The implementation of Obamacare and the states' health insurance exchanges are creating massive opportunities for tech firms. Already four have emerged that investors should be watching.
Jan. 1, 2013 marked the beginning of the era of universal mandates, penalty taxes, tax credits and health insurance exchanges.
Of all the features of Obamacare, the whole concept of health insurance exchanges should pique your curiosity. In order to install them, it’s going to take an awful lot of work. And some companies have already begun to position themselves to take advantage of what will be needed in the months and years ahead.
The term “health insurance exchange” isn’t a term you hear thrown around at lunch or Happy Hour. (Unless you work in D.C., but I’ll save that rant.) So here’s the best definition I can give, in layman’s terms.
A health insurance exchange is a set of government-regulated and standardized health care plans. It’s where everyday people can buy health insurance that’s eligible for federal subsidies.
These exchanges were set up by the current administration as a governmental or quasi-governmental entity to make sure insurance companies do three things:
• keep in step with consumer protections
• compete with each other in cost-efficient ways
• facilitate the expanded coverage of insurance to more people
Exchanges will choose which insurance companies can participate within themselves. The idea is that a well set-up exchange will be fully transparent. This will help spread risk across the entire exchange pool to bring down costs.
What has to happen…
Governors have thrown around more than enough political posturing lately regarding Obamacare. Many were hoping for a Romney win in November, and the subsequent overturning of the Affordable Care Act. But with an Obama win, many states now faced an important decision.
They had until Dec. 14 to tell the Obama administration whether they were going to set up their own exchanges, or pass that responsibility to the federal government. Under federal law, all exchanges must now be certified and operational by Jan. 1, 2014.
Up to this point, the administration has funded states around $2 billion to get these exchanges up and running.
But we should take note that analysts believe there are massive opportunities for tech firms. Why? There needs to be a build-out of the infrastructure to implement the expansion of Medicaid coverage.
When you talk to health care experts, they will tell you that buying health insurance is not an easy process. It’s a complicated purchase. It involves interfacing through a number of systems, and procuring capability from a number of vendors.
They will also tell you that we currently stand at about 30% of where we need to be. This means we need a good deal more than what was awarded to get states where they need to be.
And it doesn’t end with the establishment of the exchanges. Over the next five years, states will have to bring their infrastructures — which link to the payment and data systems of the Centers for Medicare and Medicaid (CMS) — up to speed. CMS forecasts that $23 billion will be spent by the year 2020 to upgrade management and Medicaid information systems.
Which companies to watch
No company by itself can service all the needs for infrastructure and services that health insurance exchanges will demand. So companies have been acquiring other firms. Or even making partnerships with others that specialize in Medicaid systems.
Here are a few names that are well-positioned for this evolving market
• IBM (NYSE: IBM)
Since the initial passing of the Affordable Care Act, IBM has pursued contracts to build out state health insurance exchanges. The company bought Curam, which is the leading software provider of solutions for social program management. The deal allows IBM
to have a presence on the infrastructure side, but also become a player in terms of the systems that help determine eligibility for exchanges. The move gives IBM a presence in the modernization of health care and human services for the next 10 years.
• Accenture (NYSE: ACN)
Accenture was awarded a $399 million contract this summer to head the build-out of California’s health benefit exchange. It partnered with Oracle (Nasdaq: ORCL) and Canadian health IT firm CGI Group (NYSE: GIB) in this deal.
• CGI Group
Involved in partnerships for the build-out of exchanges in Hawaii, Massachusetts and Colorado, CGI Group will be a part of the 30 health exchanges that will be left for the federal government to create in states that opted out of creating their own platforms, as well.
• Maximus (NYSE: MMS)
The health IT firm is expected to double over the next three years due to the passing of the new law. Maximus is the lead contractor in constructing Minnesota’s insurance exchange.
Looking at obstacles
The biggest obstacle in this whole process will be delivering proper customer service to handle enrollment. Also, someone will need to develop a technology platform that can interface seamlessly with each state government’s system.
But in an attempt to get ahead of the game, the Obama administration is in the process of building a website with interactive capabilities, and a call center, which already started testing a data services hub that decides eligibility.
Remember, this is now the law of the land for some time to come. And both the tech sector and the government will do everything in their ability to make it work. They have to.