Healthcare payers need strategic plans to reduce wasted administrative resources, prevent profit loss, and keep premiums reasonable. Electronic signatures is one way of solving this problem.

1. HOW HEALTHCARE PAYERS EXCEEDED
FEDERALLY-MANDATED MEDICAL LOSS
RATIO WITH ESIGNATURES
EXECUTIVE SUMMARY
Under federal mandates and public scrutiny, healthcare payers need
strategic plans to reduce wasted administrative resources, prevent profit
loss and keep premiums reasonable. Identifying the inefficiencies that
can be solved with implementation of healthcare IT solutions, such as
electronic signatures, is one answer. Modification of administrative
processes – with electronic signatures at the forefront – has the potential
to save insurance companies millions in excessive costs.
Excessive administrative costs not only mean loss of profit and higher
costs to consumers, but also risking additional expenses in the form of
consumer rebates when the required Medical Loss Ratio is missed. These
losses are entirely avoidable.
This paper will discuss the business implications of the Affordable Care
Act in greater detail.
1
Ombud, Inc.
www.ombud.com
1877 Broadway, Boulder, CO 80302

2. MEDICAL LOSS RATIO: NOW
DIFFERENTIATES HEALTHCARE PAYERS
The Patient Protection and Affordable Care Act (PPACA) enforces a policy called
the “80/20 Rule”. Also commonly known as the Medical Loss Ratio (MLR) Rule,
this policy regulates the percentage of health insurance premium dollars that can
be spent on things other than healthcare. Healthcare payers are now required to
make their medical loss ratio public record.
“Medical costs seem to be growing
at historically low rates, health
insurance premiums have up until
very recently not reflected that,”
according to Timothy Stoltzfus Jost,
J.D. who holds the Robert L. Willett
Family Professorship of Law at
Washington and Lee University. “Health insurance premiums have continued to
grow even though medical costs aren’t growing so fast.”
A leading expert in health law, Professor Jost’s most recent works on the topic
include Health Care at Risk: A Critique of the Consumer-Driven Movement. He
identifies two beneficial effects the medical loss ratio requirements have had for
consumers.
“It forces the insurers to align their premiums with their incurred claims, with
their costs, and there’s some evidence that at least last year their premiums have
come down a little bit so I think that reflects that,” according to Professor Jost.
“The other issue is efficiency. Insurers are forced by the 80/20 Rule to use their
resources more efficiently.”
Starting in 2012, healthcare payers across the country were required to submit
annual MLR reports on all coverage provided within the previous year to the
Department of Health and Human Services (HHS) by a June 1 deadline. If a payer
spent more than 20 percent of premium dollars on administrative costs, that payer
had to provide rebates to its consumers by August 1.
2
Ombud, Inc.
www.ombud.com
1877 Broadway, Boulder, CO 80302
“Insurers are
forced by the
80/20 Rule
to use their
resources more
efficiently.”
-Prof. Timothy
Stoltzfus Jost
80% Healthcare & Quality 20%
Admin
MLR Mandate

3. AVERAGE HEALTH PAYER REBATES PER
FAMILY IN ALL MARKETS (2012)1
1. Data based on U.S. Department of Health and Human Services report published on June 21, 2012.
(URL: http://ombud.com/r/y3)
2. New Mexico and Rhode Island had the lowest average rebate, $0 per family.
3. The average health payer rebate per family in the United States was $151.
4. Virginia had the largest average rebate, $807 per family.
$50 or less2
$51 - $100
$101 - $1513
$152 - $200
$200 or more4
3
Ombud, Inc.
www.ombud.com
1877 Broadway, Boulder, CO 80302
“Insurance
Companies need
to plan to
operate their
organizations as
efficiently as
possible.”
-Prof. Timothy
Stoltzfus Jost
Additionally, that payer must send a letter to its consumers explaining the 80/20
Rule, the difference between that goal and the payer’s MLR and the percentage
consumers should expect in rebates. For this first year, payers who met or exceeded
the standard were also required to send a notice to consumers.
On top of those regulations, premium rate increases of 10 percent or more are
subject to a review process in which additional documentation is required and the
payer’s MLR is further scrutinized. Federally-approved states have the power to
approve or deny those requests. As the HHS gets underway managing the scrutiny,
one such state can be viewed as a model for methodology - Iowa.

