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Health-care Reform Warrants HRIS Updates

May 1, 1994
No one knows what will happen to health care in the future as a result of health-care reform. There's no doubt, however, that something will happen. Changes to flexible benefits are expected by January 1, 1997, and full health-care reform should be in effect the following year.

Although 1998 sounds far off, companies must begin now to prepare their HR information systems (HRIS) to effectively manage their companies' health-care programs through the changes that will occur. Businesses must have the ability to collect and analyze health-care data. On top of that, the health-care system as proposed by President Bill Clinton requires a linkage between organizations, their health-care providers and insurance companies.

Even without legislation, health care is transforming, requiring changes in HRIS. Employers who historically offered workers maximum choice in health-care via indemnity plans no longer can afford to stay on this path. With rising health-care inflation, more choice in medical care means more cost. As a result, employers, unions and employees voluntarily have been changing their purchasing behavior.

This has caused a fluid movement from indemnity plans to health-maintenance organizations (HMOs) and other managed-care strategies that offer less choice. Since 1985, the growth of HMOs has been astounding. If companies continue along this continuum, no worker will have a totally free selection of doctors or providers within the next few years—managed-care strategies will be the norm for most plans. As this trend continues, IS must keep pace by tracking usage, costs and other factors that affect the bottom line.

Adding legislation would mean additional tracking. Reform as proposed by the Clinton administration would require all companies with fewer than 5,000 people to participate in regional health-care alliances. Through strong lobbying, however, the legislation that eventually passes may require only companies employing fewer than 1,000 workers to join regional alliances. All others may have the option of joining corporate alliances (in which several organizations align together) or continuing whatever coverage they now offer. Companies that employ more than 1,000 people, therefore, will need to have almost instantaneous feedback to their benefits and medical-utilization data if they don't wish to join a regional health-care alliance.

Health-care reform will affect other elements as well. Although flexible benefits covered under Section 125 of the Internal Revenue Code will survive, there will be changes in basic plan design (see "Flexible Benefits That Will Survive Under Health-care Reform"). Health-care reform actually may be a catalyst for growth in flexible-benefits plans. However, medical flexible spending accounts (FSAs) likely will be eliminated by January 1, 1997, for almost all types of health-care reform expenses. Medical FSAs will be limited to out-of-pocket dental, vision and hearing expenses with some type of spending cap.

A cap or overall limit on the amount of money allowed pre-tax in a flex-benefits plan is the next debatable issue. Most consultants feel that having a cap is inevitable. Most employers, however, would like to see no cap and are fighting to preserve the tax-deductibility of employee benefits.

The Republican Party has sent up a trial balloon proposal similar to a medical FSA. It's called a medical IRA (for its similarity to an individual retirement account), and it allows putting away pre-tax money for any type of health expense. If the money that's been set aside isn't used by the end of the year in which it's been earned, it can be carried forward. The medical IRA will allow employee choice and preserve the tax-deductibility of employee benefits (see "Medical IRAs Replace Current Flexible Spending Accounts").

Reform requires updated HRIS.
All of these changes will require HRIS personnel to alter their current practices and technologies. One major effect that health-care reform will have on employers—no matter what form the legislation takes—is a need for constant availability to data and the ability to analyze it.

Perhaps the health-care reform proposal that will have the greatest impact on HRIS, however, is Clinton's national health security card, which he introduced in a nationally televised health-care reform presentation. The Health Card, similar to an ATM card, would use advanced technology to ensure that every U.S. citizen has instantaneous access to health services nationwide. Here's how it would work:

An employer or insurance carrier (within a regional health-care alliance or HMO) would issue a Health Card to every eligible employee. A magnetic strip on the back of the card would be encoded with the following information:

  • Company name, bank routing number for funds and bank account number
  • Employee's Social Security number, bank routing number for funds and checking, debit or credit-card account numbers.

When an employee visits a provider's location (doctor, hospital, emergency center, HMO, etc.) he or she immediately would hand the Health Card to a member of the clerical staff. Before any service was performed, the clerk would access a central data base or the employer's own HRIS system by passing the card through a credit-card reader, manually entering information on the card into a computer linked to a phone line or dialing a toll-free number that would interact with a voice-response unit. The clerk thus would be able to verify the employee's eligibility, and the coverage limits for employee benefits/ insurance instantly would be displayed.

If a claim needed to be handled by electronic data interchange (EDI), the claim data would be entered directly into the accessed Health Card system by keypad using the standardized HCFA 1500 claim format. Paperwork virtually would be eliminated and adjudication would be complete.

