McKinsey estimates as many as 35% of Americans could receive health insurance coverage through a state or federal Health Benefit Exchange as defined under PPACA.  The good news is this is not 100% (excluding Medicare  and Medicaid) of Americans.  This begs the question, where are the remaining 65% going to receive their health insurance coverage?  If you guessed, Employer Sponsored Group Insurance, you’d be correct.  It is our expectation that COBRA will remain an employer law and responsibility for Employer Sponsored Group Health Insurance plans.

We believe administrators who aggressively move ‘up market’ into the national or larger employer market (500+ employees) will be well positioned to maintain a viable and profitable continuation benefits administration business.  Those administrators who continue to only serve the small to medium sized employer are at the greatest risk to experience erosion in their revenue base due to a shift by small employers and consumers to individual health insurance plans through Health Benefit Exchanges.  Many studies are predicting that the majority of sub-100 life employers will dump to or move into their state exchange in 2014 or 2015.  If you run a COBRA administration business dominated by sub-100 life groups, it could be gone by the end of 2015 if you don’t take action now.

Also, those continuation benefits administration firms who pursue classic direct billing opportunities for pre- and post-65 retiree services are well positioned to weather health care reform.  It is not likely those employers who have benefit packages inside a collectively bargained agreement will be able to terminate their obligations simply due to PPACA.  Direct billing needs for employers with collectively bargained agreements will be present long after the last health care reform legislation has been implemented.  We probably don’t have to point out that you only find employer sponsored retiree health insurance plans among larger employers.

If you are an administrator whose revenue base is primarily derived from the small and medium sized employer market, redesigning your operations to pursue large employer business is a project you must undertake today.  Larger employers are represented by larger consulting and broker firms.  All are very experienced ‘buyers’ of COBRA and Direct Bill administration services.  To prepare, ask yourself these questions:

1. Is your entire operation SAS 70 Type II (SSAE 16) reviewed?
2. Do you have audited financials and a strong balance sheet?
3. Are your operations and those of your key partners fully HIPAA and HITECH compliant?
4. Do you have well documented, tested and reliable disaster mitigation, business continuity and disaster recovery plans?
5. Do you have the appropriate insurance coverage levels in place for professional liability, employee dishonesty, property and casualty and third party liability?
6. Are you represented by experienced professionals for tax, audit, legal and human resources?
7. Do you have a highly scalable operation that experiences a lower cost per transaction as volumes increase?
8. Do you have full web-based solutions for all key stakeholders in the benefits ecosystem?
9. Does your technology platform support both COBRA administration and individual direct bill (i..e retiree health insurance billing) administration in one integrated platform?
10. Does your technology platform cleanly and clearly track custodial cash with posted and adjusted remittances/disbursements so that your clients can always see “where their money is?”
11. Are your internal business intelligence systems in place to really know what your costs are and how to profitably price a large employer?
12. Is your company capable of complying with complex Service Level Agreements?
13. Do you have the right talent on staff to grow the business 10X?
14. Does your current call center and technology meet large employer expectations?
15. Are all your marketing materials, including your website updated to present a polished and professional image of a mature administration company?