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.More Top-Level Views For more on what C-suite executives expect from IT, go to The View from the Top Series.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\u2019s customer base by as much as 300,000 by 2010, and he believes information technology will allow him to do it. But he wasn\u2019t always a hard-core believer in IT. As the company\u2019s 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\u2019s 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\u2022served 15 percent more customers with 10 percent fewer employees\u2022decreased administrative expenses from 21 percent of revenue to about 13 percent\u2022provided the best customer service levels in the Kansas City metropolitan region, as ranked by doctors, hospitals, brokers, customers and other constituent groups\u2022increased 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."These are all very tangible and meaningful measures of benefits we\u2019ve received from our IT investment," Bowser says.BCBSKC\u2019s IT department is the brains behind a pilot program launched this year that is designed to help BCBSKC customers reduce their health insurance premiums\u2014and help BCBSKC cut its costs\u2014through customized wellness programs. Under the program, called "A Healthier You," customers can save $120 per year on their health insurance premiums. Individuals enroll online and provide their personal health information, including family medical history, data such as blood sugar and cholesterol levels, and any health concerns that may not show up in their medical records, such as depression or a nagging pain.Once a certain number of individuals from a group (such as a company) are enrolled in the program, BCBSKC aggregates individuals\u2019 health information to identify common health problems within the group\u2019s population. Individuals within the group are given information on how to take care of the health risks BCBSKC has identified (collectively improving these problems means reduced group premiums). Meanwhile, BCBSKC electronically sends the information to the nurses and doctors who work with the individuals, so they can support the insurers\u2019 recommendations.CIO talked with Bowser about his evolving appreciation of IT, his relationship with Sparks and his philosophy about how technology should support BCBSKC now and in the future.CIO: How did you become convinced that IT could contribute strategically?Tom Bowser: The epiphany kind of occurred back in 1997. Our company had problems well beyond our IT problems and because of delays and cost overruns, IT was looked on as a burden rather than a solution. The thing that has changed since then is that we have abandoned the philosophy of "We have to build everything ourselves." We have become happy to be wise purchasers of software from other companies. It was a philosophical hurdle for our IT shop and for our company, but it\u2019s a hurdle that we\u2019re glad we passed. [Today] our partners have financial incentives that are aligned with developing software to serve our [industry\u2019s] market needs and demands. Our IT team can integrate and configure the software to meet our [regional] market demands and stay focused on the needs of our customer base.We\u2019re not big enough to make gambles, but we are smart enough and nimble enough to monitor what\u2019s going on and to adopt new technologies that work for us. We\u2019re proud of our track record for a company our size.Last year Deloitte & Touche found that 25 percent of companies surveyed that had outsourced IT functions planned to bring those functions back in-house. Why do you view outsourcing so positively?We think we have more control over our day-to-day destiny with those partnerships than we had with the do-it-yourself mentality. We collaborate with other Blues plans as well as our vendors to shape development requirements for the software they develop."Partnerships" connotes a strong business tie. Can you describe your relationships with your vendors?One is with the TriZetto Group, which has built our data warehouse. That [system] helps us retain existing groups and attract new ones. It also helps us set rates in the most practical way possible as we can take a longer view of trends across our business rather than in a [single] group.Our company recently chaired an organization of Blue Cross Blue Shield plans called the Blues Strategy Group on TriZetto, or "BSGT." This group connects via conference calls once a month and meets face-to-face with TriZetto twice a year. The purpose of the group is strategic collaboration among the 14 Blues plans that utilize the TriZetto software. The group discusses items with respect to emerging market demands, software quality and design, and Blue specific needs.In a second collaboration, we have [deployed] an electronic enrollment module, and we are now introducing an electronic billing module. Both of these things reduce cost for us as well as our customers but also represent substantial retention. Once we have our customers wired to us, we think it\u2019s less likely that they will leave us.How does your CIO, Kevin Sparks, support your business strategy?We have a very positive, very collaborative, very high energy kind of relationship. Kevin has that unique ability, which CEOs like, to talk about technology in very understandable terms, and in terms that help us know very quickly what the capital investment in IT will do in terms of reducing expense, growing service or enhancing [our] products. We have, like most companies our size, an investment information technology committee. Kevin is the technical chair of that and helps decide who gets what piece of the technology investment pie.In the next 10 years, you plan to employ more data mining, as you have begun to test with the wellness program. What other roles does IT play in BCBSKC\u2019s future?Statistics show that 50 percent of health care costs are affected by lifestyle choices. Do people buckle up? Do they exercise? Do they eat right? Do they drink too much? We think there\u2019s pay dirt in working with employers to create incentives for people to become more responsible for their own health. As time progresses, there may be other payroll deduction techniques or other financial incentives to get people to do what they know is instinctively right [using] a monthly reminder in their paycheck.The role of IT in this is infinite. Being able to measure progress in a group across one of these disease problem areas like reduction in smoking, reduction in obesity levels; all of that comes through our data warehouse and through collaboration with our [customers]. It also enhances the reputation we have as a local service, hometown community partner, which our competitors can\u2019t match and which has IT at its foundation.As a local, not-for-profit business, we do not answer to shareholders far removed from our customers. We have much more flexibility in serving our customers and determining our destiny because we don\u2019t answer to a larger corporate entity and we are not regionalizing or nationalizing our service standards. IT focuses on what our customers want or need in the greater Kansas City metropolitan area. This helps us differentiate our service and maintain our position as the leading health insurer in Kansas City.