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Merging information systems for risk and benefits managers.

David A. Tweedy is a senior consultant with Betterley Risk Consultants Inc. in Worcester, MA.

The word "merger" conjures up many images. To those who have suffered from merger-mania during the 1980s, the word has such negative implications as disorientation, loss of job or career or, at best, significant nuisance as one was forced to reorganize job functions and priorities. To those who remained untouched, it means opportunity created by gaining new resources.

Risk and employee benefits managers are no different from anyone else in the business world. Therefore, the mere thought of merging risk management and employee benefits information systems will probably elicit an outpouring of criticism.

Whether they like it or not, however, this consolidation will inevitably occur as senior managers begin to refuse to tolerate uncontrollable surges in the cost of group health benefits and workers' compensation insurance. At the same time, a wave of integration among other management information systems will force risk and benefits managers to comply. In the end, both disciplines, employers and employees will benefit from the creation of an employee benefits and risk management information system (ERIS).

Historical Perspective

In the late 1960s and early 1970s, risk and benefits managers began demanding that their insurers or third-party administrators provide more complete, accurate and useful information on high-volume claims areas. In those days, the orientation was on "transaction processing," by which the insurer provided rudimentary loss runs from mainframes. Unfortunately, they were often inaccurate and outdated and contained little substance.

Through the 1970s, insurers employed more and faster computers, and as a result, provided better management reports. From the mid-1970s to the mid-1980s, risk and benefits managers were able to access data with far more flexibility, manipulating, collating and aggregating information to meet specific needs. Also, cost-effective microcomputers, or personal computers, became available, making the managers less dependent on third party-provided mainframes and microcomputers.

In the last decade, advanced decision-support employee benefits information systems (EBIS) and risk management information systems (RMIS) emerged. While claims data analysis remains at the focal point, other pertinent areas of risk management and employee benefits are now directly accessible on a stand-alone basis through a personal computer. RMIS now handles claims management and administration for all property/casualty lines, loss development and forecasting, cost of risk allocation, financial modeling, policy registration, litigation management and exposure analysis, among other things. EBIS systems are capable of screening, calculating and processing claims payments for health, dental, long-term disability, vision care and coordinated benefits. In addition, they can be used in utilization review and flexible spending account programs and to monitor benefits eligibility and participation and compliance with COBRA and ERISA.

A key theme now heralded by those in the computer industry is seamless integration of all systems, by which data bases can be merged regardless of system or software to produce useful management reports. That is the principal goal for risk and benefits systems.

Mandate for Merger?

A few major factors make that goal inevitable. Perhaps the most essential, which is entering the mindset of senior managers, is the perceived advantage of cost reduction.

Both EBIS and RMIS seek to reduce cost primarily by identifying improper medical bills or treatments. They also pinpoint areas of high loss frequency, allowing companies to bring them under control by employing wellness or employee assistance programs in the case of benefits and enhanced safety efforts for workers' compensation. In addition, they identify the most cost-effective methods of risk financing and assist in redesigning plan provisions. Merging the two data bases into one system, ERIS, offers even more cost-savings possibilities by helping to identify duplicate payment and improper classifications of claims.

Most duplicate payments arise when employees or their medical providers, who maintain they are unsure whether the claims are covered by workers' compensation or group health insurance, submit them to both areas. Sometimes this is an honest mistake, but based on my experience, I estimate that in 5 percent to 10 percent of the cases it is not.

With misclassification, the problem is more difficult to discern. Once an injury is misclassified as a workers' compensation or health claim it can be difficult to sort out the specifics unless it is investigated by a claims adjudicator or administrator. Clerical errors are another cause of misclassification. Also, a claim may accidentally be filed improperly when it relates to a compensable pre-existing condition.

ERIS, able to search both claims areas' data bases, would detect duplicate payments and misclassified claims. Quantifying the savings, however, would be speculative. Major insurers that cover both group health and workers' compensation plans predict savings ranging from negligible" to significant," according to Robert Cone, director of property/casualty development for Consolidated Healthcare Inc. in Richmond, VA. Mr. Cone estimates savings of 5 percent to 7.5 percent of total medical claims payments by workers' compensation carriers. From a health insurance perspective, he thinks the savings would be in the .5 percent to 1 percent range, a significant amount when compared to the approximately $240 billion in group health claims that, based on A.M. Best 1987 estimates, will be filed in the United States in 1990.

ERIS would also create uniform compliance with fee codes and usual-and-customary amounts. During the last decade, benefits managers have focused on cost containment procedures, including managed care, utilization review, second surgical opinions and basing payments on usual-and-customary fees, to control rising health care costs. However, on the workers' compensation side such techniques are only now being employed. As a result, utilizing ERIS to verify medical bills by comparing them against state or usual-and-customary fee schedules can reduce the medical costs associated with workers' compensation by as much as 20 percent to 30 percent, according to the findings of several studies.

Finally, ERIS would help promote strategic integration of all computer systems, which increasingly many Fortune 1,000 companies are pursuing. With computer hardware and software technology allowing easier communication among different types (mainframe, mini- and microcomputers) and brands (IBM,DEC), senior management recognizes the opportunity for total integration. The common centralized data base of employee medical claims is the link and foundation upon which a reliable strategic information system can be built.