4. HOW IOWA REGULATES HEALTH PREMIUMS
AND LESSONS FOR PPACA IMPLEMENTATION
The Iowa State Legislature created the position of Iowa Consumer Advocate
within the Iowa Insurance Division in 2008. Since then, the Iowa legislature has
mandated public hearings and personal notifications for premium rate increases
greater than the annual average health spending growth rate published by the
Centers of Medicaid and Medicare Services (CMS).
According to Angel Robinson, Customer Advocate, Iowa Insurance Division, “Our
changes actually were not brought about by the ACA. They were brought about
by our state legislature before the ACA was even implemented [as a result of]
consumer complaints about not being able to participate in a rate increase process.
Consumers were receiving rate increases. They felt that they didn’t have proper
notice and that they were not being considered in the decision-making process
for approving rates, so the legislature’s response was to create this particular law.”
A precursor to the Affordable Care Act, Iowa law essentially mandates greater
transparency, requiring healthcare payers to provide an explanation for the
proposed increase via personal notices to consumers. This includes a ranking
and quantification of all factors causing the rate increases in consumer-friendly
terminology, according to Ms. Robinson.
Wellmark Blue Cross Blue Shield of Iowa was the only health payer in Iowa to
request a rate increase above the average annual health spending growth rate (as
published by CMS) for 2012 and therefore the only payer required by Iowa law to
participate in this process for 2012 rate increases.
This year, Ms. Robinson has seen a decrease in the number of comments she has
received prior to the hearing. She thinks this is primarily due to consumers’ belief
that the payer will get a rate increase of some amount regardless of consumer
input. Despite this, Ms. Robinson does note an increase in complaints in one area:
healthcare reform’s effect on rate increases.
Whether healthcare payers are ready – or not – their spending is being scrutinized.
Iowa consumers have been analyzing Wellmark Blue Cross Blue Shield of Iowa’s
Healthcare
payer spending
is being publicly
scrutinized.
4
Ombud, Inc.
www.ombud.com
1877 Broadway, Boulder, CO 80302

5. administrative expenses in relation to premium dollars for a few years now. These
regulations now apply to healthcare payers across the US - not all of whom are as
prepared as Wellmark.
WELLMARK BCBS REDUCING PAPERWORK
AND PERFORMING WELL UNDER SCRUTINY
Wellmark has performed well under this increased scrutiny, partially as a result
of being ahead of the curve in implementing technologies to reduce excessive
administrative expenses.
WELLMARK’S MLR VS STANDARD (2011)5
Wellmark’s MLR MLR Standard
Individual Market 90.2% 67%
Small Group Market 80.9% 80%
Large Group Market 88.9% 85%
5. As reported by the HHS (URL: http://ombud.com/r/y4)
Iowa Health
Insurance
Costs Report:
http://ombud.com/r/y7
5
Ombud, Inc.
www.ombud.com
1877 Broadway, Boulder, CO 80302
Despite decreased administrative costs, Wellmark Blue Cross Blue Shield of Iowa
has once again requested rate increases for 2013. All have been posted to their
company profile on the federal healthcare website (URL: http://ombud.com/r/y5),
and one is outlined below.
A WELLMARK REQUESTED RATE INCREASE (2013)
It is important to note the per-member-per-month administrative expenses cover
costs that have decreased for Wellmark. This payer has already implemented
healthcare IT solutions – such as electronic signatures – as a preventive measure to
keep administrative costs reasonable.

6. According to Wellmark’s written explanation of the requested rate increase,
“Administrative costs in aggregate have decreased as a percent of premium from
the prior rating period. Changes in distribution costs are the main driver of this
change in administrative cost.”
Wellmark uses DocuSign to replace manual, paper-based administrative processes
to eliminate excessive expenses with legally-binding electronic signatures.
ESignatures have been part of the solution to achieve compliance, increase
efficiency and save resources. They have exceeded the government-mandated
MLR and reduced the need for printing, faxing, scanning and shipping documents.
Keeping those reduced administrative costs in mind, it is additionally important
to look at Wellmark’s 2013 requested rate increase in context with their 2012
administrative expenses. In 2012, Wellmark’s administrative expenses ranged from
$29.27 to a whopping $92.80 per member per month – all while staying within
a range of 9.02 to 13.81 percent of premium dollars. Although the percentages
remain low, the actual dollar amounts of administrative costs remain high – even
for payers making an effort to cut administrative costs.
MILLIONS OF DOLLARS IN ADMINISTRATIVE
SAVINGS FOR HEALTHCARE PAYERS
According to HHS, health insurance rate regulations in the state of Iowa saved
6,929 consumers in the small group market $1,125,000 last year. Each payer could
save that amount with electronic signatures.
Payers, such as United HealthCare, have seen electronic signature ROIs of one
million dollars in the first year – on paper-related costs alone. Payers are currently
receiving incomplete paper documents in the mail that must be returned and
resubmitted. Because field completion can be required for submission of electronic
forms, contract turnaround time is reduced from days to minutes.
Prior to eSignatures, it took United HealthCare an average of 32.5 days to add a
provider to their network. This meant they received a completed paper contract
in the mail, ready to countersign and return to the doctor. ESignatures has cut
that time from more than one month to two days, according to Marvin Clark, a Six
Sigma Consultant at United HealthCare with about 16 years of experience in the
“Administrative
costs in aggregate
have decreased as
a percent of
premium from the
prior rating
period.”
-Wellmark BCBS
of Iowa
6
Ombud, Inc.
www.ombud.com
1877 Broadway, Boulder, CO 80302

