Sun, October 01, 2006 — CIO — The health insurance industry is one of the more difficult economic sectors in which to compete. Even as health insurance premiums continue to increase at double digit rates, the stock prices of the largest health insurers have dropped by a third or more this year as rising medical costs take a bigger bite out of their revenue. Meanwhile many insurers are criticized for cutting back on coverage and customer service, while they continue to spend heavily to comply with federal health information privacy laws.

With an estimated $1.6 billion in revenue this year, Blue Cross and Blue Shield of Kansas City is a relatively small player in this multibillion-dollar market, competing against companies more than 10 times bigger in a 30-county area in Northwest Missouri and the two most populated counties in Kansas that make up Kansas City. Nevertheless, BCBSKC is the largest health insurer in the region, providing coverage for 900,000 people and garnering a 42 percent market share.

CEO Tom Bowser wants to expand the company’s customer base by as much as 300,000 by 2010, and he believes information technology will allow him to do it. But he wasn’t always a hard-core believer in IT. As the company’s chief operating officer during most of the 1990s, Bowser saw IT project after IT project fail.

Then company executives decided to invest $50 million in a legacy systems upgrade, at the same time outsourcing applications such as data warehousing and electronic claims processing, as well as functions such as application development. Bowser calls the transition traumatic but worth it. In his view, outsourcing lowered the risk of future IT failures.

Bowser attributes much of BCBSKC’s recent success to this strategy, which leaves the 200-person IT department under CIO Kevin Sparks to focus on integration projects that differentiate BCBSKC from its competitors and improve customer service. As a result of this strategy, Bowser says, between 2000 and 2005, the company

•served 15 percent more customers with 10 percent fewer employees

•decreased administrative expenses from 21 percent of revenue to about 13 percent

•provided the best customer service levels in the Kansas City metropolitan region, as ranked by doctors, hospitals, brokers, customers and other constituent groups

•increased its customer service scores from the bottom quartile to the top quartile among all 38 BCBS groups nationwide, as measured by criteria such as timeliness and accuracy when managing enrollment, claims processing and inquiries.