Bracing for Healthcare Reform
Excerpted with permission from the Treasury & Risk article Making Strides with the Help of Technology by Susan Kelly, April 2016
Bracing for Healthcare Reform, HCSC leveraged a new treasury management system it implemented to improve its cash forecasting.
“We created a better forecasting platform, and what that allowed us to do was shrink the cushion we had in our working capital and put that money to better use by investing it. We had better clarity to what our working capital needs were on a day-to-day basis.”
David Deranek, Senior Manager of Treasury Corporate Cash and Control
When the enactment of the Affordable Care Act pointed to big changes coming ahead for the health care industry, HCSC decided it was time to reengineer its treasury operations. The insurer, which has more than 150 bank accounts, 14 bank portals, and 70 investment accounts, had used a treasury system but still relied heavily on spreadsheets and the manual keying in of data. It wanted to centralize its information and automate the treasury’s routine tasks to free staff members up to provide consulting to the rest of the organization.
And with the requirements of the ACA expected to create stress on HCSC’s balance sheet, the insurer wanted to improve its forecasting so that it could manage its working capital better and improve the returns on its $10 billion investment portfolio.
HCSC selected Kyriba’s system and put in place a custom solution that integrates 13-week operating and investing forecasts. The company worked with its custodian to come up with a forecast of investment maturities and investment income, using custom BAI codes to aid in the reporting of investment activity. At the same time, HCSC built a regression model in-house to forecast operating cash flows, which it is currently moving into Kyriba.
Estimated reduction in working capital
Investment income increase
The improved cash forecasting allowed HCSC to shrink its working capital band from $500 million to $200 million, Deranek said. And just last month HCSC announced that it will shrink working capital even more, down to the $50 million to $100 million range. The company estimates that investing some funds over a longer term provided additional investment income of $140 million.
Health Care Service Corporation is the 4th largest health insurer in the US overall, it employs more than 22,000 people and serves nearly 15 million members. It offers group life, disability, and dental solutions, and a range of other individual solutions. The company also provides various care management and wellness resources.