7. healthcare industry.
This drastic decrease in turnaround time also changed other metrics, according to
Mr. Clark. Previously, the processes of credentialing providers and signing contracts
took place simultaneously, with fingers crossed that both would be completed at
about the same time. Now the provider must be credentialed before a contract is
sent because the process moves so quickly.
Thosedollarandtimesavingsextendoutoftheofficeforevengreaterenvironmental
savings. According to Mr. Clark, if he stacked the paper eSignatures has saved
United HealthCare, that stack of 3.5 million sheets of paper would be 109 stories
tall – taller than the Empire State Building.
“We’re taking trucks off the road; the environmental savings is tremendous,”
according to Mr. Clark.
Healthcare payers are completing administrative tasks in less time, with less
wasted resources, at a lower cost. This means lower costs transferred to consumers
and greater potential for affordable care. That is just one aspect of the potential
savings eSignatures has to offer healthcare payers.
IMPLEMENTING HEALTHCARE IT: ESSENTIAL
TO MAINTAIN COMPETITIVE ADVANTAGE
In regards to health insurance, the Affordable Care Act essentially mandates
greater transparency. These new regulations benefit consumers in several ways:
1. The government enforces returns of premium dollars to consumers if
those dollars were spent inappropriately.
2. The government regulates the percentage increase of premium dollars
with public hearings.
3. Consumers can actually compare the way multiple healthcare payers
spend premium dollars on healthcare and administrative costs. These ratios
can be influential in deciding which payer to choose.
ESignatures
are essential
for affordable
healthcare to
be a reality for
Americans.
7
Ombud, Inc.
www.ombud.com
1877 Broadway, Boulder, CO 80302

8. 8
This transparency means more administrative tasks are required for compliance.
As a result, healthcare payers publicly benefit from reducing the inefficiencies in
their administrative processes sooner rather than later.
Strategic planning to reduce wasted resources (both time and money) in
administrative processes could be the game changer. Smart payers have already
begun implementing the latest healthcare IT to cut those administrative costs that
are entirely avoidable – to the tune of millions of dollars in savings.
“Insurance companies need to plan to operate their organizations as efficiently as
possible,” according to Professor Jost.
Sure, that’s just smart business, but come 2014, MLR compliance will be last on
healthcare payers’ compliance check list. At that time, the MLR will change to a
three-year average, and other federal programs will be applied prior to the MLR.
“If insurers need to do strategic planning for anything, it’s trying to figure out how
those programs are going to affect their business,” according to Prof. Jost.
Low administrative costs are no longer just good business practices. Low
administrative costs are required to be competitive in the market. Plus, time
is running out to implement a strategic plan to improve processes, eliminate
excessive administrative costs and establish transparency for compliance. While
there is still a lot of room for growth in the successful implementation of paperless
technologies and streamlining the paperwork approval process, electronic
signatures are essential to making affordable care a reality for more Americans.
ADDITIONAL RESOURCES
• Fereral government website managed by the U.S. Department of Health
and Human Service: http://www.healthcare.gov
• Iowa Insurance Consumer Advocate website: http://insuranceca.iowa.gov
Low admin
costs are
required to
maintain a
competitive
advantage.
Ombud, Inc.
www.ombud.com
1877 Broadway, Boulder, CO 80302
Record
MLR
Report
MLR
Notify
and/or
Refund
Consumers
Inform
Consumers
Request
Premium
Increases