Friday, December 13th, 2019 

Patient Protection and Affordable Care Act (“PPACA”)

Financial Reporting “How will the Patient Protection and Affordable Care Act effect the health insurance industry?”

The Brave New World

The sweeping $1 trillion overhaul of the nation's health insurance industry looks less like a coherent blueprint for reform and more like an ultimatum to the healthcare industry. Congress has mandated that the insurance industry shall cover an additional 32-47 million people, implement their insurance reforms, reduce costs, and improve care. The insurer must comply with mandates while not becoming insolvent. Interesting that after Washington vilified the industry, it is relying on the industry to fix the system.

The objective of PPACA is to shift the health care delivery and financing system paradigm as follows:

Level Status Quo Future
Society Open Checkbook Fixed Budget
Systems Paper Driven Electronic Information System Driven
  Fragmented Integrated
  Actuarial Control Process Control
Strategy Avoidance Accountability
  Sick Care Health Care
  In-patient coverage for hospital services and related physician and diagnostic services Coverage for full spectrum of diagnostic and medical care
  Coverage for services limited by setting Coverage for services delivered in low cost setting
  Late Intervention Prevention
Insurance Fee-For-Service Care Management
  Risk Segregation Risk Adjustment
  Insurers Rejecting Consumers Consumers Rejecting Insurers
  National Brand Local Market Concentration
  Price Competition Value Competition

Insurers need to survive the multi-year implementation disruption while the transformation occurs. PPACA puts both direct and indirect cost pressure on insurers. With plan design changes, risk pool adjustments, mandatory loss ratios, etc., insurers need to take critical action.

  • Redefine your business model and create a practical transition path to the future model. Build mandated products, optimize pricing for new rating requirements, prepare exchanges, and reduce administrative costs. Membership growth and revised cost estimates will shift and insurers need to understand the changing financial and operating criteria. Product mix, new products and services should be evaluated. Rapid refinement to products, pricing, and sales/distribution strategies can yield immediate financial impact. Transformation needs to be completed by 2014.

  • Reduce the cost of care and improve quality. Health care reform provides the catalyst for adoption of patient-centered medical delivery. A key function is the targeting of patients with elevated risks factors and chronic diseases. An insurer has a vested interest in managing the care of the sickest patients. Partner with physicians in managing the complex and expensive medical conditions such as cardiac disease and cancer, reducing costs and improving quality through evidence based guidelines and multi-disciplinary care teams.

  • Target compliance programs to validate program integrity and identify and reduce fraud and abuse. Business arrangements need to be evaluated for appropriateness. Financial and compliance audits will target appropriateness, cost, quality of care, and documentation. Monitoring tools are required to evaluate the efficiency and effectiveness of processes and compliance with laws and regulations. The consequences or penalties for errors have been increased and burden of proof shifted.

  • Insurers need to consider internal controls, process, technology, and organizational dimension while responding to Health Care Reform Compliance Requirements. Insurers need to ensure that controls occur at the appropriate places in the process to be preventive, generate relevant information, and thereby enable appropriate action. Automated controls should be adopted as electronic information systems, communications etc. are modified for electronic records and processing. Automated controls can help reduce costs, better manage risks, and provide more predictive and relevant business insights.

There will be rich rewards for insurers that control costs, maintain quality, and provide highly coordinated services across care continuum.

Contact HRMSI to discuss the impact of Health Care Reform Act on your entity. We have a multi-disciplinary network of senior-level accounting, actuary, medical, IT, and tax professionals who have insurance and health care experience. Our professionals can assist you in making the prompt assessments to transform your business. Let HRMSI assist you in evaluating your PPACA needs and providing innovative and effective solutions to keep your company growing and prospering.

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