Executing the Basics: Reinventing Individual Health Insurance

The best strategy in the game, the most inspiring vision in the industry means nothing without execution. And if an organization isn’t executing the basic components of the business, implementing something fancy — culture change, a new business model — isn’t going to get very far.

Executing the basics is the least exciting critical component of any successful business. By definition, a successful business has proven itself. It’s an ongoing concern. Leaders like to lead and that usually involves moving in new, more exciting directions. Over time, attention to the nuts and bolts can wane. The basics become a source for savings. The attention moves from serving the customer to an internal focus on efficiency. After all, resources need to be freed up to fund those new initiatives.

In the context of individual health insurance, the basics include processing applications, issuing bills, paying claims, contracting with doctors, appointing agents, and answering the phone. Most carriers do an adequate job on these items most of the time. All carriers do a lousy job on some of these at some time. Those osciallations in performance are normal and to be expected. What’s unacceptable is that “adequate” is, well, acceptable. Carriers will talk about delivering first class customer service, being partners with their providers and producers, but few, if any, consistently succeed.

The problem, I believe, is two-fold: an inability to measure the return on investment of better service; and an unwillingness for competitors to cooperate.

Providing services, whether it’s underwriting applications, answering questions from insureds and their physicians, or paying commissions, costs money. These dollars can be measured, tallied and monitored. Given the need to keep coverage affordable, the appropriate goal for carriers is to provide these services as efficiently (meaning at the lowest cost) as possible.

These services also have benefits in the form of customer satisfaction, increased efficiencies at the partner level (less time spent in doctors offices tracking down an answer freeing up more time to work with patients), and a negative public image. The problem is that dollars are a lot easier to track than satisfaction or efficiency in someone else’s office. So when carriers do a cost benefit analysis on a new IVR system (IVRs are those automated “press 1” or “say ‘billing'” phone routing systems) they can measure the savings in personnel costs, but they lack the tools to measure the increased frustration members feel when unable to make the artificial (un)intelligence get them to the right place.

Health plans aren’t the only industry with frustrating phone systems. Sprint, AT&T, Time Warner, DirecTV and Verizon are a few others with IVRs deserving of a shout-out — or shut down, depending on your point of view. But cable and phone utilities are not the standard to which carriers should hold themselves. Nor should the standard be Nordstrom or Starbucks. It should be what consumers define as good customer service, doctors define as good physician service, and producers define as good agent service.

Carriers need to examine their basic operations from the consumer point of view. They need to define customer expectations and then think about ways to deliver those services in a cost-effective way that meets those expectations.

This means shifting the focus from an internal point-of-view to one that looks at operations through the eyes of the consumer (or physician or agent). This isn’t hard: every officer in every health plan should be required to call their customer service departments on a monthly basis. They should get a monthly bill and call in with a question. They should receive an Explanation of Benefits (EOBs) and be asked how much and to whom they would cut a check if it was for real. They should call in to the pre-authorization phone line and follow-up on an application. In other words, they should walk in their customer shoes at least monthly. Then, on a quarterly basis, their staff meetings should focus on what they experienced.

There’s other techniques that work. For example, executives and managers should be required to plug in and listen to phone calls between their service reps and customers. Not occasionally, but in a regular, disciplined way.

Carriers also need to find ways to quantify something more than dollars. Perhaps bonuses should be impacted by customer satisfaction survey results or even public surveys. Or, perhaps they should ask someone. Fortunately for carriers, there’s too many economists in the world with too little to do. Certainly some of them have come up with mathematical formulas for measuring intangibles. Give them a call — they’re hungry for someone to talk to. Make your CFOs sit down with them and come up with a formula that works.

And then share the results. Which is the other part of the challenge. Most businesses tend to think that everything they do must be confidential and proprietary. The market is a jungle and every advantage needs to be exploited to survive. In this mindset, advantages are to be hoarded, not diluted by sharing.

The problem is that most customers don’t really care about a lot of these proprietary advantages. An example from a book I read, but now forget the title, describes the foolishness of the auto industry when lawmakers required them to incorporate catalytic converters into their cars. Each auto maker spent many millions of dollars to invent and implement their own design. Yet who has ever purchased a car because of its catalytic converter? The industry could have redirected most of those dollars to features that matter if they had come together and designed a standard converter they all could have used.

This concept of standardizing and sharing resources is much more acceptable in the software world where open source systems like Linux and MySQL are widely used. It’s foreign to most companies, including carriers. 

