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A Product/Business Development Case Study ‘ Identifying Retiree Healthcare Issues & Business Opportunities’. Confidential. Presented by: Westport Consulting Group, Inc. 140 Water Street South Norwalk, Connecticut 06853 203-866-6200 www.westportconsulting.com. Workshop Objectives.

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A Product/Business Development Case Study‘Identifying Retiree Healthcare Issues & Business Opportunities’

Confidential

Presented by:

Westport Consulting Group, Inc.

140 Water Street

South Norwalk, Connecticut 06853

203-866-6200

www.westportconsulting.com

©2003Westport Consulting Group, Inc.


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Workshop Objectives

  • To outline a proven new business/product development process.

  • To illustrate this process using a real-life project study from the healthcare industry.

  • To demonstrate various research techniques that go beyond the obvious.

©2003Westport Consulting Group, Inc.


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Caveats

  • We will protect the confidentiality of the client whose work is being discussed today.

  • We are not trying to force a point of view with the data, but feel it is more useful to illustrate a process with real observations, findings and conclusions that are relevant to this conference.

  • The facts and conclusions represented in this case study are 4 years old and have not been updated.

  • However, some of the observations, while widely accepted today, were nascent concepts in 1998.

©2003Westport Consulting Group, Inc.


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Important Takeaways From Today’s Workshop

  • Focus Groups do not equal market research.

  • There are few if any truly ‘proprietary’ ideas within healthcare and financial services…and if there are they are easily copied.

  • If you can observe something within the marketplace, so can your competitors.

  • Don’t assume your competitors are any less competent than yourself.

  • A compartmentalized development process reduces risk as you go to market.

  • Don’t be afraid to walk away from a good idea that can’t be objectively validated.

  • If it was easy or ‘risk free’ everyone would have already done what it is you’re thinking about doing.

  • Success requires both concept and execution.

  • Anything and everything can and should be ‘piloted’ before roll-out.

©2003Westport Consulting Group, Inc.


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Case Study Project’s Objectives

  • Examine current commercial retiree health benefit market.

  • Dimension the commercial retiree health benefit decision-making process and purchase decision criteria.

  • Identify opportunities to increase client’s share of and overall effectiveness in the commercial retiree health benefit market.

  • Recommend ways through which client may proceed… in a controlled fashion… to leverage its brand and insure profitability within the commercial retiree health benefit market segment.

©2003Westport Consulting Group, Inc.


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Start With A Project Plan

  • Gets everyone on the same page.

  • Manages expectations.

  • Defines and compartmentalizes deliverables.

  • Suggests proper sequencing.

  • Avoids “research for research’s sake.”

Insist on multiple validation points.

Don’t be afraid to stop to measure progress.

©2003Westport Consulting Group, Inc.


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Go/No Go

Retiree Product Line Market Sizing & Customer Analysis Project Plan

Phase II -

6 to 8 weeks

7. Quantitative research (projectible to client corporate market universe) to validate key marketing assumptions

PROJECT START

5. Minimum of 4 focus groups (designed to bracket relevant markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

9. Creation of comprehensive spreadsheet model to test all assumptions against client ROI/ROE objectives including the sizing of the commercial retiree market

6. Refinement & review of potential client program opportunities based on research findings

1. Extant scan of all related literature client documents & research

Go/No Go

8. Analysis & internal research to validate key operational assumptions

2. Two days of structured phone interviews with sample of current client retiree benefit sponsors

2. Internal work session with client Commercial Retiree Team

3. Synthesis of all data & creation of working set of operating hypotheses for client Retiree sponsorship

10. Based on model, the creation of formal Business & Marketing Implementation Plans

Phase III -

Task 11=

1-2 weeks

11. Creation of internal capabilities, staffing, training, legal and operational requirements

Phase I - 4 weeks

12. Pilot to test/validate marketing plan and operational implementation

Go/No Go

Phase IV

TBD

13. New Program

ROLL-OUT

©2003Westport Consulting Group, Inc.


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Secondary Research Findings

©2003Westport Consulting Group, Inc.


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PROJECT START

1. Extant scan of all related literature client documents & research

©2003Westport Consulting Group, Inc.


