Reprinted from INSIDE HEALTH INSURANCE EXCHANGES, a hard-hitting newsletter with news and strategic insights on the development and operation of federal, state and private exchanges.
By Steve Davis, Managing Editor
April 4, 2013 Volume 3 Issue 5
This summer, health insurers will begin marketing products they’ve never sold, to an audience that doesn’t buy, through a marketplace that doesn’t yet exist. But carriers that succeed in reaching that population will tap into $23 billion in federal subsidies that are expected to flow through exchanges in 2014.
In a brief issued March 22, CMS divided the nation’s 48.4 million uninsured into six demographic, geographic and “psychographic” categories. According to CMS, about half of that population is healthy and sees limited value in health insurance (see box, p. 3). Reaching this population and convincing them to buy coverage presents an enormous marketing challenge for carriers.
To reach the uninsured — as well as insured people looking for a better deal — health plans must do something they’ve rarely done in the past: market directly to consumers, and educate them on the importance of having coverage.
Insurers, even those that have substantial enrollment in the individual market, have never truly been focused on the consumer, says Joe Wilds, senior vice president of FJA-US, a software vendor that works with insurers. Health plan marketing processes are set up for business-to-business, and the consumer typically is acknowledged only as part of a group account or insurance pool, he explains. The challenge for carriers is to develop business-to-consumer processes, he tells HEX. “It sounds simple, but you can’t just flip a switch. So the question for insurers is, ‘how will you differentiate yourself in a largely commoditized market?’” he asks. Wilds previously was vice president of marketing at The Regence Group (now Cambia Health Solutions), which operates Blue Cross and Blue Shield plans in four states.
Cynthia Rolfe, vice president of consumer brand strategy at the Blue Cross and Blue Shield Association, agrees that health insurers have limited experience in business-to-consumer marketing. To successfully transition to a retail market, she says insurers must listen to consumers before marketing to them. “You really have to drive from the outside in, and be very focused on what the consumer wants,” she tells HEX. Health insurers will “really have to listen to consumers because that’s how you differentiate” your products from the competition. Unlike many of her peers, Rolfe didn’t grow up in the health insurance world. Her background is in marketing personal care and skin care products.
“There’s not a health insurance company in the world that has a great shopping experience,” Wilds adds.
Insurance exchanges will be indifferent to the products and to the carriers selling them, which will create an enormous marketing challenge for carriers. Qualified health plans (QHPs) sold through public insurance exchanges must meet rigid requirements and provide virtually identical coverage within metal tiers. Even if a consumer enters the exchange knowing exactly which product he or she wants to buy, the exchange will present a matrix of plan choices from a variety of carriers, which could prompt consumers to change their minds, Wilds says.
In such a commoditized marketplace, price will be the biggest lever insurers have to set their products apart from the pack. But there also is a danger in being “grossly attractive to the bad risk,” he warns.
How Affordable Is ‘Affordable’?
Most people say they are uninsured because they can’t afford it. But should insurers try to reach these consumers by emphasizing the affordability of their products? That strategy could backfire if the consumer concludes that the product isn’t affordable. “Then the message is, ‘you lied to me,’” warns Jonathan Seib, senior vice president of healthcare at Strategies 360, a public affairs consulting firm that works with health insurers. “And what if your particular plan is the fifth least expensive plan?” Insurers will need a marketing strategy that can overcome that display of information, he says. Prior to joining 360, Seib spent six years as a health policy advisor to former Washington state Gov. Christine Gregoire (D).
Although price will be the most important factor for many consumers, others will be willing to pay a higher price for richer benefits or higher perceived value, adds David Magrini, vice president of insurance and wealth management consulting at Merkle, a customer relationship marketing firm based in Columbia, Md. Magrini previously led Aetna Inc.’s direct-to-consumer and group-marketing efforts for Medicare and individual products.
While Rolfe agrees that price will be important to consumers, she says the perceived value of a product might trump the price tag. And with a marketplace that could be overwhelming to consumers, brand recognition could have a significant influence on buying decisions. For health insurers, the challenge isn’t moving to a retail market. The challenge is the speed at which the transition needs to happen, says Rolfe.
And health plans also must focus on retaining their existing members, says Magrini. There is concern among carriers that some small-group clients might opt to pay the penalty for not offering coverage and send their employees onto an exchange. If that happens, health insurers will need both a retention strategy and a “win-back” strategy for those members, he says. While that scenario might play out gradually over years, the potential risk should push carriers to design strategies to engage their members and now give them reasons to stay, such as explaining the value of their coverage.
“You need to have an ongoing dialog with your membership, and that isn’t something that all plans have in place,” he says.
Social media will be critical in pushing potential and existing enrollees to consider more than price when choosing a plan. “There is no question that carriers have, and will continue to consider, social media for marketing,” Seib says. Social media will play an important role in outreach, education and marketing when it comes to buying coverage through an exchange, he says.
Do You Want Fries With That?
But maybe carriers don’t need to have large margins on their health insurance offerings. Wilds points to McDonald’s, which makes more profit on soft drinks and fries than it does on hamburgers. Insurers could follow a similar model by selling higher-margin products outside of the exchanges to people who buy coverage inside the exchange. “The ability to cross-sell could be critical, but I don’t see anyone focusing on that,” he says. “For health insurers, dental coverage might be the soft drink and vision, life, disability coverage is the fries. They could be bundled and marketed to add value and increase margins. You might even sell the medical coverage as a loss leader.”
Magrini says there are definite parallels between the launch of insurance exchanges and the roll-out of the Medicare Part D prescription drug program in 2005, and health insurers are facing many of the same issues, such as systems that weren’t designed to talk to each other.
“It is going to be a land grab when the exchanges open,” he predicts. But while some carriers are ahead of others in terms of their readiness for exchanges, “I don’t think anyone really has all of their ducks in a row to truly exploit the market, and get more than their fair share.”
What’s different this time around is that many people who are eligible for subsidized coverage have never had health insurance.
Wilds says he knows of many carriers that intend to sit out the first enrollment cycle, although he says he’s not sure if that’s a good strategy. “It’s a gamble either way. Some [carriers] want to get in and grab as much market share as they can right away, and that could work to their benefit…or not. It’s a big bet,” he tells HEX. “To me there is a danger that not being in an exchange will send a message loud and clear that [the carrier] is more about profit than helping society.”
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