The Hidden Economics of Payer Operations

Administrative costs are climbing across the payer industry, but many plans still rely on high-level expense views that mask the true drivers of operational spend. Beneath the surface, fragmented systems, manual processes, and vendor complexity may be shaping financial outcomes more than leaders realize. This episode takes a closer look at how hidden cost dynamics emerge and why understanding the full operating picture is becoming a strategic priority for executive teams.

If your organization is questioning whether incremental efficiency gains are enough to protect margins, this conversation offers an important perspective. Listen to explore the forces redefining payer operations and what they could mean for your plan’s financial future.
 

Host: Administrative costs keep rising across the payer industry, and it’s happening alongside reimbursement pressure, heavier regulatory demands, and higher expectations from members and providers. So for a lot of health plan leaders, the question is changing from, “How do we get a little more efficient? To a much bigger question: how do we totally reevaluate operations?” 
We have Missy Andersen here to discuss her work in advisory services, helping executive teams map the full financial and operational picture behind administrative spend. Missy, welcome.

Missy: Thank you. I’m pleased to be here. 

Host: You’ve worked with a number of regional health plans, and now, in a consulting and advisory role to support executives who want a clearer view of their operating economics. Tell me a little bit about your work.

Missy: Most plans believe they understand their costs at a high level because they have a strong finance department and regular executive reporting. So they know their administrative spend as a number. Where the challenge emerges is in understanding the underlying drivers behind that number. Why are technology costs rising? Why are staffing costs increasing? What operational choices are contributing to inefficiency? That deeper level of understanding is often fragmented. Different executives see different slices of the picture based on their roles, but very few have a fully integrated view across people, process, and the technologies they use.

Host: That makes sense. If most leaders are seeing only their portion of the picture—finance, technology, or operations—then the real challenge becomes stitching those views together into one cohesive cost model. 
 

Missy: Exactly. And when you begin to connect those elements, you often uncover cost drivers that were previously invisible. It’s not that the numbers are wrong. It’s that the explanation behind them hasn’t been fully explored.

Host: Where do you most often find those hidden or misallocated expenses?

Missy: It varies by plan, but there are consistent themes. Some smaller plans rely on older technology because modern solutions feel cost-prohibitive. The systems they use do the job, but don’t enable automation or scalability. That leads to more manual intervention and higher staffing needs. Also, plans are developing an AI-layer on top of their legacy systems, but that’s a temporary band-aid that will require ongoing updates and patches; it’s not a long-term strategy. In other cases, plans remain heavily paper-based for enrollment or claims, which drives headcount growth simply to manage volume. We also see plans with low auto-adjudication rates in claims processing, which translates directly into manual rework and delayed turnaround times. Those operational realities ultimately show up as higher costs, but the connection isn’t always made.
 

Host: You’ve also worked with plans that already use modern core platforms but still struggle to control costs. What do you see there?
 

Missy: That’s actually a very common scenario. I worked with a regional plan that had excellent operational metrics. They were using a modern core administration platform and had optimized many workflows. Yet their cost structure was still elevated. The driver wasn’t performance; it was the staffing model and the broader ecosystem surrounding the core system. They operated almost entirely onshore with highly resource-intensive processes. The core technology was strong, but the operating model around it hadn’t evolved. There’s a difference between just improving individual systems and actually rethinking the whole operating model.
 

Host: It doesn’t sound very profound; it actually sounds like common sense, but the idea really challenges the way the industry is operating. You know, plans are getting rid of their legacy technology, but they’re still operating like a legacy organization. 
 

Missy: Yes, and that’s why it’s more complex than looking at a simple administrative expense line. The total cost for a plan reveals all of the operational cost drivers, like end-to-end visibility into labor, vendor management, technology costs outside of typical SaaS contracts, like upgrade cycles, the cost of manual handoffs, fragmented systems and data management, and rework. These costs may not be immediately visible in a single department’s budget. So the work I do is to assess and expose the true cost per transaction and per member. 
 

Host: Let’s talk about how you actually uncover that full picture. Walk us through your assessment framework. How do you evaluate financial, operational, and technology layers together rather than in silos?
 

Missy: We start by understanding how the business operates end-to-end. What lines of business they serve, what states they operate in, and where leadership perceives the major pain points. From there, we use detailed questionnaires to explore specific functional areas. We gather operational metrics such as claims volumes, auto-adjudication rates, and processing timelines. Then we collect cost data, including staffing levels and average labor costs, so we can evaluate the labor spend tied to each function. Finally, we map the technology landscape, identifying the platforms used for core administration, claims editing, pricing, and other workflows, along with their associated costs. When those three dimensions are combined, you get a holistic cost picture that most plans have never assembled in one place.
 

Host: You mentioned earlier that overhead costs are often understated. Can you expand on that?
 

Missy: Certainly. Overhead is generally allocated to each department by finance, so each department may or may not know what is included. Things like office space, laptops, infrastructure, and shared support team costs are distributed across the organization. When you include those costs, they meaningfully increase the true cost of operating each function. Because they’re spread across departments, they can be overlooked when evaluating efficiency at the functional level.
 

Host: Is the assessment limited to core administration, or do you look more broadly across operations?
 

Missy: Core administration, which we classify as enrollment and billing and claims processing, is typically the starting point, but we also examine call center operations, provider data management, credentialing, utilization management, appeals and grievances, and print and fulfillment, mailroom. These areas collectively represent the operational backbone of a health plan, and inefficiencies in any one of them can ripple across the entire organization.
 

Host: What data sources help you uncover those inefficiencies?
 

Missy: Primarily the plan’s own financials, operational metrics, and headcount data. That gives us the baseline. Then we compare what we’re seeing to benchmarks from other plans we’ve worked with and to broader industry benchmarks. That comparative perspective often reveals gaps that a single organization cannot see on its own.
 

