CFO Studio Magazine, 4th Quarter 2012
By Alex Palmer


Unprecedented change. Those words apply to every aspect of the business of health insurance in 2012. Each consumer sees opportunities or new costs ahead. Every company is facing pricing changes, difficult benefits decisions, and risk assessments. Financial executives at companies of every size are finding themselves often with more questions than answers. And Dave Huber, CFO of Horizon Blue Cross Blue Shield of New Jersey (Horizon BCBSNJ), the largest health-care insurer in the state, is in many ways right in the eye of the health-care reform storm.

The storm has been gathering for four years, ever since President Obama took office and wrestled through Congress legislation — the Patient Protection and Affordable Care Act (PPACA) — that attempts to rein in high medical care costs and extend care to unin­sured Americans without changing how most working people obtain coverage. Even now, plenty of questions remain about precisely how these reforms will be implemented on the state and federal levels.

Navigating a major insurance company through the potential risks raised by the PPACA in a bad economy and a thick fog of uncertainty would make the average person have trouble sleeping at night. But when Huber discusses these industry-shaking developments, it is with the unruffled ease of a man who is comfortable with change.

“This is a seismic shift with an awful lot of uncertainty,” says Huber. “[But] I thrive on opportunities and I like to work in this kind of environment where there is a lot going on and there is a chance to do things differently or do things better.”

Huber has served as CFO since April of this year, when he took over from his longtime mentor, Bob Pures, with whom he had worked closely for years as vice president of finance. Serving more than 3.6 million members throughout the state, his company is moving fast to adjust its entire approach to the new insurance landscape — one in which millions of individuals will for the first time be selecting their own plans.


From Wholesale to Retail

The biggest shift for which Huber must plan is the expansion, legislated by the PPACA, of the number of individuals receiving coverage. Under “Obamacare,” companies with more than 50 full-time equivalent employees are required to provide health insurance for their workers or pay stiff fines (starting at $40,000 and going up from there, depending on com­pany size). For organizations with fewer than 50 employees, the responsibility to maintain minimum essential health insurance falls on the individual workers themselves, and they too can incur a financial penalty if they do not comply. (This is known as the individual mandate and was upheld by the Supreme Court in June.) New Jersey, a state of 8.8 mil­lion individuals, had an average of about 1.3 million residents uninsured between 2009 and 2011, according to U.S. Census data, most of whom will be expected to enter the insurance system within the next few years.

For Horizon BCBSNJ, this moves the company’s primary customer base from corporations to individuals.

“Historically our business has been a wholesale business where mostly we sell to group customers,” says Huber, whose full title is senior vice president – administration, chief financial officer, and treasurer. “In the new world, it’s a combination of wholesale and retail, where we are going to be doing much more direct-to-consumer.”

The looming deadline for Huber and other insurance providers is the start of 2014, when health insurance exchanges, in which the government will provide subsidies to uninsured or under-insured individuals who purchase their own insurance, are expected to be operational. Customers will buy their insurance directly over the web, as many do now with automobile insurance. But while the PPACA outlines the creation of health insurance exchanges, it leaves the nuances of how they will operate to the individual states, which can elect to self-operate the exchanges, or leave operation to the federal government, or do a combination of both.

New Jersey, along with 33 other states that have received grants for these exchanges, has until November 16 to declare whether it will implement its own statewide marketplace or join a federal one. At the beginning of Octo­ber, the bill for a state-run exchange passed the Senate with no Republican support. Advocates of the bill maintain that a state-run exchange will allow New Jersey to have more control over how their state’s exchange is implemented, while those in opposition sug­gest that the state should wait and see what the federal government offers.

Horizon BCBSNJ will have insurance products on the exchange, and therefore Huber has to prepare the company for each of the possibilities foreseeable under the PPACA. The company has conducted exten­sive scenario planning to understand how it might compete under a variety of different outcomes with regard to the health insur­ance exchanges. His team must consider how competitors might price their products and services in a market that has never existed. Determining how Horizon BCBSNJ can capture market share and balance that against potential risk, while remaining nimble enough to adapt when reality turns out differently than their simulations predicted, is keeping Huber and his team very busy.

