KPMG GOVERNMENT INSTITUTEHealth Benefit …...complete. However, the time-limited exception window to take advantage of the special funding is fast approaching: • Enhanced FFP for

KPMG GOVERNMENT INSTITUTE

Health Benefit Exchanges: complexities and

challenges associated with modernizing

state enterprise eligibility systems

August 2012

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b | Section or Brochure name

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Contents

Introduction ....................................................................................1

Overview of the opportunity and associated challenges .....................................................................3

KPMG’s approach to integrate other HHS programs with the exchange to benefit from the enhanced federal funding opportunities .....................................................................5

Final thoughts .............................................................................. 11


1 | Health insurance exchanges

Introduction

The Patient Protection and Affordable Care Act (ACA)1, signed into law in March 2010, requires states to make available by October 2013 a health benefit exchange (HBE) where individuals or small businesses can compare and purchase private health insurance or be enrolled in an expanded Medicaid program should a state opt to expand the program. As a result of these requirements, and other funding incentives, the federal government has established several programs to provide funds to states for HBE implementation and eligibility modernization activities. This provides states an opportunity to modernize existing state-level health and human services legacy systems and to promote enterprise approaches to service delivery. However, although these opportunities provide great opportunities for states to rethink their Health and Human Services (HHS) enterprise, the time constraints associated with HBE implementation and the time-limited nature of the available federal funding make the prospect of state HHS initiatives challenging.

This white paper, developed under the sponsorship of the KPMG Government Institute, highlights the existing opportunity as well as the complexities and challenges associated with modernizing state enterprise eligibility systems in conjunction with HBE implementations. In addition, this paper introduces an approach as well as tools which KPMG has developed specifically to provide states the opportunity to accelerate such initiatives so that they may benefit from the opportunities available.

1 The Patient Protection and Affordable Care Act, Public Law 111-148, March 23, 2010


Health insurance exchanges | 2



anyway, for example, Temporary Assistance for Needy Families (TANF), Child Care and Development Fund (CCDF), and Supplemental Nutrition Assistance Program (SNAP). Human service programs will be required to cover only the incremental costs of human service specific functions built on the shared infrastructure.4

The enhanced funding opportunities are significant, as they provide states a vehicle by which to further advance their eligibility modernization efforts. States wishing to leverage these investment dollars still face significant challenge with regard to timing and the complexity and scale of these initiatives.

Timing and complexityIntegrated Eligibility Systems (IES) and HBEs are large and complex in their own right. States can expect to invest on the order of $50 million to $100 million or more for each exchange system. Additionally, the implementation of an IES can cost on the order of $150 million to $300 million or more in related IT investment projects and could take a state five to 10 years to complete. However, the time-limited exception window to take advantage of the special funding is fast approaching:

• Enhanced FFP for Medicaid/CHIP is available for just over a two-year window (through December 31, 2015).5

• Exchange funding is available over a three-year window from the date of award of a state’s Level 2 Exchange Establishment Grant.

The federal government suggests that states use a phased approach to their modernization efforts, such that once the healthcare components of the eligibility determination system are operational, they can then add the additional requirements necessary to include the other federally funded HHS programs such as SNAP or TANF.6

Overview of the special programs and funding opportunities In accordance with the ACA, in order to operate a state-based HBE, states must be able to determine eligibility for Medicaid, the Children’s Health Insurance Program (CHIP), and premium tax credits and cost-sharing benefits through the HBEs in a streamlined and integrated fashion. To that end, the federal government has put in place a number of mechanisms to promote integration and to assist states with their implementation and compliance efforts. For example:

• The federal government has made available 100 percent federal funding for the implementation activities of the HBE through the Establishment Grant process administered by the Center for Consumer Information and Oversight (CCIIO) within the Center for Medicare and Medicaid Services (CMS).2

• To assist state Medicaid programs with their compliance activities resulting from the ACA, the Center for Medicaid and CHIP Services (CMCS) has made available special enhanced Federal Financial Participation (FFP) for states modernizing and/or replacing their eligibility systems, making such projects 90 percent federally funded, provided that they meet some specific conditions established by CMS.

