Product Design, Pricing & Risk Adjustment on the HIX Recap

Product design, pricing & risk adjustment on the Health Insurance Exchanges (HIX)

This was a perfect opportunity to gather together as the 2015 bid cycle is shaping up for the deadlines of March 15th for plan benefit changes and May 15th for rate filings:

  • Comparing notes with one another on the financial planning picture for the Health Insurance Exchanges
  • Taking stock of enrollment trends so far, despite a rocky start in many states
  • Gauging the assumptions about public policy decisions affecting 2015 and 2016

You know that experience when you have just had a great meal after the dessert and paying the tab, and you still say “I would love to do that again sometime soon!”?  This was that kind of conference.  The speakers served up great and timely content that really displayed their approaches to the market and their experiences to date, not just generalities.  Yet it steered away from diving too deeply in the weeds and losing the audience.

There were a lot of insights offered that hit the reset button for our expectations of what is coming in the next couple years, which serves in high contrast to the superficial and over-hyped popular impressions we hear about health care reform.  Our speakers generously shared their experiences and insights, representing states from coast-to-coast, and including speakers from plans, state exchanges and service providers.  Here is my take on the event. 

The ACA succeeded in completely and irrevocably restructuring the market for individual insurance, and it was not just about delivering insurance to the uninsured, who are only accounting for roughly 11% of the affected population. There is no room for business as usual and there is no turning back.  The complexion of the HIX enrollments is a mosaic of moving parts:

  • Older books of business are being converted as pre-ACA policies expire
  • Enrollments are coming from COBRA plans and some group plans are being cancelled
  • Existing Medicaid plans are witnessing growth, even in non-expansion states, just due to the publicity about healthcare reform
  • The SHOP program for small business is slowly taking off and probably will not really shape up until 2015 as many employers wait and see what happens in 2014
  • There are profound impacts on the enrollment patterns in the HIX products on a state-by-state basis, based on whether or not a state opted to expand Medicaid
  • Broker / agent distribution patterns are completely different from traditional individual and group market history, for better or worse
  • The ascendancy of ACOs is making an imprint on the HIX product landscape as narrow networks are becoming entirely acceptable, along with unapologetic price-point differences
  • The ACO and Patient-Centered Medical Home models emerge as a sign of an essential reformation of the healthcare delivery system
  • As discussed below, the center of gravity starts shifting towards the individual as the consumer and purchaser of health insurance and health care services
  • Population health is the centerpiece of the reformation of the healthcare delivery system and the evolution towards accountable care
  • The complexity, scale and comprehensive scope of change necessitates rapid adaptation, speedy information and insights to support change.  More is discussed below. 
  • The movement towards targeted individual populations, such as the low-income individuals in HIX programs, dually eligible populations under and over age 65, and the uninsured in general, makes obsolete all the traditional insurance practices of cost-plus re-pricing of group risk.  Underwriting and group risk pool strategies are less relevant in these emerging markets, and multi-function planning and execution become indispensable in the new world. 
  • In my opinion, talent-pool development, such as recruitment, training and education, management development and succession planning are going to be stress-points across the industry.  This is particularly true given the emergence of whole new job categories and reordering of critical success factors in the industry.
  • Healthcare delivery networks, composed of everything from integrated delivery systems, IPAs, medical groups to individual practices have traditionally had to march to the tune of large, often nearly monopolistic payers. 
  • Physicians in their own practices struggled to minimize the impact on their daily operations and, certainly, on their patient care workflows
  • HHS has flexed its muscle as the largest purchaser of healthcare (through Medicare and Medicaid), initiating reforms and innovations in those programs. Pilots and subsidies provided seed money and incentives to create a critical mass movement to a tipping point, which is beginning to arrive with meaningful use and NCQA-type metrics
  • The ACO movement has begun to drive change from the point of care and practice management levels, on the one side, and on the other, a rational approach to payers that attempts to create an integrated methodology that accomplishes most of what payers care about but without taking their dictums as “cookie cutter” mandates
  • Early adopters of accountable care that emerged back in the 1990s under capitated payer contracts are now being joined by a new wave generation ACOs.  The base of included providers is getting wider and more comprehensive as another indicator that reform is going mainstream.  ACO models of accountability are illustrations of how diagnostic coding accuracy has transcended just Medicare Advantage and now is becoming a widespread preoccupation.
  • The price-points in HIX products reflect the geographic patterns in provider networks, for example, in California, when comparing the highly ACO-developed markets in Southern California versus Northern California where cost structures are very different.  This type of pricing is not new, but the ACA elevates the visibility and transparency of the differences. 
  • The California HIX enrollments demonstrated that, depending on the particular strategies pursued on the basis of networks and pricing assumptions,  huge market shares made dramatic shifts  between competitors as a direct result, as discussed by Barbara Abbott from Milliman and Michael Beuoy from Blue Shield of California
  • Another local illustration of the impact of provider network design on pricing and product was offered by Celeste Curley from Blue Cross of Northeastern Pennsylvania

