Health Insurance Overhead Costs

In many ways, running a health insurance company is no different than running any other business. There are expenses – administrative costs, overhead, cost of goods – and hopefully, profit. Unlike most other industries, however, the federal government regulates the business of health insurance by dictating how much of a payer’s income must be spent on “goods” (i.e. patient care) and how much can be designated for profit and administrative costs.

To comply with the Patient Care and Affordable Care Act (colloquially, the ACA), 80% of the premiums that any insurer collects must be spent on providing care to patients. The remaining 20% is left for profit and administrative expenses. Insurers who spend less than 80% on patient care (and thus, more on expenses or profits) must return the difference to members in the form of a rebate, which they did to the tune of over $300 million this year.

Since 80% of any payer’s premiums are already spoken for in the form of health care costs, payers need to rethink the other 20%, and how they can reduce their overhead and administrative costs, in order to drive profit and shareholder value. Let’s take a look at two of the big drivers of health insurance overhead costs, and explore some ways to mitigate them.

Claims, Claims, Claims
To paraphrase Ron Burgundy, claims are kind of a big deal. With 8 million newly covered Americans entering the market in the last year alone, the number of claims that is expected to be filed over the coming years can be many multiples of that. In 2011, roughly 79% of all claims were adjudicated manually, according to an AHIP study. The other 21% was processed manually at a cost of $1.36 per claim. When a claim is not adjudicated on the first pass and must be re-adjudicated (which is the case for almost 5% of all claims), the cost quadruples to $3.99 each! If we are to reduce the cost of administering health plans, we must work to both reduce the number of claims processes by hand and the instances of claims not making it through on the first pass. While we’re at it, reducing the cost of re-processing a claim (just in case) would help.

Enrollment
How many new enrollees can we expect, and how will we get them signed up? These are two questions that every payer should be asking themselves in November when open enrollment for the Healthcare Marketplace reopens. Problem is, there are still no reliable ways to estimate the enrollment demand any one payer can expect in a given year. The current figure here stands at 5 million…but who can say for sure. Dialing up or down the number of customer service reps and IT structure to actually enroll these individuals is a different story. Careful planning to avoid overstaffing, or implementing technology to take the place of temporary help, is one way payers can avoid wasteful spending in their enrollment workflows.

Solutions to Both Issues
The common thread in each of these cases is Foxtrot. EnableSoft helps many of the largest healthcare payers (like this one and this one) automate a myriad of manual unstructured processes, including those mentioned here. Looking for more information on how we help payers, click here.