• In addition, the federal government is providing a time-limited exception to the cost allocation requirements set forth in Office of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local and Indian Tribal Governments,3 to allow federally-funded human services programs to leverage investments and existing assets in state eligibility systems being made by state-operated HBEs, Medicaid, and the CHIP, without having to share in the common system development costs, so long as those costs would have been incurred

Overview of the opportunity and associated challenges

2 U.S. Department of Health and Human Services Office of Consumer Information and Insurance Oversight - Cooperative Agreement to Support Establishment of State-Operated Health Insurance Exchanges, CFDA: 93.525, January 20, 2011 (as amended)

3 OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, May 10, 2004, Relocated to 2 CFR, Part 225

4 U.S. Department of Health and Human Services, U.S. Department of Agriculture, August 10, 2011

5 U.S. Department of Health and Human Services, U.S. Department of Agriculture, August 10, 2011

6 OMB Additional Guidance to States on OMB Circular A-87 Cost Allocation Exception, January 23, 2012



7 Centers for Medicare & Medicaid Services (CMS) - Sections 1903(a)(3)(A)(i) and 1903(a)(3)(B) of the Social Security Act, April 14, 2011

Compliance with federal guidanceTo leverage Medicaid-enhanced FFP and HBE establishment grant funding, human service program managers must collaborate with their Medicaid or HBE organizations to identify and document requirements that will meet federal standards and guidelines during progress design gate reviews with the CCIIO. These standards and guidelines include:

• The Medicaid Seven Standards and Conditions

• Alignment with one or more of the three federal reference architectures: Medicaid Information Technology Architecture (MITA), National Human Services Interoperability Architecture (HSIA), and the Federal Exchange Reference Architecture (ERA)7

CMS has published significant architecture guidance, such as detailed workflows and use cases for a number of requirements, including such processes as Modified Adjusted Gross Income (MAGI), screening, and eligibility information verification from a federal data hub.

Comprehensive requirements are needed by state modernization program managers for a number of critical tasks that support the overall effort, including:

• Establishing a statement of work for a systems integrator

• Procurement of an HBE and/or an IES

• Input to detailed design and development work of the integrator

• Development and implementation of user acceptance test plans.

IES planning requirementsTo receive enhanced federal funding for IES modernization initiatives or exchange funding, each state must provide evidence that it has performed appropriate assessment, design, planning, and estimating work, including:

• Assessing the potential for reuse of its existing information technology (IT) assets

• Defining clear business and IT blueprints for the architecture of its system

• Developing a roadmap for the overall implementation horizon

• Creating a defensible estimate of business and IT costs

• Allocating costs appropriately to federal funding sources, based on the HBE, Medicaid, and other HHS programs.

The high-level blueprint, roadmap, and estimating phase of a large IT-enabled transformation initiative typically take several months to complete. As noted earlier, the availability period of the federal funding requires state human services agency managers and their program partners to execute this work in a very aggressive time frame. This requires an approach which can help expedite the process, while ensuring that planning is credible and meets the needs of the state and the federal government.



Through research into leading practices and practical application at several states, KPMG has developed a detailed approach and associated tools that can help states capitalize on this unique opportunity to modernize their eligibility determination capabilities in an environment of time constraints related to federal funding and the overall complexity of standing up an HBE, in conjunction with an integrated eligibility system modernization effort. This approach consists of five steps:

1. Leverage and build upon federal guidance

2. Leverage exchange, Medicaid, and IES reference architecture models

3. Assess current state assets for an HBE and IES, by comparing current capabilities against the reference architecture

4. Define HBE and IES system requirements

5. Estimate project costs (exchange, Medicaid, other HHS programs) and develop funding requests.

Step 1: Leverage and build upon federal guidanceThe first step is to decipher and leverage existing federal guidance. A detailed understanding of both the ACA and the OMB A-87 cost allocation exemption are essential. More recently, the federal government has responded to the challenges highlighted previously, by promoting an enhanced “reuse” strategy that not only encourages states to reuse their own assets, but to look to other states for opportunities to leverage components of their various HBE or IES systems. This strategy includes the following:

• Knowledge reuse: the sharing of planning, procurement, requirements, and design information among states

• Software reuse: the sharing of software components and configurations among states

KPMG’s approach to integrate other HHS programs with the exchange to benefit from the enhanced federal funding opportunities

• Service reuse: the provision of both software as a service and business process outsourcing services.

The knowledge reuse strategy includes the issuance of three “community” or sector reference architectures to expedite and guide planning, procurement, and systems integration efforts:

1. The National Human Services Interoperability Architecture (NHSIA)8

2. A new release of the Medicaid Information Technology Architecture (MITA 3.0)9

3. The federal Exchange Reference Architecture (ERA)10.

To help meet this tight funding window, state human services program managers will also need to leverage these “reuse” accelerators to:

• Clarify their vision and strategy for modernizing human services delivery

• Develop a high-level human services operating model and roadmap

• Identify requirements and create the design for a modernized eligibility system

• Oversee the implementation of a modernized solution and the transformation of the service delivery model.

