How automating self-billing could lower premium leakage

The easier it is for customers to pay, the more likely it is that they’ll pay on time and in full. Just consider the impact of friction on online shoppers: 87% would abandon their carts during checkout if the process is too difficult.

So when the insurance industry wanted to simplify invoicing for life, AD&D, and disability customers, it made sense to create a billing method that did just that. But over the years, this approach has evolved into a significant source of premium leakage and customer friction.

In fact, self-billed plans account for $1.4 billion in loss for carriers annually, according to a LIMRA report from 2019, ‘MarketScan: Invoicing and Remittance of Premium for Group Insurance Products.’ And since customers are the ones with full employee eligibility, carriers don’t have many options to address lost premium dollars. It’s simply too expensive for billing teams to audit these invoices.

Fortunately, today’s technology can help. New billing solutions built on modern data practices now exist that make it possible to reduce premium leakage and remove friction for customers. 

Here’s how these solutions are helping carriers recapture revenue with more accurate billing.

It might sound strange that a method responsible for so much hassle and waste is still in use, but the reason is that it’s still easier this way, despite the drawbacks. It also helps to understand that most invoices aren’t created via self-billing, only for certain types of coverages.

Here’s when self-billing is used versus the other method, list-billing:

Self-billing, or summary view, is only used for coverages where full employee eligibility is not required. This includes benefits not exercised regularly such as life, disability, and AD&D. The group administrator is typically in the best position to create an invoice, since they have the most up-to-date information, which is why they are responsible for it.
List billing, or itemized list view, is used for coverages where full employee eligibility is captured. This includes benefits exercised regularly like health, dental, and vision. Electronic data interchange files (EDI) are typically exchanged on a weekly or semi-weekly basis for these coverages, so carriers have what they need for invoicing.

To create a self-bill invoice, a customer must access at least two systems of record and fill out a worksheet provided by the carrier. No two customers follow the same process, but a typical flow might include the following steps: The HR administrator processes elections to the ben-admin, who submits the files to the carrier and the census to the broker, the billing worksheet goes back to the broker, the bill goes back to the administrator, and payment is processed.
As you can see, there’s plenty of room for error. Late payments and underpaid invoices are a common occurrence. And since billing teams don’t know who is enrolled in what, many carriers find it easier to only audit self-bills when they suspect a premium leakage of 10% or greater — the rest is written off as a cost of doing business. In turn, auditing negatively impacts customers.

Bad data in the spotlight

At the heart of the industry’s self-billing challenges is data — how it’s stored, how it moves between partners, how it’s cleaned for use. 

It’s no secret that HR systems can be disconnected. Even when data is pulled directly from a ben-admin system, it’s still expensive to digest it into bills — thanks to factors such as a lack of standard formatting, custom fields that are difficult to navigate, a high rate of input errors, etc.

Although billing is hard on HR teams, it’s often challenging for them to get budget for integrations and new tech to calculate bills more reliably. Taken together, these constraints perpetuate the cycle of inaccurate bills, lost premium dollars, and poor customer experiences.

Currently, there are two main ways carriers, customers, and brokers manage self-billing:

Manual data entry or file submissions. The most common approach and most error-prone. Oftentimes, HR teams adopt it because it is so difficult to get funding to integrate existing solutions. If a team is already in place and bills are being generated on time, very few decision makers have the appetite for investing in new solutions.Purpose-built billing solutions. These third-party services allow employers to outsource the bill production process. Vendors typically use a file extract from the system of record, compare it to a census file from the carrier, and then get back to the employer regarding what that self-bill should look like. It’s still slow and unreliable.

A third solution that’s slowly gaining traction is direct connections with benefits administration or HCM platforms. By far the best approach, this lets carriers connect directly with their benefits software partners to have access to the same, up-to-date eligibility and enrollment data. The challenge with it though is it’s resource-intensive to build direct connections with each partner.
Modern infrastructure

These automated billing solutions deliver the speed and efficiency of direct connections paired with critical data validation features necessary for creating accurate bills. The result is a self-billing experience that’s much more like list-billing for customers: No manual steps, just an accurate invoice delivered that’s ready to be paid on time.

Since one of the benefits of self-billing for employers is that they don’t have to share an employee roster of data with the carrier (due to complexities with integration and data cleanliness), when carriers have a solution that pulls clean data from the ben-admin, they can gain access to employee-level data that they didn’t have before.

Not only could this be used for claim and eligibility purposes, having clean data also suggests that it could be used to help with predictive insights or developing models for the ever-burgeoning portfolio of artificial intelligence projects that carriers are undertaking to help reduce costs and improve their overall customer experience.

Stopping premium leakage

Most carriers today don’t really know how much money they’re losing to self-billing errors. But a recent survey found that 60% of customers were underpaying in a two-system setup, according to internal Noyo data. Modern billing solutions can automate self-billing and provide an effective way to recapture that revenue.

Even more exciting is that these solutions are a signal from the benefits industry that technology can — and should — help solve our toughest challenges. Going forward, we can all expect more digital-first options to traditional workflows that help deliver better outcomes for all. It’s an exciting time to be building in benefits and I can’t wait to see what the future holds.