For all healthcare payors, managing administrative costs is increasingly important under the medical loss ratio requirements of the Affordable Care Act (ACA). Under the ACA, health insurers must utilize 80% of premiums on benefits in the individual and small group markets and 85% in the large group market. Payors need to efficiently and effectively manage these administrative costs in order to maximize the limited funds available for these operational activities.
For a healthcare payor organization, administrative expenses include those costs associated with operational activities such as claims adjudication, agent commissions, marketing, call centers, software licenses and more. Tracking and managing these administrative costs can be a challenge. And identification of areas where there is opportunity to optimize administrative spending can be an even greater challenge.
Benchmarking is an effective practice used by payor organizations to compare the cost and utilization in the delivery of medical benefits. Likewise, Operational Benchmarking of administrative activities enables healthcare organization to understand the performance of their internal and vendor provided administrative services. Types of administrative benchmarking measurement categories include:
- Efficiency benchmarks – the level of resource required for the completion of a defined number of transactions or members
- Quality benchmarks – both the level of consistency applied to similar transactions against recognized standards and the relative level of value of those services.
The purpose of establishing operational activities performance benchmarks is to define a vision for what is possible in “Best Practice” operations. Healthcare organizations utilize these benchmarks to identify strengths and weaknesses in their own operations, and to support operational improvement initiatives.
Administrative performance benchmarking allows a payor organization to:
- Analyze the efficiency of the health plan operational areas including claims, medical management, customer service, and administration
- Compare how the organization’s resource allocations compare to peers and competitors
- Evaluate whether resources are allocated correctly and whether additional staffing is warranted
- Measure administrative cost of the operations
- Target areas for improving customer service
Milliman has developed Operational Benchmarks which include measures for all medical administrative functions. They establish the Worst, Median, and Best Practice levels of cost, efficiency, and quality for administrative functions such as processed claims per 1,000 members per processor, reversed and adjusted claims, and call center abandonment rates. Milliman’s Operational Benchmarks have been collected from more than 100 payor organizations representing the full spectrum of the healthcare industry, ranging from small single-line carriers to large national carriers supporting a full suite of commercial products, as well as government programs and self-funded employer groups.
As shown below, Milliman Operational Benchmarks can be used to compare a client’s administrative costs by functional area. The results can be used to target specific areas for optimization or additional investment. Note that the information shown in the table below is for illustration purposes only. Milliman develops customized benchmarks for each client based on the client’s unique mix of business, plan size, location of operations, and administrative intensity.