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Why Did We Go To The Trouble Of Looking At Stuff That Everyone ‘Knows’?

  • It’s almost free.

  • It’s typically well organized.

  • It helps you focus.

  • It keeps you from reinventing the wheel.

  • It makes you smart enough to approach experts.

  • It clarifies what you ‘don’t know’.

  • It codifies ‘conventual wisdom’.

©2003Westport Consulting Group, Inc.


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How Do You Properly Find & Obtain Secondary Data? Everyone ‘Knows’?

  • Turn your client inside/out.

  • Web searches.

  • Literature databases.

  • Trade Associations.

  • Governmental Bodies, Commissions, Committees & Panels.

Secondary research searching and analysis is a specialized skill.

©2003Westport Consulting Group, Inc.


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Workplace Dynamics First Drove Demand for Retiree Health Coverage

1950’s – 70’s

  • “Cradle-to-Grave” employment philosophy.

  • “Fringe” benefits used to attract talent – “tax-effective compensation.”

  • Low cost of retiree health care.

  • High “active-to-retiree” employment ratio.

  • Comprehensive medical benefits offered to retirees.

  • Primarily an indemnity health insurance model.

  • Retiree health insurance cost expensed as incurred.

©2003Westport Consulting Group, Inc.


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Changing Workplace Dynamics Have Now Altered the CoverageEmployer’s Response to Retiree Health Coverage

1980’s – 90’s

  • Corporate downsizing takes hold – more expensive employees out placed and skewed to older employees.

  • Baby Boomers near retirement – accelerated by “right-sizing.”

  • Outsourcing as a workforce alternative grows to become an acceptable labor management practice.

  • FASB 106 exposes exploding liability of retiree health coverage cost for large employers.

  • Rapid acceleration of technology and processes designed to increase productivity are introduced in a concerted effort to reduce growth in FTE.

  • Migration toward managed care to contain rapid increase in healthcare costs.

©2003Westport Consulting Group, Inc.


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The Employer’s Paradigm Has Reserved Itself From The “Cheap” People of the Past to “Expensive” People Today.

High

Technology

1950’s to Mid 1980’s

Cost to

Employer $

People

Low

People

High

Cost to

Employer $

Technology

Mid 1980’s to Present

Low

©2003Westport Consulting Group, Inc.


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Most “Cheap” People of the Past to “Expensive” People Today.Active Employees Are Expected To Contribute To Their Healthcare Coverage

Employee Pays All

2%

Company Pays All

5%

Company Pays All

But Deductible

10%

79%

Company

Subsidizes

% Distribution of Employer/Employee Health Cost Sharing

Source: WCG, Inc. Quantitative Survey of Retiree Health Benefit Decision Makers At Mid and Large Employers 3/98

©2003Westport Consulting Group, Inc.


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Historically, Healthcare Cost Per “Cheap” People of the Past to “Expensive” People Today.Active Employee Grew Until Retirement ...Then Diminished Substantially

Historical View

Employer

Cost $

Medicare

Employer

Cost $

Retiree:

MediGap Coverage

MediSup Coverage

Employer Sponsored

Health Coverage

Age 25

Age 65

“Normal Retirement”

©2003Westport Consulting Group, Inc.


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However, Changing Workplace Practices Have Created A “Second” More Expensive Phase of Healthcare Costs For Those Individuals Who Have Left the Active Workforce But Are Not Yet Medicare Eligible

Conceptual View

Typically About Age 55

Retired Non-Medicare

Eligible

Age 65

Medicare

Eligible

Age 25

Active

©2003Westport Consulting Group, Inc.


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Concurrently, Employer Sponsored Costs For Retiree “Second” More Expensive Phase of Healthcare Costs For Those Individuals Who Have Left the Active Workforce But Are Not Yet Medicare EligibleHealthcare Coverage Have Also Continued to Rise

$3,182

$3,131

$2,859

$2,751

$2,548

Source: National Survey of Employer Sponsored Health Plans 1997, Forster Higgins & Co.

©2003Westport Consulting Group, Inc.