Within the systems development life cycle, states need accelerated planning, requirements, procurement, design, development, and implementation activities. They must be able to reduce by a factor of three or four the elapsed time that all of these activities normally take, while simultaneously managing risk and stakeholder expectations.

8 The National Human Services Interoperability Architecture (NHSIA) is being developed for the Administration for Children and Families (ACF) by the Johns Hopkins University (JHU) as a framework to support: common eligibility and information sharing across programs, agencies, and departments; improved efficiency and effectiveness in delivery of human services

9 http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Data-and-Systems/Downloads/EFR-Seven-Conditions-and-Standards.pdf - Section 2.6

10 http://www.whitehouse.gov/omb/e-gov/fea/



Step 2: Leverage a HBE, Medicaid and IES reference architectureThis step includes leveraging a system reference architecture that also includes Medicaid and IES functions. Based on leading practices and through our work on state HBE and IES projects, KPMG has developed a high-level operating model and service delivery model* that integrate the business capabilities identified in the federal architectures (ERA and MITA 3.0) to facilitate executive decision-making on:

• The scope of its HBE within an HHS modernization initiative

• The appropriate “home” of the HBE within its process vision for HHS program delivery, including shared state services and outsourcing of non core activities

• High level IT requirements for the HBE and for integrated eligibility

• The critical business and IT milestones necessary to implement its healthcare reform and modernization vision.

The Integrated HHS Target Operating Model, shown below in Figure 1, is aligned with—and extends the footprint of — the CMS business process model (ERA) and MITA 3.0 frameworks. It includes defined “core business areas,” organized into three types of processes: management, core, and delivery.

• Management processes provide oversight and the management of enterprise resources.

• Core processes (based on ERA and MITA) are the critical activities required to perform the services mandated in projects that have one or more of the business domains such as HBE, Medicaid, and HHS.

• Delivery processes manage a state’s touchpoints and are typically the entry points to the core processes.

* The KPMG Exchange Reference Architecture (KERA)



Step 3: Assess current state assets for HBE and IESThe next step is based on the requirement in applying for exchange funding for a state to perform a gap analysis on its existing IT assets to determine whether the state has reusable assets to meet modernization or HBE requirements. Since an HBE is a new capability within the health insurance market, and since many legacy state HHS systems are based on obsolete technology, most states must look to the IT market for potential modernization solutions. Leading practices and our experience on state exchange projects to date have shown that a gap assessment tool can support states in analyzing their IT design options. Such a tool supports the following key roles:

• IT gap analysis tool to assess current systems

• “Vendor-fit” gap analysis tool to assess potential solutions on the market.

Figure 2 on the next page illustrates the logical component model for an integrated state HHS enterprise. KPMG developed the model based on the guidance of the three federal reference architectures as well as our efforts in a number of states. A logical component model provides states a set of the software functions needed to support a specific function or group of functions that are, in this case, an integrated HBE/IES construct. The legend describes the source guidance for each documented component.

LegendMITA 3.0 Process Group

ERA Process Group

MITA 3.0/ERA Process Group

Other HHS Program Process Group

Governance &Management Support

Standards Management

ComplianceManagement

Quality Assurance

ResourceManagement

Plan Administratior

Fiscal Management

Issuer and Plan Details Establishment and

Monitoring

Plan & Rules Management

Health Benefits Administration

SHOP* Exchange Employee Eligibility &

EnrollmentProvider EnrollmentIndividual Eligibility &

Enrollment

SHOP* Exchange Employer Eligibility &

Enrolment

Individual Responsibility

Exemption

Accounts PayableManagement

Accounts Receivable Management

Risk Premium & Tax Credit Processing

Claims Adjudication

Payment and Reporting Case Management

Authorization Determination

Broker/Navigator Relationship Management

Enrollee Survey Publication

Communications Rules Management

Member Support

Member Information Management

Provider Support

Provider InformationManagement

Contractor Support

Contractor Information Management

Notifications Outreach

Integrated HHS Business Operation Model

Management Processes Delivery ProcessesCore Processes

Policy & Oversight

Business RelationshipManagement

Performance Management

Plan Management

Eligibility & Enrollment

Customer Services

Communications

Financial Management Operations Management Care Management

Member Management

ContractorManagement

Provider Management

Figure 1: Integrated HHS Target Operating Model

* Small Business Health Options Program



Additionally, a gap analysis tool can help states assess the reusability of their IT assets, by comparing existing physical IT assets against the logical business and technical components in the integrated HHS component model. The tool will need to be flexible so that it can be configured to the scope of a given state’s modernization effort: integrated eligibility, HBE, or both.