“The law is written at a very high level, supported by regulations, and we’re trying to build something to compete in the market­place in 2014, which really means we have to go live in October of 2013, but we really don’t know what any of the rules are,” says Huber. “Frankly it’s a very challeng­ing environment, because there’s so much uncertainty about the future.”

Adding to these vari­ables, experts predict the changes ushered in by the PPACA are also expected to spur M&A activity as margins shrink across the insurance industry.


Business Challenges

It need hardly be said that Horizon BCBSNJ is not the only insurer concerned about the direction of the industry. At a conference in Las Vegas this past February, Aetna Presi­dent Mark Bertolini told the audience that, “The system doesn’t work, it’s broke today. The end of insurance companies, the way we’ve run the business in the past, is here.” He expressed particular concern about the ban on medical underwriting, as well as the minimal medical loss ratio requiring insurers to spend 80 to 85 percent of their premium revenues on claims and quality improvement, put forward by the Affordable Care Act.

For Huber, the biggest challenge may be the sheer length of his to-do list. “Our project appetite is insatiable,” says Huber. “We’ve got limited resources, so we need to prioritize based on the most pressing needs and where we expect to get the ROI.”

To figure out what to tackle first, Horizon BCBSNJ created a group called the Office of Healthcare Reform (“It sounds like the government,” Huber jokes). The Office is responsible for determining what steps the company should take to implement every aspect of the PPACA rollout.

Among these preparations for the changes in insurance has been a greater investment in technology and data gathering to help Hori­zon BCBSNJ understand who the company’s potential customers might be, how to segment its market, and what messages might best work for its customers. With the number of transac­tions online, over the phone, and elsewhere expected to increase significantly, Huber has worked with other departments to automate service and reduce costs where possible.

Employers and plan sponsors are increas­ingly passing more costs to employees, and some will likely continue this pattern. A survey by the National Business Group on Health, released in August, found that large U.S. employ­ers consider consumer-directed health plans and wellness initiatives more effective in controlling costs than shifting costs to employees. That being the trend, an unprecedented amount of plan cost and information must be available to support individual consumer decision making, whether through web, mobile, or social media channels — a step financial executives in every sector will be increasingly expected to take as reforms continue to roll out.

Not to lose sight of another group of the insured and about-to-be-insured population, there is expected to be continued growth of the Medicaid market segment. Horizon BCBSNJ’s enrollment saw its largest numeric increase for 2011 among its Medicaid members, which grew by 66,000 (a 13.9 percent jump), along with an additional 7,000 new Medicare Advantage customers, according to the company’s annual report. This part of the company’s business has the potential to achieve explosive growth — but there are questions about how that will happen, too.

The Supreme Court’s decision to allow states to decide whether they would accept billions of dollars to expand Medicaid to cover anyone earn­ing less than 133 percent of the Federal Poverty Level, rather than requiring states to do so, leaves open the possibility that New Jersey may have the full cost of covering new enrollees paid from 2014 to 2016, or that New Jersey Governor Chris Christie might reject the grant, maintaining the state’s current Medicaid levels. About 1 million New Jersey residents are now enrolled in Medic­aid, and that number is expected to rise by more than 400,000 by 2016, but the chief justice’s pronouncement that “states must have a genuine choice” leaves Huber and Horizon BCBSNJ with another very big question mark above their plans.


A Focus on Flexibility

As key Horizon BCBSNJ staff members take steps to ensure they are well-prepared for the shifting insurance landscape, the massive changes are also giving the company the op­portunity to rethink some of the presumptions on which the industry has operated for de­cades. For example, while health-care reform has already expanded access to care, it has hardly stemmed rising costs, with an average rise of 9 percent on health insurance premiums in 2011, according to Robert Marino, CEO of Horizon BCBSNJ.

“The average family of four paid more than $19,000 a year for its health insurance,” stated Marino in the company’s annual report. “In a weak economy, where many consumers face significant challenges in meeting basic needs, rising health-care costs only exacerbate an already difficult situation.”