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And, Average Annual Costs Per Cobra Participant Demonstrate That Employers Are Subsidizing The Claims Costs Of Continued Coverage (Mostly For Older, Non-Medicare Eligible Individuals) By An Average of 30%

$5,844

$5,703

$5,399

$5,301

$4,307

$4,206

$3,854

$3,903

$3,710

$3,420

$2,852

$2,769

Active Employee Cobra

Source: Charles D. Spencer & Associates, Inc.

©2003Westport Consulting Group, Inc.


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And, With An Ever Increasing Pool of Non-Medicare Eligible Retirees, The Trend For Employer Funding Of All Of These Benefits Is Declining

24%

19%

18%

17%

20%

17%

13%

16%

% of

Employers

Paying All

Benefits

9%

6%

Employer Pays All < 65 Employer Pays All 65+

Source: U.S. Department of Labor, Bureau of Labor Statistics, “Employee Benefits in Medium and Large Firms, 1988 and 1989,

“Employee Benefits in Medium and Large Private Establishments,” 1991, 1993 and 1995

©2003Westport Consulting Group, Inc.


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Laying A Foundation Retirees, The Trend For Employer Funding Creating A Working Hypotheses

©2003Westport Consulting Group, Inc.


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2. Two days of structured phone interviews with sample of current client retiree benefit sponsors

2. Internal work session with client Commercial Retiree Team

©2003Westport Consulting Group, Inc.


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Why Did We Conduct Interviews With Clients First? current client retiree benefit sponsors

  • Never trust the client.

  • Don’t re-invent the wheel.

  • Check to your secondary research observations.

  • Understand client’s/market’s constraints early in the process.

  • Start with people who want to help you.

Never conduct an interview without a guide and a purpose.

Two people are always better than one.

©2003Westport Consulting Group, Inc.


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Preliminary Explorations With Current current client retiree benefit sponsorsCommercial Retiree Healthcare Clients

Introduction

Who we are

What we want

Understanding what you do

Tell me about your current products

  What do you offer?

Why those?

How well do they work?

©2003Westport Consulting Group, Inc.


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 How is it that you became specifically involved with our client?

• Tell me about your relationship with my client.

• How did you decide to become involved with this healthcare firm?

• Walk me through the process, if you can 

Who initiates?

Who is involved?

Who has what tasks?

Who is vital and who is just helpful?

Who does the real homework?

Who has the ability to say “no”?

Who can say “yes”?

©2003Westport Consulting Group, Inc.


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Now that you have a vendor relationship with our client, how do you go about evaluating new concepts and products?

Please help me understand how you decide to become involved:

Who initiates?

Who is involved?

Who has what tasks?

Who is vital and who is just helpful?

Who does the real homework?

Who has the ability to say “no”?

Who can say “yes”?

©2003Westport Consulting Group, Inc.


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Qualitative Research Findings do you go about evaluating new concepts and products?Building On Working Hypotheses

©2003Westport Consulting Group, Inc.


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5. Minimum of 4 focus groups (designed to bracket relevant markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

©2003Westport Consulting Group, Inc.


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Why Did We Choose To Conduct Focus Groups? markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

  • Fastest way to expand our view of the market.

  • Power of a group to build upon preliminary ideas.

  • Appropriate way to prioritize our observations through the eyes of the market.

  • Sharing information on retiree benefits among the respondents was seen as a plus not a minus.

  • In-depth probing not required.

Don’t use the session to gather data otherwise available.

Always remember that observations are directional not projectable.

©2003Westport Consulting Group, Inc.


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Other Qualitative Research Options markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

  • In-depth personal interviews.

  • In-depth telephone interviews.

  • Dyads and Triads.

  • Net Meetings.

Target your technique to your need, audience and budget.

©2003Westport Consulting Group, Inc.


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Discussion Guide:Focus Groups markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

Warm up (estimated time: 10 minutes)

Introduce selves: names, companies (if not by name then in-profile so participants can better frame each other’s comments), titles, current and past experience with making health insurance decisions

 Present overview of focus group: no right or wrong answers, please answer only for yourself not for what "others" might think, no bad answers are possible, you are the expert on you, etc

  Explain Committed Response procedure: write down number 1-10 on pad for each idea and a few words to remind yourself of why you wrote that down; then we discuss your opinions

Topic being discussed: how you go about making decisions about health insurance for your retired workers.