Finally, states need to use a vendor-fit gap analysis tool to help assess suitability of software vendor products—at the physical level—against the specified business and technical components in the integrated HHS component model—at the logical level. This tool can also be used to support development of a request for information (RFI) and a request for proposals (RFPs) as states procure their systems. Moreover, preloading the gap analysis tools with the appropriate scope

of requirements helps ensure that state IT staff can produce target physical design options for modernization systems, based on reuse of existing assets, deployment of vendor offerings, or both. In summary, the tools help ensure that these design options are aligned with federal guidance and can be produced rapidly and consistently.

Step 4: Define HBE and IES system requirementsStep 4 is to define HBE and IES system requirements. Leading practices and our experience in working with a number of states have shown the importance of developing requirements traceability matrices (RTMs) that are compliant with MITA 3.0 and the ERA, and aligning these RTMs with the HSIA. A

LegendMITA 3.0 Application Component

Suggested Application Component (KPMG)

MITA 3.0/ERA Application Component

Other HHS Application Component

ERA Application Component

Figure 2: Integrated HHS Component Model

AssetManagement

HumanResource

Management

Procurement Management

BusinessAgreement

Management

Business Management Components

QualityAssurance

ClaimsManagement

Core Business Components

Business Components

Integrated HHS Application ComponentsTechnical Support

Components

Business Support Components

Privacy and Security

Technical Support Components

Records andDocumentsManagement

IntrusionDetection

Data Indexing &StorageIdentity

Management

Reporting

IntrusionPrevention

DataTransformation

Authentication Authorization

BusinessIntelligence

DataRetrievalPrivilege

Intelligence

ContentManagement

Information Management

Intrusion Management

Data Management

Identity and Access Management

MetadataManagement

KnowledgeManagement

Business Process Management

Business Rules Management

Workflow and RulesManagement

CaseManagement

Master Person Registry

Financial Transaction Processing

IntegrationManagement

IntegrationContent

Processing

System IntegrationManagement

Encryption

Anonymization

ConfidentialityManagement

Business RulesEngine

WorkflowEngine

Workflow and Rules Processing

PlanManagement

Broker/NavigatorRelationshipManagement

Marketing &Outreach

CustomerService & Account

Management

Channel InterfaceComponents

Service DeliveryComponents

HHS Portal

Integration Broker

CareManagement

UnifiedCommunications

DigitalSignatures Audit

Service Desk Management

TechnicalManagement

IT OperationsManagement

ApplicationManagement

IT Management

FiscalManagement

FinancialAccounting

Report

PolicyManagement

Policy &Oversight

Compliance Management

Premium & Tax Credit Processing

RiskManagement

AccountsPayable

Processing

AccountsReceivableProcessing

FinancialManagement

EligibilityAssessment

ComparisonShopping

EnrollmentProcessing

AppealsManagement

Eligibility &EnrollmentOperations



traceability matrix lists a set of requirements that identifies the automation support required by one or more programs such as SNAP, TANF, or Medicaid. Our ongoing work with other states has shown that these requirements are best maintained in matrix format to help programs manage their requirements at the procurement, contracting, and testing stage.

For example, for these states:

• Business requirements matrices aligned with the business process and information models from MITA and the ERA

• Technical requirements aligned with the Medicaid Seven Standards and Conditions, as well as MITA, HSIA, and ERA technical specifications and standards.

These matrices accelerate the development of RFIs, RFPs, contracts, and test plans, by providing a comprehensive and federally aligned set of requirements that program managers can review for applicability to their states’ circumstances. A comprehensive requirements matrix for a given state program can take several months to develop from scratch, review with subject-matter experts, achieve sign-off, and align with federal guidance. With federally aligned RTMs, a program manager can reduce the effort to a few weeks.

Step 5: Estimate project costs (HBE, Medicaid, and other HHS programs) and develop funding requestsStep 5 includes the estimation of project costs associated with the HBE, Medicaid, and other state HHS programs based on HBE funding FFP and enhanced FFP available for IES systems. Once the project costs are codified, the state can request funding through a Level 2 Exchange Establishment Grant for the HBE-attributable portion of the request, and an Expedited Advance Planning Document (EAPD) for the Medicaid, CHIP and other programs’ attributable portions to receive the enhanced FFP described earlier.

