01 June 2010

BCBS Tests Outsourcing to India

News and Observer

Blue Cross and Blue Shield of North Carolina is testing a plan that would outsource some information technology work to India.

The state's largest health insurer is looking for ways to reduce costs as the recession has slowed membership growth and health reform looms. This week, Blue Cross started a "small pilot project" with Keane, a Boston-based information technology firm, to extract and analyze data from the insurer's massive electronic repository. Some of the work will likely be handled at a Keane facility in India, said Blue Cross spokesman Lew Borman.

"It does not affect any current jobs, but I can't speak to down the road," Borman said. "We're looking at a variety of ways to operate more efficiently and keep premiums affordable. It's about costs and cost savings for North Carolinians."

But the prospect that Blue Cross, which started in North Carolina in the 1930s and now has 3.7 million members across the state, might farm out tech projects could worry employees and rile customers.

Blue Cross routinely hires outside contractors for various work, such as security at its Chapel Hill headquarters. The Keane contract is the first time Blue Cross has outsourced work overseas.

Outsourcing or offshoring has been a trend in corporate America for years, but has come under fire from lawmakers and other critics as unemployment remains stubbornly high. When any company does it for the first time, there's the potential for a backlash from consumers and others, said Jim Johnson, a professor of strategy and entrepreneurship at UNC's Kenan-Flagler Business School.

'Political hot potato'

"The whole notion of sending jobs offshore is a political hot potato," Johnson said. "Most companies try to keep it under the radar."

The move could provide new ammunition for the nonprofit insurer's critics, who attack Blue Cross for its rising premiums, dominant market position and administration of the state employees' health plan.

But health reform is forcing many medical companies to find ways to cut costs, Johnson said. Reform will also bring a host of data-management challenges. Last year's federal stimulus bill included billions of dollars to entice physicians, hospitals and others to adopt electronic medical records, which can improve efficiency and reduce errors.

As some companies hire outside firms to handle that work, they have to look to global information technology providers with operations in cheaper countries. "The cost differential is just too wide," Johnson said.

Wide salary gap

He pointed to reports that the average information technology salary is about $20,000 a year in India, compared with $80,000 a year in the United States.

Still, Blue Cross should be ashamed if it allows any jobs to be sent overseas in this economy, said Dana Cope, executive director of the State Employees Association of North Carolina. Cope has criticized how much Blue Cross makes adminstering the state employees' health plan and has said the company controls too much of the market for individual health coverage and assisted living in North Carolina.

Cope said the company is supported partly by taxpayers and public workers in administering the state health plan, and shouldn't be allowed to outsource jobs.

"It's shocking they would export jobs when the Research Triangle area has all the manpower and expertise to accomplish the task," he added. "Blue Cross is sitting on billions in reserves and paying millions to its top executives. I would prefer that they use some of that money to hire some IT workers in North Carolina."

As Brad Wilson prepared to take over as Blue Cross CEO on Feb. 1, he said one of his priorities would be to update the insurer's core information system, which is more than 10 years old. That overhaul would be part of a broader effort to reduce administrative costs, he said.

Layoffs not ruled out

Wilson said his cost-cutting efforts could include eliminating jobs through attrition, but he wouldn't rule out layoffs if necessary. Blue Cross employs about 4,600 people, mostly in the Triangle.

"We don't want to do anything that causes them [employees] to be nervous about the future," Wilson said at the time. "But I'm real honest with them. I don't think anyone can guarantee full employment for everyone forever. That's not a circumstance anyone can promise."

Company officials plan to review the Keane project this summer before deciding whether to extend it, Borman said.

Keane spokeswoman Tara Jantzen declined to comment. The private tech company has offices in Durham.

Borman declined to discuss financial terms of the contract or what kind of "dataautomation" work Keane will perform. He did emphasize that all customer data will be kept secure.

The deal will allow Blue Cross's IT employees to focus on other tasks, he said.

"It's a department that has a lot of work to do," he said. "This piece of data work wasn't being attended to."

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