Featured in Health Business Daily, Dec. 4, 2012, and featured Health Business Daily Story, Nov. 26, 2012

For States That Waited, Finding ‘A-Team’ Vendors Won’t Be Easy

Reprinted from INSIDE HEALTH INSURANCE EXCHANGES, a hard-hitting monthly newsletter with news and strategic insights on the development and operation of state and private exchanges.

November 2012Volume 2Issue 11

States that decided to wait until after the presidential election to make their move will struggle to find vendors that are able or willing to design and build an insurance exchange in time to meet federal deadlines.

“To stand one up independently in time for [open enrollment] next October is something we are beyond at this point,” says Kevin Walsh, vice president of health care eligibility and insurance exchange services at Xerox Corp. While Xerox is designing and building exchanges for Nevada and one other still undisclosed state, the company has stopped bidding on contracts that have a Jan. 1, 2014, start date (HEX 10/12, p. 1).

“If a state has not already selected their IT/infrastructure vendor for the exchange, I don’t think there’s any way you could procure a business partner and be ready by October 2013,” says Joan Henneberry, a principal at Health Management Associates and former project director of Colorado’s insurance exchange. She suggests some states will opt for a federally facilitated exchange for the first year with a goal of taking it over in time for open enrollment in 2014.

Only a handful of large companies — such as CGI, Cognizant Technology Solutions, Deloitte Consulting, Infosys Public Services and Xerox — are equipped to build a state insurance exchange from the ground up. Other vendors “don’t even know what they don’t know yet when it comes to building an exchange,” Walsh quips.

Vendors Could Be Spread Thin

Even if a state released a request for proposals (RFP) the day after the election, it probably wouldn’t be able to award a contract until January or February. That would mean the vendor would have just a few months to develop the exchange and demonstrate operational readiness to HHS by July, as required by the reform law.

“It’s too risk laden,” Walsh explains. “Even for a vendor like us that already has a system in place, the customization involved is not trivial. And the population of rates and benefits and state-specific rules are not trivial,” he tells HEX.

As many as 15 to 20 states could be “left out in the cold” because there are too few vendor resources to go around, says Dan Schuyler, a director at the consulting firm Leavitt Partners who previously was director of technology at the Utah Health Insurance Exchange. With most “A-team” vendors already engaged, states that are getting started now “will be subject to less experienced B-team vendors, which will be more costly and require significantly more time to build” a state exchange.

In an email to HEX, Matt Lane and Mark Penserini, both exchange consultants at Point B Consulting, say their firm has “had some difficulty” with vendors that take on additional state contracts and move qualified staff. The company, they say, has “found it critical to work closely with the other IT vendors to keep staff in place so as to build continuity and not lose momentum.” Point B is the plan management vendor for the Oregon exchange.

Thanks to work done by states dubbed as early innovators, those that are late to the game don’t have to reinvent the wheel. But they do need to put the wheel on and make it work.

While there is a good deal of data and lessons learned that can be gleaned from states such as Oregon that are deep into the process, “just trying to get the insurance carriers on board and aligned to both the business and technical processes is an incredibly time consuming and significant challenge,” according to Lane and Penserini.

“Every state has different regulations and likely will develop a unique business plan and solution, which will negate some of the reuse capabilities. There is a danger in trying to employ the old transfer system methodology to the exchange world since business needs are likely to be very different,” they say.

As an alternative to building a state-run exchange, Walsh suggests that some states could opt for a regional or two-state exchange by joining with a state already on track to launch its own exchange.

States Push to Keep Some Control

Some state governors that had publicly opposed the reform law might push for a federal partnership exchange rather than give the feds full control of a potentially significant piece of the insurance market. States want to make sure “they can work with their local insurance companies and ensure a level of competition that would be advantageous to them…as opposed to letting the feds bring in national carriers,” Walsh explains. And on the Small Business Health Options Program (SHOP) side of the exchange, state leaders will want some control over the ability of small employers to find coverage, he adds.

While Florida Gov. Rick Scott (R) has been among the reform law’s fiercest opponents, the state does not intend to default to a federally facilitated exchange. “They are considering their options related to how existing contracts can be used to get them to compliance,” says Walsh. Now that the election is over, Xerox is waiting to hear how the state intends to move forward. In June, Xerox and CHOICE Administrators signed a nine-year, $68 million contract with Florida Health Choices to build an online insurance marketplace aimed at small employers. Florida Health Choices, a nonprofit created by the Florida legislature in 2008, will launch the marketplace within the next few months.

Some States Might Leverage WBEs

Working with a private Web-based entity (WBE) could help states comply with some federal rules more quickly “by leveraging assets that the private market already has…rather than trying to build something from scratch,” says Rob Panepinto, managing director of client practice and exchange solutions for Connextions, a technology and business services firm that has developed insurance exchanges on behalf of carriers. Connextions, a unit of UnitedHealth Group’s Optum division, is working primarily with companies that want to participate with state exchanges as a WBE.

While some states have expressed interested in using WBEs, most will probably wait until 2015 do so. Arizona, for example, has indicated it will use a WBE in “phase two” of its exchange.

With the presidential election over, states and stakeholders are anxiously awaiting a torrent of guidance and regulations that will further define state exchanges, says Schuyler. And at the state level, legislatures and/or governors need to develop enabling legislation or guidance, which will allow them to apply for grants and procure the technologies needed to build an exchange.

Having a clearly defined scope of what a state will be able to automate before Oct. 1, 2013, will be key to a successful launch. But getting “deep, detailed answers to questions about completing exchanges from federal partners continues to be a big hurdle for the states,” according to Part B.

Moreover, it’s unclear whether HHS will be ready to operate a federal exchange in states that opt not to do it on their own. “It will be an overwhelming challenge for HHS to have the FFE ready for Oct. 1, 2013, enrollment,” Schuyler says. HHS is falling behind on the Federal Data Service Hub and on the federal services for the premium assistance that is slated to be available through exchanges in 2014.

© 2012 by Atlantic Information Services, Inc. All Rights Reserved.

Get all the details from experienced observers as states finalize decisions on essential health benefits, IT systems, qualified health plan selection and other key issues. Listen in on The Impact of November Elections on Insurance Exchanges: What Health Plans, Providers and Brokers Need to Know About the Second Obama Administration.

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