Modernization project managers must be able to produce reasonably accurate cost estimates and a high-level roadmap of the IT implementation project to establish their operations within the aggressive funding and timing windows. Once there is an understanding of the functional complexity of the

IT system an an HBE project, it will be important to apply a tool aligned with the federal reference architecture guidance to estimate both implementation costs and operations and maintenance (O&M) costs, and then schedule an IT implementation roadmap. At the same time, how much of the total cost of exchange implementation is eligible for HBE Establishment grant funding and what portion is attributable to Medicaid, CHIP and other programs will need to be determined.

The “cost modeling” tool should focus on three key variables to estimate design, development, and implementation (DDI) costs:

• Functional complexity, as measured by the number of function points

• Productivity factors of the implementation strategy, including a reuse strategy, as measured by days of effort per function point

• Resource mix, as measured by percentage of internal vs. external resources and blended cost of each.

Again, leading practices and our experience in working with states on DDI cost estimating have shown the value of the cost-modeling tool, including additional algorithms to estimate business and IT staff time spent on each project phase, such as project management, procurement, and user acceptance testing. We have also found it most beneficial for the cost model tool to be pre populated with a number of assumptions that shape the roadmap and resulting cost estimates for a given state. The value of using such a tool has been confirmed through various approved Level 2 Exchange Establishment Grants, EAPD budgets, and subsequent CMS/CCIIO gate review discussions we have had with states.

To calculate the total portion of the budget to be allocated to enhanced FFP versus HBE funding, the funding cost allocation tool must be able to analyze three key factors:

• The population of users who would be accessing Medicaid or human services rather than the HBE

• The software functions that would be used uniquely by Medicaid, human services, the HBE, or shared by multiple programs

• The function point count for shared functions versus program-specific functions.


Using these factors, the tool needs to be able to compute the percentage of overall IT implementation costs that should be allocated to an Exchange Establishment Grant (100 percent) versus the enhanced FFP associated with the non-HBE areas. Moreover, preloading the cost model and cost allocation tools with exchange content helps ensure that states can produce—within a matter of a few days or weeks—DDI schedules, estimates, and cost allocations that are highly defensible. Such tools help confirm that these estimates and allocations are aligned with federal guidance and can be produced rapidly and consistently from one state to another to generate defensible estimates and plans.



Today, states have a unique opportunity to modernize and integrate the ways they determine eligibility for social services programs. When coupled with the opportunities to improve access to healthcare associated with the ACA, states can truly transform their ability to serve the needier portions of their populations. However, the time available to take advantage of these limited funding opportunities is dwindling rapidly. As such, states wishing to benefit from this opportunity must act quickly and “fast-track” several of the required planning and analysis steps in order to create defensible blueprint and funding request documents that serve as solid foundations for the eventual deployment of an integrated, modern approach to providing social services.

Our experience in working with states already on this journey shows that by following the approach outlined in this white paper, the time needed to complete many of the planning and implementation activities required by the federal government and important to successful projects can be reduced as much as 70 percent, which is critical at this juncture. To expedite the planning, analysis, and grant/EAPD development steps, states will benefit from a “battlefield-tested” approach, including mature tools and experience in successfully navigating such projects.

Final thoughts




SECTORS AND THEMES

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Contact us

Paul HencoskiPrincipalUS Lead Partner – S&L Health and Human ServicesGlobal Chair – Human and Social ServicesT: 212-872-3131 E: [email protected]

Harvey LevinLead DirectorHealth Benefit ExchangesT: 401-225-4832 E: [email protected]

David PondilloLead DirectorIntegrated EligibilityT: 518-427-4705 E: [email protected]

Robert MitchellLead DirectorHealth and Human Services DomainT: 303-886-9386 E: [email protected]

kpmg.com

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

KPMG LLP does not provide legal services.


This white paper is sponsored by:

The KPMG Government Institute Jeffrey C. Steinhoff Executive Director [email protected]

About the KPMG Government InstituteThe KPMG Government Institute was established to serve as a strategic resource for government at all levels, and also for higher education and non profit entities seeking to achieve high standards of accountability, transparency, and performance. The Institute is a forum for ideas, a place to share leading practices, and a source of thought leadership to help governments address difficult challenges, such as effective performance management, regulatory compliance, and fully leveraging technology.

For more information, visit us at: www.kpmginstitutes.com/government-institute/