield of Kansas City.
[See also: Top 10 sectors that will benefit from health insurance exchanges]
The Connecture software used under the Topaz arrangement automates a lot of the sales process. It's web-based for consumers, and then it transfers the sales data to the companies' customer resource management systems, said Sparks.
"The consumer end is cloud-based; the administration is still pretty desktop-based," Sparks said, referring to the use of cloud-computing, which can use web-based platforms with some or all of the data stored and processed remotely. With Connecture software, the IT infrastructure is based off-site, but the data isn't hosted in the cloud. Privacy and data loss risks are large concerns with using something entirely cloud-based, Sparks said, especially with healthcare information.
Privacy concerns aside, basing business operations in the cloud is an idea that's gotten a lot of attention across industries and from investors. One such example is Massachusetts-based cloud-processing vendor ikaSystems, which in 2010 landed $120 million in venture capital funding. Insurers are "making more and more radical changes to their businesses then we've seen historically," Joseph Marabito, ikaSystems president, said.
ikaSystems users, which include Horizon Blue Cross Blue Shield of New Jersey and Blue Cross Blue Shield of Michigan, just need a computer and an internet browser. Like the use of more automated software like Topaz's, moves to the cloud are being spurred by anticipation of the changes to business operations likely to be created by the retail health insurance market.
[See also: The four imperatives for payers to succeed under health reform]
"The day the Supreme Court announced its decision, we got calls from several plans about exchanges," Marabito said. "The exchange brings in a lot of payment complexity, with as many as three sources paying for a single policy, which would be impossible to handle without software to automate that."
Part of the idea, and presumably the profitability, of using the cloud is that each user of the program is paying for its costs, Marabito said. "ikaSytems has 26 customers that share in the costs. They don't customize their software. They run one version shared among 26 companies."
That's also the idea behind Topaz's software, even if it is partly desktop-based. "The shared services component is almost like carpooling for health payers," said Topaz CEO Ian Gordon. So far, only the Blues of Kansas City and North Carolina are signed on, and they plan to transition fully by next July.
"The expectation is that it is an opportunity for other Blues plans to join in," said Sparks, from Blue Cross Blue Shield of Kansas City. "We have had pretty detailed discussions with six Blues plans so far." How much Topaz, ikaSystems or other software can save insurers depends in large part on how much administrative streamlining they've done already.
A one or two percent increase in profit margins "would be a reasonable target" for Topaz users, said Bob Barry, senior VP of product and market strategy at Connecture. Connecture is also following the retail market. It recently landed $20 million in venture capital and is building the software for Maryland's and Minnesota's health insurance exchanges.