Understanding current coverage(estimated time: 20 minutes)

Please describe your current health care coverage for retirees.

Is it the same for all retirees? Is it the same for current employees?

If not, what are the differences?

Why are such differences put into place?

Relationships with the managed health care companies or insurance carriers who provide this care: (Note: care will be taken to keep comments factual, preventing any individual company “bashing.”)

Who provides care?

For how long have they been in place?

Who was there before?

Why current carrier/supplier?

Why did you change?

Are there some carriers/suppliers who seem better suited for this task than others? Which ones? Why?

©2003Westport Consulting Group, Inc.


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Evaluating new concepts and products: the process markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client (estimated time: 25 minutes)

(Note: Absent of any “new” concepts, the client’s current products can be introduced on a “no-name/generic” basis to provide a starting point for the group’s consideration.)

Please think back as to the last time you considered this topic; it may be when you changed coverage, decided not to change coverage, or might simply have been deciding whether to add or drop coverage. Please walk me through the process:

How is the process initiated? Why is it initiated?

Which departments are involved?

Which areas do which tasks?

How long does this take?

How are key data obtained?

Are there any outside players? Who? What do they do?

What checks and controls exist?

What inputs are desirable? What ones are necessary?

What is the desired final result? Realistically, what is the usual result?

Is there any basis for establishing the cost? Relative to what measures?

Evaluating new concepts and products: the criteria(estimated time: 25 minutes)

We just discussed the process. But what are the criteria for judgment? How do you say that this is a better than average or that a worse than average program?:

What are the key criteria?

What is also desirable but not key?

Help me build an “ideal” offering

That is the ideal; again, realistically, what is the usual product offering like? How far short of the ideal does it fall?

©2003Westport Consulting Group, Inc.


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Evaluating new concepts and products: the players markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client(estimated time: 25 minutes)

That’s the process and the product. What about the people? In your organization, who gets involved in the decision making?

Who initiates?

Who is involved?

Who has what tasks

Who is vital and who is just helpful?

Who does the real homework?

Who has the ability to say “no”?

Who can say “yes”?

Conclusion (estimated time: 10 minutes)

Thank you for your help.

Before we go...are there companies who you think are well suited to provide this type of program? who? why them? who couldn’t or wouldn’t? why them?

Probes: Must they be national? multistate? offer any particular type of policies? why or why not?

Any last thoughts? Good bye.

©2003Westport Consulting Group, Inc.


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Top Line Findings & Observations markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

  • There are strikingly significant differences in behavior between large and small employers.

  • Pre-Medicare eligible retirees are not recognized as a formal healthcare benefit market segment and are most often perceived as an extension of a company’s active population.

  • There appears to be no formal set of pre-Medicare retirement healthcare rules to follow, nor recognized “experts” for companies to turn to for guidance.

  • Young companies and/or companies with high employee turnover simply do not recognize having a retiree healthcare benefit issue.

  • Apart from the obvious “cost” concerns associated with all benefits, retiree healthcare is not yet a “balance sheet” issue with small to medium size employers, despite FASB 106.

©2003Westport Consulting Group, Inc.


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Differences Between Large and Small Employers markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

  • Employer concern or focus on retiree healthcare issues is in direct proportion to the actual number of retired employees they have.

  • Despite the differences in organizational complexity between small and medium size companies, the Human Resource professionals appear to be of equal caliber.

  • Managed Care is universally recognized as a key ingredient to retiree healthcare cost containment.

  • Frequently Consultants emerge as advisors to larger companies while brokers appear to be the only outside influence for smaller employers.

  • Retiree healthcare benefits do not currently have a ‘champion’ either inside or outside most organizations.

©2003Westport Consulting Group, Inc.


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Employers Mostly React To markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for clientRetiree Healthcare Benefits Issues

  • Events driving retiree healthcare appear to be:

    • Mergers and acquisitions

    • Corporate downsizing

    • Senior executive retirements

    • First retirements for younger companies

    • Competitive (benefit initiative) pressures

  • The impact of changes in Medicare on retiree healthcare benefits appears to be beyond the ability of small to medium size companies to either plan for or predict.

