Digitizing the payment process can help address the key challenges faced by Property & Casualty insurers in settling medical claims. In our latest Expert Conversation, Ed Shane, Head of Sales and Relationship Management Insurance & Electronic Receivable Payment Services and Randi Lichtenstein, Managing Director, Global Innovation team, discuss the opportunities.
What are the key challenges faced by Property & Casualty insurers in settling medical claims?
Shane: Medical claims payments such as first-party auto claims or worker's comp insurance claims are somewhat outside of the range of normal Accounts Payables payments that a typical Property & Casualty (P&C) insurer handles. These kinds of payments come with additional compliance issues, regulatory issues, and expense issues.
On the expense front, most of these claims are still made via a paper check and a paper Explanation of Benefits (EOB) or Explanation of Reimbursement (EOR). The costs of processing all of this paper can be very high.
Lichtenstein: Exactly. Part of the reason why this happens is that most of these insurers have accumulated many different claim admin systems over the years. The more antiquated claims systems can't even produce electronic payments or data files to create electronic payments. At the same time, they have finite technology resources to convert payments to electronic.
They also have to deal with a large number of payees with medical claim payments: providers, doctors, hospitals, therapists, and more. To make electronic payments, they would have to reach out to all of these providers to negotiate paying them electronically, potentially with different payment terms and types. On top of that, they then have to collect banking information and then store it and maintain it securely. It’s an expensive proposition.
How significant are these challenges for them? What is the business case for change?
Shane: We estimate that the average cost of issuing a check and EOR/EOB is somewhere in the range of $3 to $15, depending on how thoroughly you assess the all-in cost. There are a hundred million medical claims payments made by the P&C industry annually, most of them done by paper. Even at the lower end of the cost range, we're talking about $300 to $500 million just in costs associated with issuing those claims on top of the claim payments themselves. That's a significant opportunity for savings.
Lichtenstein: Digitizing also helps reduce customer service costs because online access to EOB information greatly reduces the number of calls coming into the insurer's call center. There are softer savings as well from improving the client experience. Keep in mind that providers are key constituents of insurance companies even if they are not direct customers. Digitizing the claim payment process can go a long way to improving their experience.
What are the primary ways that new payment technologies can help address these issues?
Shane: Many companies have cobbled together a solution themselves: doing the outreach, gathering banking information, and then maintaining it for future payments. Some have rolled out purchasing cards or virtual cards, but they still have to send paper EOBs/EORs out with the electronic payment. It's a fragmented solution.
Lichtenstein: They can cut through this fragmentation by accessing a very large pre-established network of providers who have been enrolled and can take electronic payments, whether via ACH or virtual cards. Having that at the outset is a tremendous boost, because it expedites the “Day One” jump from paper to electronic payments.
It also is valuable to have a robust online portal for both providers and the payers, to view, download, and print EOR/EOB information. When companies try to do it on their own, they still have to deliver complex and often very large electronic EOBs, which defeats the purpose of digitizing payments. Beyond that, providers don’t want to log on to a different portal to get their information from every single payer that pays them, so a multi-payer portal gives them streamlined access to information from a large number of payers.
What should insurers consider before implementing or adopting these technologies?
Lichtenstein: First, they should perform an upfront analysis matching their payees to the solution database. Without that, they risk disappointment. They may only have 20 or 30 percent electronic adoption, still sending out lots of paper.
The key questions are: What will my day 1 experience be? What are the options? And can providers choose whatever payment method they want? Some solutions out there try to force virtual cards on providers, for example. A better solution is built around ‘provider choice’, offering options including ACH, virtual card, and checks (yes, some providers ultimately still will want the paper).
They also need buy-in across their company, from claims, to treasury, to accounting, to technology. It's very important that they bring all those constituents to the table, so that they understand the effort and the benefits.
Shane: A solution must also be fully compliant with state insurance rules and regulations. A growing number of states are mandating electronic payment capabilities to providers, especially in workers’ comp. Finally, flexibility of format makes a big difference. Many insurers have legacy systems. They can't put a custom file together to send out payments. Whatever format the insurer can send out should be accommodated by the service provider of medical payments process.
What other aspects that help them get over the hurdles more quickly?
Lichtenstein: One of the first questions we get from our clients is what's involved and how long it is going to take. Therein lies one of the key differences between one solution and another. Some vendors make it very difficult to onboard because they have little flexibility and limited data translation capabilities.
Insurers also want to see what their Day One experience is going to be. In some cases, they've been burned before with other options that didn’t deliver immediate success.
Shane: BNY Mellon’s solution gives clients a high degree of certainty about that Day One conversion rate to electronic payment methods from paper. We can easily show them their cost per check and paper EOR/EOB and the fast savings of converting say 70 percent of payments on Day One. That helps them justify the technology expense and resources.
In general, there have been extraordinary hits to the P&C space with catastrophic events, so everyone's looking for expense savings. Digitizing payments gives them a compelling case not only in the pure cost of the transaction but also the benefits of redeploying resources and people.