Yet the opportunity to standardize and share resources is huge in the industry. Applications for coverage, claim forms, EOBs, bills, commission statements aren’t competitive advantages — their Babel-like diversity is merely a source of frustration for users. Better yet, by standardizing them, entrepreneurs could develop tools to increase efficiency for the carriers and convenience for consumers.

Consider: most carriers currently accept online applications from large producers like eHealthinsurance. Yet, as large as eHealthinsurance’s production is, it represents a small percentage of carriers’ overall sales. Why create mechanisms that benefit just a few agencies? Instead, carriers should agree on standards for quoting and case submission systems that works for all health plans in all states. These standards should be freely distributed as open-source software. eHealthinsurance may compete in the market based on its quoting system, but carriers don’t. By creating a publishing low- or no-cost software carriers can more easily implement customer friendly services like automated underwriting, immediate issuance of membership cards and the like.

Standardization doesn’t mean customization isn’t allowed. There are several flavors of Linux commercially available. Similarly, entrepreneurs could take the open-source quoting/submittal software and package them, adding new interfaces and functionality. So long as carriers standardize around the basics, however, they should all save money, increase efficiency and improve customer satisfaction with the industry as a whole. They could then use the freed-up funds to better compete on what does matter to consumers: benefit design, cost of coverage, and the like.

Would this kind of cooperation be legal? It depends on how it’s approached. The standards negotiations can be outsourced to an independent third party. Or they can be convened under the auspices of regulators. In California, Insurance Commissioner Steve Poizner has done something similar and has expressed an interest in helping carriers appropriately address common challenges. So yes, it can be done legally.

Attending to the basics is not exciting, but it can be impactful. Perhaps more importantly, invigorating innovations will fail unless they’re built on a strong foundation. So if the individual health insurance industry is going to reinvent itself, the nuts-and-bolts of the business is where it has to begin.


2 thoughts on “Executing the Basics: Reinventing Individual Health Insurance

  1. great post! i especially found it where it stated. Everyone knows that the health insurance industry is continually raising monthly premiums, and many feel this is unjust to you as the consumer. However, the health insurance industry has had to fight increasing health insurance fraud. The amount of money spent on investigating and prosecuting fraud is then passed on to policyholders. Many people do not understand what health insurance fraud entails, though. With reports estimating health insurance fraud is a $30 billion to over $100 billion industry per year, the topic should not be taken lightly. Every health insurance policyholder should understand what health insurance fraud is and its consequences. By doing so, you are more able to recognize and fight fraud.

  2. Alan,

    I read with delight your post this morning. I appreciate your invitation to respond to your blog, but you do such a great job covering the subject that it’s hard to find an aspect to comment on.

    Because I have worked in individual health insurance area at BCBSV, I do have a couple of areas where I think I can make a contribution. Your comment about IVR’s and monitoring are very interesting and I have the following comments.

    First, I don’t see executives being disciplined enough to consistently monitor. I did routinely monitor when I ran the individual department out of Roanoke, VA, and I learned very early on how much power there was in listening to your customers, CSR’s and sales people. When you hear who is calling into your shop, you discover lots of things. You discover product needs; you discover good vs. bad customers service techniques; you discover good vs. bad sales techniques; and you discover new campaign strategies among others. At least you think you have made these discoveries and there in lies the problem of having executives do the monitoring. Because all you have discovered is a theory or hypothesis, but in your position as the leader you make can changes that you think will make a difference. I believe these theories and/or hypothesies are very valuable, but they need to be tested, and that’s where we fall down as executives. The discipline of monitoring needs to be extended to disciplined testing to find out if your ideas are in fact the right things to change.

    Second, with regard to IVR’s, I have found that IVR’s produce less than desired results, particularly when it comes to customer satisfaction, because we failed to do a good job in the initial development stage of implementation. I believe that IVR’s can produce exceptional customer satisfaction and reduce cost if we are willing to invest time and energy upfront during implementation, and then follow through with after implementation validation. Customers want to be routed to the right person to solve their problem quickly, and IVR’s can do that at a much lower cost than CSR’s if they are designed properly. By researching how others have used IVR’s and mapping out as many types of customer and prospect inquire as possible, you can build a tree that provides the 80% solution. But it’s only the 80% solution, and now someone needs to monitor how the solution is performing and how it can be improved. One can check the performance by looking at the statistics of the phone system, looking for abandon rates, the number of transfers per call, and most importantly, calling customers to see why they abandoned the call or why they needed to be transferred after the IVR distributed their call.

    So while I believe it is important for executives to walk in their customer’s and agent’s shoes to understand how to improve performance, I also believe that testing, and a disciplined follow through on new ideas and technical installation will provide facts that allow executives to not engage in a slot machine management style of leadership.

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