The reformation of the insurance market has triggered profound downstream changes to the healthcare delivery system, which is welling up from a grassroots level across the country, and is in sharp contrast to the historic pattern of top down, insurance company-driven change.

The maturation of data analytics and informatics is also enabling significant changes in capabilities to derive insights and formulate strategies to grapple with difficult but essential issues like consumer shopping processes, healthcare decision-support and enrichment of patient care at the point of service.

  • As noted by John Criswell from Pulse8, 80% of patient data is unstructured, and technologies are emerging to capture and elicit insights that will enable not only risk coding accuracies, but also clinical gap closure, population health stratification and timely outreach
  • Connecting and engaging with eligible populations requires much richer insights into consumer needs, preferences and responsiveness than ever before.  Big data is emerging as the essential tool here, as well, as discussed by Matt Henry of Audience Partners. 
  • Parsing and stratifying populations is the only way to figure out some of the most important parts of the new healthcare world.  In the case of HIX programs, the uninsured are a subset of the larger population affected, yet it is critical that they are successfully targeted and enrolled.  Likewise, from a patient-behavior-change perspective, these insights are crucial.  Similarly, member retention will require these tools to effectively keep the hard-won new enrollees and to avoid costly churning and replacement. 
  • Disease prevalence rates become the cornerstone of building population health strategies, yet without fairly precise insights, precious administrative dollars can be quickly frittered away without an ROI.  This point was well-made by Astha Chopra from Inovalon.
  • The maturation of risk adjustment is being driven now by the HIX market, according to Scott Filiault, since there is less tolerance for inefficiencies in this segment due to a smaller percentage of suspects than in Medicare Advantage, which is likely to also reshape how Medicare Advantage risk adjustment gets done.  In many healthplans, there is a collapsing of risk adjustment into a single shop across all lines of business, and in the case of HIX plans, sometimes this is moving under actuarial services.
  • Connecting the dots becomes an essential requirement:  capturing timely and relevant data has to make the full circle from data collection points, analysis and intelligent inferences, and back to the providers of care for actionable triggers.  Huge barriers exist in interoperability between EMRs, insurance carriers and their systems.  Inovalon has made a recent announcement aimed at this problem.
  • The financial risks of being behind the power curve on HCC coding accuracy, data completion and gap closures is exaggerated by the zero-sum game of transfer payments, so there are high stakes involved.  The focus is moving towards individual members for contribution margins, which is made up of revenue drivers and cost-drivers, as Mickey Dodge amply framed the issue
  • Knowing who is likely to “raise their hands” as responders to direct-to-consumer marketing is going to really help gain conversion of the uninsured, but it is even more important to know how to target within that population to attract the ones you most want in your risk pool, a topic that Matt Henry from Audience Partners tackled in his presentation
  • Healthplans are beginning a movement to retail mindsets, including bricks-and-mortar presence in the community, in order to create a better customer experience and conduct a conscious effort at building the brand association to drive consumer preference in health plan selection and retention.  Our speakers from UPMC and CDPHP (Adam Pittler and Meghan Cassidy, respectively) mentioned tactics such as retail stores, kiosks, iPad tools for educating the “first-time” insurance shoppers, and both real and virtual mall shopping, based on insights about purchasing and customer service preferences. This is partly in recognition that between 80% and 90% of HIX product buyers are applying for insurance for the first time.
  • There is a palpable shift in healthplan operations from strictly “call center” and production shop-orientation towards a customer-engagement model.  This involves a systematic mapping of key touch points across the whole continuum of “member life-cycle”, which transcends stovepipe or functional siloes in healthplans. 
  • Member activation is perhaps the new “Nirvana”, meaning that it is necessary to translate the engagement with healthcare consumers into action, whether that is reflected in renewal during the next open enrollment season, completing a Health Risk Assessment, accepting an in-home assessment, adopting disease management behavior recommendations or any other activity that makes a difference.  This represents a quantum shift from the healthplan “doing something to members” or from the providers “doing something to” patients: it is a wholesale paradigm shift.
  • Product designs and transparent trade-off decisions are being offered up to individual HIX plan buyers in a menu format that dwarfs the often-limited menu forum traditionally available through employers.  The options of narrow-networks, alternative value-add benefits or features, and so on, represent a movement to value-based purchasing at a retail level.