©2003Westport Consulting Group, Inc.


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In Most Cases, Pre-Medicare Eligible Retirees Are markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for clientNot Perceived As A Critical Employee Benefit Population

  • Active employees are the most important healthcare benefit segment, followed by Medicare-eligible retirees, with pre-Medicare-eligible individuals ranking a distant third.

  • COBRA is widely viewed as the full extent of company healthcare benefit obligation for involuntary pre-Medicare retirees.

  • The prevailing trend for retirees appears to lean toward a continuation of whatever healthcare benefits active employees are offered.

  • When a pre-Medicare healthcare benefit is offered, the company’s financial contribution tends to be capped or reduced.

  • Excepting some municipal retirees, companies appear to feel the least amount of obligation to the pre-Medicare retired employee population.

©2003Westport Consulting Group, Inc.


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Formal Pre-Retirement Healthcare Practices Are Scant markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

  • No Human Resource oriented set of guidelines, practices, or rules appears to exist. Current employer behavior is almost entirely “ad hoc.”

  • Other than COBRA, there are no government regulations of any import.

  • No national benefits consulting firm identified with topic.

  • With the possible exception of Kaiser, no managed care provider appears to be focused on the topic.

  • No public advocacy.

©2003Westport Consulting Group, Inc.


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Cost Containment Initiatives Appear To Be More Focused markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for clientOn Medicare Eligible Than Non-Medicare Eligible Retirees

  • Medicare Eligible

    • Designation of working spouses as “prime” coverage.

    • Medicare coordinated “carve-outs” to reduce company benefits to be equal to pre-Medicare levels.

  • Non-Medicare Eligible

    • Increased employee contribution and/or capped employer contribution.

    • Some recognition by employers and healthcare providers of age appropriate underwriting/pricing with less subsidy by averaging in younger active employees.

©2003Westport Consulting Group, Inc.


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The Decision Making Process For Retiree Healthcare markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for clientBenefits Is Fairly Uniform

  • Human Resource managers are both “gatekeepers” and “influencers.”

  • In all but the largest firms, CEO’s or boards/committees appear to be the decision makers.

  • Brokers and consultants only influence the healthcare suppliers, not the decision.

  • Healthcare companies are not sought out directly for any expertise or advice on retiree topics.

©2003Westport Consulting Group, Inc.


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Drivers In the Retiree Decision Making markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for clientProcess Are Also Fairly Uniform

  • Cost is always a prime consideration, but measured relative to active employee benefits.

  • Administration/paperwork issues rank a close second vis-à-vis retiree healthcare.

    “A good plan is one where no one ever calls me (Human Resources)

    “I don’t want these people calling me”

    “Retired people have a lot more time to focus on things like claims”

  • Dislocating older retirees, from their doctors simply for costs savings, is distasteful and a sensitive issue.

  • Only major rate increases (>10+%) would cause companies to rebid retiree healthcare contracts; there appears to be a lot of inertia in keeping healthcare plans ‘status quo’.

©2003Westport Consulting Group, Inc.


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Issues Surrounding Retiree Healthcare markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for clientPlan Design Are Universal

  • Continuity of care.

  • Good customer (retired employee) service.

  • Portability of benefits ... preferably within coordinated managed care networks for:

    – Retirees who move

    – Retirees who travel

  • Easy to understand forms and claims procedures.

  • Tighter coordination of benefits with Medicare.

  • Age-specific benefits, e.g., wellness, geriatric.

  • Simplified and unified (actives and retirees) account billing.

  • However, small employers i.e., < 1000 employee and <100 retirees do not constitute a serious marketing opportunity as the need for special benefit attention is not perceived as compelling.

©2003Westport Consulting Group, Inc.


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Retiree Healthcare Opportunities Are Real markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

  • Ability to “position” client organization as proactive expert on topic.

  • Ability to create a defined market segment between commercial and Medicare/HMO

  • Ability to provide value-added by relieving HR professionals of responsibility and need to create “homegrown” solutions between active and Medicare eligible retirees.

  • Ability to segment down from strong Medicare/HMO position vs. more generic commercial competitive frame.