For this reason, the insurer’s Horizon Health­care Innovations (HHI) team has engaged in aggressive outreach to physicians and other health-care professionals to offer increasingly flexible, collaborative approaches to providing care. These models include the Patient-Cen­tered Medical Home (PCMH), which coordi­nates care across all aspects of the health-care system — hospitals, nursing homes, pharma­cies, and the patients themselves — in promot­ing the prevention of disease and management of chronic illness. In 2011, HHI reported that PCMH members experienced an 8 percent improvement in managing their diabetes, a 10 percent lower cost of care for all members, and 26 percent fewer visits to emergency rooms.

Another model is the Accountable Care Organization (ACO), which ties provider reimbursements directly to performance met­rics. Horizon BCBSNJ has also rolled out the Episodes of Care programs in which one entity receives a fixed reimbursement to cover all costs from preadmission care to surgery to post-discharge care.

“The care philosophy underlying each of these models is that by improving the coordina­tion of our members’ health-care needs, it is possible to provide them better overall care and to lower health-care costs,” said Marino in the company’s annual report.


Calm Outlook

When he comes to work each day, Huber watches upticks and plunges in the financial markets. Horizon BCBSNJ, like all insur­ance companies, has to determine how to continue boosting its investment income in a period of historically low interest rates, without taking on too much risk.

“We have to fully understand all the risk we are taking and balance out that return,” says Huber. “In my role, people look at me and take cues from me, so if I’m at least outward­ly calm, it helps other people focus on what we can do, instead of focusing on things that are outside of our control.”

It is an outlook he has earned through trials that occurred earlier in his career. An accounting student at Lehigh University in Bethlehem, PA, Huber joined Arthur Ander­sen after graduating college. He worked hard and Andersen kept promoting him. Over his 16 years with the firm, Huber rose to partner.

But following the 2001 revelations that energy giant Enron had been sustaining itself through systematic fraud, Andersen’s role as the company’s auditor, and accusations that the company had been complicit in Enron’s malfeasance, proved fatal to the 89-year-old firm. Within months, Andersen went from an organization employing 85,000 people, to a company of several hundred.

“That was a pretty big shake-up in my world,” says Huber.

In the midst of this turmoil, Huber found opportunity. Bob Pures, the longtime CFO of Horizon BCBSNJ, reached out to Huber, whom he had known professionally. Horizon BCBSNJ was planning an initial public offer­ing, and Huber seemed a good fit to join the team as vice president of finance, to deal with Wall Street, strengthen the company’s process­es, and build forecasting models to assess the best path forward — all areas in which he had experience from his time at Andersen. Huber jumped at the chance, and while ultimately the company didn’t follow through with its plan to go public, Huber’s work impressed Pures and other company leaders.

Huber faced another test when the economy tanked in 2008, and suddenly Horizon BCBSNJ, a company that had been steadily growing, began to lag. Working with Pures and the other senior leaders, Huber took steps to reduce costs in the short term while positioning the company for growth in the long term, with positive results. Indi­viduals enrolling in the company’s managed care, pharmacy, and dental products through multiple network systems increased 65,000 in 2011, according to its annual report.

“We can point back to that and say, ‘We weathered the storm, we know we can do this,’” says Huber. “If you’ve been through it already, you can point back to examples, and people almost always just say, ‘We know the drill.’”

Since stepping up to the CFO role, Huber has made a point of conferring with other department heads and senior vice presidents to learn from them areas in which they needed the finance team to focus. He drew on these numerous conversations and myriad goals and distilled them into three main priorities that would be easy points of reference for each of the 10 departments and 350 employees within the Finance and Administration division.

“Now we’re able to articulate at town meetings and leadership meetings and so forth that this is what we stand for, and we’ve crafted common messages around what we aspire to do,” says Huber. He sum­marizes his three points as: Great People, High-Quality Work, and Strategic Business Partner. “If we create this vision, it will bring great people to create consistently high qual­ity work and serve as a strategic business partner to our customers,” he says.

Now, with the many uncertainties surrounding the implementation of the PPACA, “there are a lot of people who have been in this industry a lot longer than I have who say, ‘This is the biggest change we’ve ever experienced,’” says Huber.

Huber’s steps to understand his company from the foundation up, along with his past experiences, have prepared him for whatever the next quarter, election cycle, or Supreme Court decision may bring.

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