The center of gravity is shifting towards the consumer, away from the employer, as the same realization dawns simultaneously on issuers, governments and providers, namely that value-based purchasing at the retail level has implications all the way down to the level of population health management.  It requires the tools to adequately address the specific needs and concerns of individual members / patients while serving up successful population-level results.  Make no mistake:  employer-based health insurance is still king, but the demands and financial risks entailed by the new individual market are driving enormous changes in the way insurance companies think about risk and how they need to restructure to adapt to the new landscape


The rate of change in healthcare continues to accelerate and the “need for speed” has enormous implications across the whole industry.  One example of this is the impact that the Health Insurance Exchanges are having on risk adjustment.  Building off the Medicare Advantage chassis is inadequate due to the shortened cycle-time from data submission to payment adjustments, accompanied by a guarantee of 100% RADV audits in 2016.  There is a ripple effect that cascades down to the adequacy of IT, data analytics capability, care gaps identification and closure, and so on. These implications ultimately require restructuring all the way to the physicians’ exam rooms and alternate care sites, such as the new Inovalon and Walgreens’ model.

  • Richard Lieberman from Peak Health spoke about the time-compression for risk adjustment under the HIX programs, and his points about using the first few months of pharmacy claims information as a fair gauge of overall population morbidity for the whole year.  With the calendar of filing dates driving decisions that must be made with very limited data, the HIX movement sets a new bar for data analytics and the “need for speed”
  • Overly simple assumptions about population health risks are too crude and gloss over potentially critical financial risks, yet the calendar will not wait
  • Adam Pittler demonstrated that the learning curve for new market entry drove his healthplan to go to market a year earlier in 2013 to shakedown their business model and operating systems, and to accumulate insights in advance, as a hedge against misfiring when the 2014 plans came to the market.
  • The organizational decisions made by Blue Cross Blue Shield of North Carolina also demonstrated the fact that tightly linking the actuarial and the risk adjustment functions under Mickey Dodge and Brian Tajlili was one way to make the whole process more integrated and efficient, since the new HIX market is unforgiving of time slippage and hand-offs.  Other issuers will make other organizational decisions, but the same realization should be dawning on more and more of them as the realities and demands placed on them become clear.
  • Ryan Johnson of Mercer also made the point about the increased financial risks to healthplans that fail to keep up to speed with their competitors on robust data collection and their timely Edge server submissions, which all speaks to the old saw, “time is money”. 

I am sure the participants in the audience came home with a host of additional insights and food for thought.  At the same time, as one actuary commented to me:  [I paraphrase} 

“The conference was helpful.  Perhaps this is more a reality check that we are thinking about the right things.  A big “aha” would be a bad thing because it would mean we missed something really important.  Instead, it was a good opportunity to talk things over with my peers from other plans.  I certainly picked up some nuggets, but this helps me get outside my own “little world”.  It is easy to get focused on [my state, my company], so it good to get perspective. In many ways, it was also reassuring that so many people were thinking along similar lines.”

I want to express my sincere thanks and appreciation to:

  • Scott Filiault, Chief Revenue Officer, Pulse8, for his very able and skilled chairing of the event
  • Our speaking faculty (you know who you are and you were excellent!)
  • Our sponsors:
    • Peak Health Solutions, Inovalon, MIB, ECS, Pulse8, NHX / Audience Partners and RecordFlow
    • The Healthcare Education Associates Crew:
      • Laura Garza, HEA producer of the conference
      • Kelly Sniatecki, Conference Coordinator and onsite facilitator
      • Jennifer Clemence, Sponsorship Sales and onsite facilitator
      • Stephanie Kohlenstein, VP of Logistics
      • And the whole crew that made this possible from soup-to-nuts

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