Host: How do you quantify the cost of things like manual handoffs or rework cycles, which aren’t always directly measured?
 

Missy: We use estimation models that factor in operational volumes, staffing allocations, and performance metrics. By comparing current-state performance to what we would expect from a well-functioning organization of similar size, we can estimate the financial impact of inefficiencies. That includes the cost of additional labor, delayed processing, and potential penalties tied to timeliness or accuracy.
 

Host: Another issue executives frequently raise is vendor sprawl. Multiple point solutions, outsourced vendors, and internal teams all interacting. How does that affect operational complexity and cost drivers?
 

Missy: Managing multiple vendors introduces significant complexity. Each vendor has its own contract, pricing model, and governance process. Internal technology teams must build and maintain integrations between these systems, which adds cost and risk. Smaller plans in particular often have higher pricing because they lack economies of scale. Beyond direct cost, the management overhead is substantial. When issues arise, teams often spend a tremendous amount of time coordinating across vendors.
 

Host: Can you provide an example of how multiple vendors have burdened the plans you’ve worked with?
 

Missy: Yes. I remember a situation at a prior health plan where the call center began receiving a surge of calls about incorrect billing statements. The call center handled the volume, but the feedback loop to the billing team was slow because systems were disconnected. The issue persisted longer than it should have, simply because the operational signals weren’t shared quickly across teams. That kind of friction is very common when systems and responsibilities are fragmented.
 

Host: It sounds like situations like this could create compliance and accuracy risks.
 

Missy: It does. When data resides across multiple systems without near-real-time synchronization, discrepancies can arise in member information, claim status, or authorization records. Those inconsistencies increase compliance exposure and can undermine performance guarantees tied to accuracy or timeliness.
 

Host: So, during the process of identifying the true operating cost, I’m sure you’re seeing areas of inefficiency and opportunities for improvement. 
 

Missy: Yes, that’s absolutely part of the process. We provide a view of high-impact savings opportunities and modernization priorities, a report card showing where manual work and system gaps lead to inaccuracies, and a future-state roadmap with quantified operational and financial outcomes.
 

Host: When you start to see those opportunities for modernization, standardization, and automation across different functions, does that naturally lead to a broader conversation about whether the plan’s overall operating model is set up in a way that actually supports the plan’s competitiveness and future stability?
 

Missy: Yes. Once the numbers are laid out, it’s obvious that the Ecosystem Operating Model is the natural progression for the industry. Rapid changes in technology, regulatory, and compliance are demanding adaptation. Yesterday’s operating model will not yield results in today’s environment. 
 

Host: From a financial perspective, how does the Ecosystem Operating model work? How does it enable cost savings? 
 

Missy: First, I want you to understand the model. It removes the costs associated with vendor management by partnering with HealthEdge as the plan’s single, accountable partner, who delivers contractually defined outcomes of 25-40% cost savings per member, per month. That is a huge savings, and it’s spelled out in out in our SLAs.
The technology infrastructure is founded on prebuilt integrations that connect all systems and areas of the business. This reduces implementation and maintenance costs compared to highly customized environments. Ongoing operational management is handled by specialized teams to ensure efficiency gains are sustained rather than eroded over time. These teams run the ecosystem with standardized processes, AI, and automation to decrease manual intervention and staffing requirements. And another impactful component is the economies of scale across technology and services, so upgrades, regulatory, and compliance updates are included in our pricing, which is fantastic. These items often add substantial additional cost to health plans on an annual basis.
 

Host: How does this shift change cost predictability for CFOs and CEOs?

Missy: It moves spending from a variable, headcount-driven model to a more predictable, outcome-oriented structure. Instead of budgeting for fluctuating staffing levels, vendor contracts, and upgrade costs, leaders can align operational spend with measurable performance outcomes. That predictability improves financial planning and reduces the uncertainty that often accompanies large-scale operational functions.
 

Host: What financial levers become visible only after a full ecosystem assessment?

Missy: Leaders begin to see the cumulative impact of fragmented systems, redundant vendors, and manual workflows. They can evaluate how much of their spend is tied to sustaining complexity rather than delivering value. That clarity allows them to decide whether incremental optimization is sufficient or whether an operating model transformation is warranted.

Host: Looking ahead three to five years, how do you believe payer operating models will evolve?

Missy: I believe we will see a continued shift toward integrated operating ecosystems that combine technology, process standardization, and specialized operational teams. As regulatory requirements expand and competition intensifies, plans will need a stronger core that can operate efficiently at scale. Once that foundation is established, leadership can focus more fully on growth strategies, product design, and member experience rather than day-to-day operational execution.

Host: Before we close, if you could offer one piece of advice to a health plan executive questioning whether they truly understand their total cost of ownership, what would your advice be?

Missy: I would encourage them to look beyond departmental budgets and examine how their entire operating model functions as a system. True cost transparency comes from connecting people, processes, and technology into a single financial and operational view. Without that integration, it’s very difficult to identify where inefficiencies accumulate or where structural changes could create meaningful margin improvement.

Host: That perspective captures the central tension facing the industry today. Incremental optimization may no longer be enough when margins are under sustained pressure. Understanding the full economics of operations, that’s a strategic imperative. Missy, thank you for sharing your insights and for helping us understand the hidden costs in payer operations.

Missy: You bet. It was a pleasure to be here.

Host: And thank you to our listeners for joining us for this discussion on the financial realities shaping payer operations and the evolving models designed to address them. Head over to our sponsor’s website at healthedge.com to explore ways your plan can benefit from this new operating model. If you liked this episode, share it with your colleagues on LinkedIn and follow on Apple or Spotify.