Although the advantages of ERIS are clear, there are several obstacles standing in its way. The greatest is the perception of the word "merger." If risk management and employee benefits information systems are merged, which department will be dominant? Indeed, there have even been questions as to which department should control. workers' compensation.

If sharing the data base does not present a problem, gaining access, printing management reports and utilizing the data without the other department's permission may. Organizationally, both sides can argue that it is more efficient for one person to have final responsibility to control costs.

Obtaining access to the human resources department's data base may also be obstructed by confidentiality issues. In some cases, unions, through collective bargaining, have prevented any transfer of data outside the department. Similarly, information on such personnel matters as pre-employment physical exams and performance evaluations stored in the human resources information system, in which EBIS is contained, may not be accessible.

Data differences between RMIS and EBIS may also make integration difficult. The focus of claims information in the workers' compensation area is on regulatory compliance and loss control, while health insurers are far more interested in classifications of medical treatment or diagnosis. Although these differences are beginning to disappear, they remain in most risk management and employee benefits departments.

A related obstacle is hardware and software differences. Typically, firms use different companies to provide health and workers' compensation coverage or claims service. Each has its own systems, with different hardware, software and interfacing capabilities.

The final obstacle to overcome is the fact that vendors either have focused on RMIS or EBIS and almost never both. One exception occurred during the early 1980s when a major RMIS vendor joined forces with an EBIS vendor. Marketing to two different managers proved to be difficult, and the relationship subsequently ended in failure. Today, a few vendors offer dual capabilities, but with some significant limitations. As yet, not one vendor offers full-scale RMIS and EBIS services, a situation that is mainly due to the questionable market return.

Designing a Marketable System

Eventually, risk and benefits managers and vendors will realize that the advantages of ERIS outweigh its disadvantages. Systems will then be designed to meet both the buyer's and seller's needs.

There are three options: Either ERIS will be created from scratch; existing EBIS and RMIS systems will be adapted to include the other functions; or a bridge will be built between existing RMIS and EBIS systems. Each option is equally plausible and applicable to a specific situation. The foundational step is the creation of the consolidated data base. The next layer would consist of a basic claims monitoring/adjudication module. Finally, a decision-support/ analytical module would be superimposed over the two other layers.

The data base would be comprised of all pertinent employee information from both a workers' compensation and a health benefits perspective. It could either be merged through a bridge software solution, using an access variable, such as a Social Security identification number, or completely merged altogether, a more expensive and time consuming process. The claims monitoring/adjudication module must then be able to extract relevant data from both benefits and workers' compensation data bases to enable risk and benefits managers to perform efficient analyses and generate meaningful management reports.

The data base should also have access to or include usual-and-customary fee schedules that are integrated with generally accepted medical reimbursement rules and guidelines. This sub-data base must be updated constantly, especially since many non-fee states for workers' compensation will become fee states in the near future.

The final level of ERIS is the decision support/analytical module. Here, management reports are prepared using information stored in lower levels. Reports on COBRA compliance, risk financing levels, safety and loss control and identification of double-dipping or potential fraud areas are all possible through this level.

The Designers

Large companies with sufficiently resourced and experienced MIS departments may develop proprietary systems, but existing RMIS and EBIS vendors, including independents, third-party administrators and insurers, are the likely ERIS designers. Indeed, a few companies such as The Travelers, CIGNA, Insurance Software Packages, California Interactive Computing and Corporate Systems are already offering limited ERIS capabilities. Other vendors are working on their own designs.

Today's ERIS-like systems are adapted RMIS or EBIS systems. Some systems, particularly the insurer-oriented ones, are being created in response to the creation of 24-hour coverage, which combines workers' compensation, health and disability insurance products.

What is the target market for ERIS vendors? From my perspective, the emergence of cost-efficient microcomputer hardware and software has brought its applicability to the relatively small employer. An employer with as few as 200 employees and 200 workers' compensation claims per year (at least 80 to 100 related to lost time accidents or indemnity) should have sufficient volume to derive benefits from computerized analysis and monitoring. Obviously, at the low end, the focus is on the efficiencies of claims handling and the appropriateness of payment for both workers' compensation and health benefits. As firm size increases, other risk financing and benefits issues, such as flexible spending accounts, enrollment analysis and the like, are added to the ERIS equation.

No doubt, ERIS will be a critical tool for assisting risk and benefits managers in controlling costs in the coming decade. Such systems will more than pay for themselves by identifying unnecessary or excessive payments and misclassified claims, providing management information on financing and being part of a strategic corporate information system.

Senior management has finally recognized that something must be done to curb uncontrollable health care costs which put pressure on both the workers' compensation and group health benefits systems. In seeking to solve the problem, they will provide risk and benefits managers with the permission to invest in the tool which will not only help contain those costs but also improve the quality and efficiency of their programs.
COPYRIGHT 1990 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Author:Tweedy, David A.
Publication:Risk Management
Date:Nov 1, 1990
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