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NYU professor Thomas Nagel is most well known for his 1974 essay “What is it Like to Be a Bat?” That is an exciting read for anyone, but especially for people in consulting and sales/marketing, who are always trained to think from the perspective of our target audience. That is the reason, that we can frequently see our own sales organization negotiating sometimes on what our product/solution should do, and sometimes on what we should charge for it. That is also the reason that we make sales.

To be able to think like your customer is an important skill for anyone to have – whether we consider a nurse delivering a flu vaccination to a child, or a hotel cleaner preparing the room for the arrival of a guest, or a solutions architect preparing to deliver a piece of software.

So then, what does a CEO or a CIO at a carrier organization think about?

Well, there are always tactical decisions to make. This is typically the “how” of the business. Things such as vendor selection, team structure, review of operations, etc. Most of the CEO’s team is charged with owning, planning and executing those tactical, repeating decisions.

And then, there are strategic decisions. This is the “what” of the business – more art than science. Like any other business, a payer organization makes its strategic decisions with an abundance of caution. Fail to enter a growth market, and you can see your market share erode rapidly. Enter a market too aggressively, and you can see your profit margin dwindle due to unforeseen costs. CEOs at various insurance companies make important decisions like this frequently, but the ACA has forced them to make these decisions (at least for year 2014) at an unprecedented rate, so much so that some of those strategic decisions are almost tactical for them at this juncture in time. The decision on whether or not to participate in a market is quite different from deciding to sell toothpaste on a new sales channel, because of the renewal force of a health plan. If you purchased a product that you have been happy with, chances are you will stick with it when the time comes for renewal. Insurance companies (health, car) etc. have known this for decades. Consumer goods (such as toothpaste) don’t exhibit the exact same renewal phenomenon, and that is the reason they require significantly more focus on constant marketing and advertising, including subconscious messaging.

And finally, there is everything else, including non-work items. The CEO at a Fortune 500 payer deals with many of the same dilemmas that everyone else deals with – decisions such as children, family, friends, etc, and events such as the kids’ or the Yankees’ baseball games, kids’ college choices, etc. I mention this seemingly irrelevant item, because it is exceedingly relevant. Sales and implementation teams know that at a human level, we always need to earn the trust of our clients. We don’t need to say Yee-haw the same way they do, but at a fundamental human level, that trust is the basis of our collaboration.

Going back to the strategic decisions for a moment, which markets to participate in is a key decision made by a payer organization, and a very risky one at that. One of the reasons that the risk exists is due to the fact that there is very little data on the actual healthcare costs of the hitherto uninsured population that a market will bring.

The proponents of the ACA considered that the payers may be averse to participating in markets with little data, and thus came up with the concept of risk corridor. Risk corridors under Affordable Care Act are essentially mechanisms to bound loss and gain for a payer. Make a very risky bet and the government will cover (some portion of) your loss. Make a very good bet, and the government will take away (some portion of) your gain.

In a nutshell, the risk corridor can be described as:

• Symmetric with respect to loss and gain
• Does not “trigger” if the payer’s spending within 3 percent of the target
• If the payer’s spending between 3 and 8 percent of target, government shares 50 percent of the loss or gain.
• If the spending beyond 8 percent of the target, government shares 80 percent of the loss or gain.

Does the risk corridor make it a piece of cake for the CEO to decide on which markets to go into? Since the financial risk is only one aspect of this, perhaps not, but it does provide at least some buffer in one objective measure.

What are the top 3 items that a CEO at a top health plan thinks about in your opinion?

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