  • Ability to be preemptive in creating, underwriting, and pricing a pre-Medicare retiree pool across company populations.

  • A focus on pre-Medicare eligible retirees strengthens Medicare/HMO’s new member pipeline.

  • Targeting of “self-insured” companies to remove or contain expanding retiree liability from their balance sheet.

©2003Westport Consulting Group, Inc.


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Program Suggestions In Creating markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for clientThe “Ideal” Retiree Health Plan

  • Live person telephone assistance (i.e., no VRU or voice mail)

  • Minimal or no paperwork for employee

  • Eased access to key specialists

  • Commitment to established quality service standards that are measurable

  • Wellness programs

  • Enrollment exam and personalized healthcare program

  • Other suggestions included:

    • Tie-in to long-term care

    • Tie-in to at-home care

    • Simplified Rx service

    • Hospice care

    • Hearing aid and vision care

©2003Westport Consulting Group, Inc.


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Qualitative Group Exercise markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for client

  • Pseudo-Conjoint

  • Pseudo-Cluster

  • Pseudo-MDS

    Rules for Pseudo-MDS Exercise

    “Characteristics of employee & retiree health plans”

    Choose your own criteria for difference.

    Work in as many dimensions as you like.

    Use the entire room.

    No two things are exactly the same or completely different.

©2003Westport Consulting Group, Inc.


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Quantitative Research Findings markets) with senior HR and Benefits corporate decision makers to explore decision making process & behavior, exposing and gaining insights into potential new product, positioning, pricing and promotional opportunities for clientDimensioning Market & Validatingand/or Refining Working Hypotheses

©2003Westport Consulting Group, Inc.


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7. Quantitative research (projectible to client corporate market universe) to validate key marketing assumptions

©2003Westport Consulting Group, Inc.


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Why Did We Do Quantitative Research? market universe) to validate key marketing assumptions

  • Establish size of the market.

  • Generate reliable measure of interest in concepts.

  • Provide data for effective marketing projection.

Survey size is determined by survey objectives.

Choosing the “best” product is easy.

Determining “how good” is much harder.

©2003Westport Consulting Group, Inc.


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Questionnaire market universe) to validate key marketing assumptions

BEGIN HERE: Ask to speak with whomever in the company “has senior responsibility for determining where and from whom health insurance is purchased.”

A Hello, my name is [____________] from [____________], a market research company. We’re trying to understand how companies like yours handle health insurance for their retirees. This is purely a research study; I assure you, we are not selling anything.

Could you please tell me if, other than Medicare, your company has a health insurance program for retirees, either those over 65 or those under 65?

Yes, has program for those under 65... 1 (Skip to QC)

Yes, has program for those 65 or older... 2 (Skip to QC)

Yes, has both... 3 (Skip to QC)

No, has neither… 4

Don’t know... 5 (Ask who would know and restart)

B. Is your company currently actively and aggressively planning to offer such insurance to your retirees in 1998? (If “yes,” probe for which kind:) Is that for retirees under 65, 65 or older, or both?

Yes, for those under 65... 1

Yes, for those 65 or older... 2

Yes, for both over and under 65... 3

No... 4 (Terminate)

DK... 5 (Terminate)

C. Are you the person in your company who has primary responsibility for determining what kinds of health insurance are offered to your retirees?

Yes, am senior person responsible... 1 (Continue)

No, but have major inputs... 2 (Check quota)

No, somebody else... 3 Ask for referral and restart

DK/not sure... 4 Probe/Re-ask question

Very roughly, about how many retirees does your company now have?

Very roughly, about how many retirees does your company now have?

©2003Westport Consulting Group, Inc.


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1. To begin, would you please tell me a few things about the health insurance that is currently provided for active employees. Which, if any, of these types of coverage do you offer? (READ LIST.)

