It’s a challenging new world for health insurers: The Affordable Care Act has brought a rush of new regulations and compliance obligations, as well as cost inflation, consolidating providers and ever-rising consumer expectations.

As a result of these new realities, health insurers are working hard to transform their IT strategy, including a new set of spending priorities, in order to reduce costs, boost efficiency and maximize customer engagement, according to a new Frost & Sullivan’s report, “Health Insurance Information Technology: Overview and Outlook, 2014- 2020 — Changing IT Priorities for Next Generation Health Plans.”

“Until now the vast majority of IT spend has gone to core administrative systems, claims processing and claims management,” says Nancy Fabozzi, principal analyst, connected health at Frost & Sullivan. That has drastically changed: “Insurers need a whole consumer-facing web strategy they didn’t have to have before, rather than a focus on back-end benefits administration,” she explains. “A lot of the traditional infrastructure is going away as everything moves to the cloud — often hybrid— while core administrative solutions are also becoming smarter and more automated or will be outsourced.”

Shifting IT Spend Priorities

In terms of IT spending, health insurers will firmly focus on tools for data analytics, consumer engagement and care management, particularly mobile-based and real-time applications, according to Fabozzi.

However, this digital transformation doesn’t mean health insurers will necessarily change their allocation of IT spend as a percent of premiums, she cautions. The bucket itself will not get larger just because more people are covered: Instead, IT departments have to become leaner and meaner because the medical loss ratio, or the percent of the premium collected that needs to go towards medical care, now means that health insurers are limited to spending only up to 15 percent of the premium on administrative costs.

“That’s the key thing about the ACA that is changing how health insurance companies look at IT spend,” says Fabozzi. “This is what is driving the huge trends towards consolidation and outsourcing, as well as helping patients be more engaged with their own health and moving away from expensive, inefficient legacy systems.”

A Customer-Centric Model

The Affordable Care Act has put the focus squarely on consumers, who now shop for their own health plans like never before. Customers are gobbling up easily-searchable medical information online as they take on more responsibility for their healthcare costs, particularly those with high-deductible plans. Experts emphasize that regardless of what happens of the ACA, consumers will continue to demand retail-like services in healthcare — so health insurers must meet those needs.

Like any other retailer, health insurers have to become a single brand that is honed throughout the front office, incorporating sales, service marketing and care management, says Elizabeth Hart, healthcare principal of Pegasystems, a customer relationship management vendor. “They will have to be mindful of all of their customers and make things easy for all users of their system, whether they are members, suppliers, brokers, agents, providers or partners.”

Those that succeed in boosting customer centricity will be big winners in an increasingly competitive landscape, says Will Hinde, a senior director in West Monroe Partners’ Healthcare practice — both with individual members as well as with employer groups and private exchanges.

CIOs Work to Determine Strategy and Boost Innovation

As IT strategy shifts throughout the health insurance industry, CIOs must figure out how to transform the traditional culture that was firmly in place for decades into an agile, innovative environment that can survive in an environment with razor-thin margins. “They’re still trying to figure that out,” says Fabozzi. “There are skills IT needs to have that they haven’t traditionally had, so organizations are trying to hire people from top retailers such as Amazon or Kohl’s so they can gain that consumer piece.”

Hart says CIOs are now understanding that they might have some centers of excellence that they don’t need to do on their own anymore — but can be outsourced to others. They need to look at investments and technology based on today’s entire customer journey, not the traditional technical or departmental walls that have been the status quo in the past. “For example, in the past the majority of interactions used to be with the call center, dealing with basic issues such as eligibility,” she says. “Now, there are many applications, from wearable devices to social media and data analytics that are better serviced by outsourcing to packaged systems and vendors that take care of integrations.”

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