Payment for services could be made via electronic funds transfer (EFT) from the employer's bank account or from the employee's checking, debit, or credit-card account, accessed like an ATM transaction. If the employee has a medical FSA, funds also could be accessed from that account.

The advantages of this system include:

  • The employee knows he or she is covered and what his or her portion of the medical bill is at the time of the service
  • The provider receives guaranteed payment, and this system eliminates most of the accounts-receivable problems, need for collections and need for claims forms and paperwork from the employee before he or she leaves the provider's office
  • The employer won't incur claims liability for ineligible or former employees and, through electronic data interchange and electronic funds transfer, should receive preferred discounts from the provider
  • The insurance carrier and any PPO/ managed-care companies eliminate a large portion of administrative overhead, reduce paperwork, guarantee accuracy of claims transfer, ensure instantaneous claims turn-around and improve transaction reports.

Although this concept is new, the technology to make it happen isn't. The hardware and software for a Health Card exists today, and most providers have credit-card readers or computers in their offices. Even if the provider doesn't have either a reader or computer, all providers have a phone and can access a voice-response unit. Inexpensive voice-response-unit access and the ability to link flexible benefits into the Health Card system are two keys for being in the forefront of technology.

How can employers prepare for health-care reform?
If an employer is to survive the changes under health-care reform, three things must happen. First, in-house human resources information systems must become easier to implement. Both the administration and enrollment systems for benefits will have to become more cost effective and more user friendly.

Second, statistical data must be easier to obtain and will need to prove that managed care linked to flexible benefits really works and is cost effective for even smaller employers. The ability to gather the data, and interpret and reproduce it in summary reporting will become important.

In addition, new software and standardization will have to be adopted by the health-care community of doctors, hospitals, insurance carriers and claims payers. Employers can lead the way by implementing new technology that will link them to these health-care providers.

Currently, many employers focus on internal software systems that use graphical user interfaces and other advanced features. The problem with this technology is that many of these software systems don't address the employer's needs of linking with external systems, such as providing the ability to transfer information using electronic data interchange and electronic funds transfer for all benefits processes. If employers decide to continue to focus internally and to rely on consultants or insurance carriers for these external functions, they may face a real crisis.

For one thing, most major consulting firms aren't equipped currently to provide medical-claims adjudication, electronic data interchange or electronic funds transfer for their medical and flexible-benefits clients. They only can study, audit and analyze data for employers, but don't have the capability to actually do anything with the figures. This is likely to change soon, however, as consultants discover the uselessness of having access to data without the ability to determine eligibility, pay claims and transfer funds electronically on a real-time, instantaneous basis.

Also, most of the HRIS and employee-benefits software providers aren't addressing electronic data interchange and electronic funds transfer, nor are they building the links to the existing health-care system infrastructure.

Start building your HRIS today for the future of health care.
Most employers will demand that their HRIS departments evaluate the need, timing and costs for advanced technology. The decision to build your own Health Card system, lease a network or use the services of an outside administrator will need to be made.

Mainframe, minicomputer applications or personal computer-based systems are options to be explored. Any system that truly could handle health-care reform will need components of:

  • Debit and credit-card processing for medical and flex claims
  • Electronic data interchange for online eligibility and plan information
  • Electronic funds transfer for transfer of funds for claims/administration fees
  • Interactive voice-response units.

The HRIS department should keep in mind that employees won't be afraid of this new technology. We've become a computer, television, and video-oriented society. That means employees, providers, insurance carriers and administrators/managed-care companies are requesting to receive information from a phone or by computer screen.

Electronic data interchange and electronic funds transfer are being introduced to health care already, largely due to Medicare and Medicaid claims. Electronic data interchange facilitates the transfer of information electronically, with less paperwork. A recent Wall Street Journal article emphasizes the current trend: "Anyone not making it [the transition from paper-driven systems to electronic data interchange] experts say, won't survive in the future U.S. health system. 'Our industry is data driven, but we have tremendously underfunded our information-system needs and we're just beginning to wake up to that fact,' says Stanley F. Hupfeld, Baptist Medical Center in Oklahoma City, Oklahoma, president and chief executive officer."

Now's the time for most employers to make use of advanced technology. Regardless of the effect of health-care reform, employers who have the data and control over their health and flex plans will be the winners now and in the future. Also, your ability as an employer to decide whether to join a corporate alliance or spin off part of your employees into the regional alliance will be based on data. Capturing and doing something with that data is what advanced technology is all about.

Personnel Journal, May 1994, Vol.73, No. 5, pp. 42-46.