Traditional indemnity insurance, with or without deductibles,sometimes called 80/20 insurance... 1

HMOs... 2

PPOs (Preferred Provider networks)... 3

POS (Point of Service networks)... 4

(Do not read:) Other (specify:)__________________

2. Who pays for that coverage? Would you say that... (READ LIST.)

Company pays for all... 1

Company pays for all, except for deductibles and co-payments... 2

Company subsidizes employees but employees pay part... 3

Company provides plan but employee pays for all of it... 4

(Do not read:) Other (explain:)___________________________

IF RESPONDENT OFFERS COVERAGE TO RETIREES UNDER 65, ASK THE FOLLOWING QUESTIONS. OTHERWISE, SKIP TO Q. 11.

3. Would you say that the coverage you offer your under-65 retirees is...

Same health benefits as current active employees... 1

Slightly different health benefits as compared to employees... 2

Different health plan benefits than for current employees... 3

4. Who pays the premiums for the these retirees’ health care?

Company pays for all... 1

Company pays for all, except for deductibles and co-payments... 2

Company subsidizes employees but employees pay part... 3

Company provides plan but employee pays for all of it... 4

(Do not read:) Other (explain:)___________________________

5. Which, if any, of these types of coverage do you offer your under-65 retirees? (READ LIST.)

T traditional indemnity insurance, with or without deductibles... 1

HMOs... 2

PPOs... 3

POS... 4

(Do not read:) Other (specify:)

©2003Westport Consulting Group, Inc.


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  Would you say that these retirees... health insurance that is currently provided for

Pay the same amount as current active employees... 1

Pay somewhat less than active employees 2

Pay somewhat more of their costs than active employees 3

7.Do Does the policy allow these retirees to cover their dependents as well?

Yes... 1

No... 2 (Skip to Q.9)

8. Who pays the premiums for these dependents?

Company pays for all... 1

Company pays for all, except for deductibles and co-payments... 2

Company subsidizes employees but employees pay part... 3

Company provides plan but employee pays for all of it... 4

(Do not read:) Other (explain:)___________________________

9. About how many retirees under the age of 65 do you have in your company?_____

10. Would you say this number is...

Growing very rapidly... 1

Growing, but not rapidly... 2

Growing slowly... 3

Staying about the same... 4

or Declining... 5

DK... x

11. Is the coverage you offer retirees under 65 the same or different from that offered those 65 and older?

Same... 1 (Skip to Q.13)

Different... 2

©2003Westport Consulting Group, Inc.


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12. In what way is it different? health insurance that is currently provided for

Those over 65 are covered by Medicare alone... 1

Over 65 get insurance that is coordinated with get more benefits than Medicare... 2

Plan is unique to 65+ retirees and is something other than just a Medicare program… 3

There are out-of-pocket and other costs associated with Medicare and any other health insurance program for those 65 and older. Who pays those costs for your 65+ retirees?

Company pays all costs... 1

Company pays part, retiree pays part... 2

Retiree pays all... 3

  • Which, if any, of the following non-Medicare benefits does your company offer its 65+ retirees? (RECORD ANSWER IN FIRST COLUMN. CIRCLE AS MANY AS APPLY.)

  • Which one or two of these is the most important? (CIRCLE ANSWER IN SECOND COLUMN.)

    Includes Most important

    Prescription plan... 1 1

    Vision plan... 2 2

    Dental plan... 3 3

    Chiropractic plan... 4 4

    “Wellness” care... 5 5

    Exercise plan... 6 6

    Psychiatric plan... 7 7

    Acupuncture/alternative medicine... 8 8

    (DO NOT READ:) None... 9 9

    . Would you say that these 65+retirees...

    Pay the same amount as current active employees... 1

    Pay somewhat less than active employees 2

    Pay somewhat more of their costs than active employees 3

    16. Does the policy allow these 65+ retirees to cover their dependents as well?

    Yes... 1

    No... 2 (Skip to Q.18)

©2003Westport Consulting Group, Inc.


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17. Who pays the premiums for these dependents? health insurance that is currently provided for

Company pays for all... 1

Company pays for all, except for deductibles and co-payments... 2

Company subsidizes employees but employees pay part... 3

Company provides plan but employee pays for all of it... 4

(Do not read:) Other (explain:)___________________________

18. About how many retirees 65 or older do you have in your company?_____

Would you say this number is...

Growing very rapidly... 1

Growing, but not rapidly... 2

Growing slowly... 3

Staying about the same... 4

or Declining... 5

DK... x

20. From whom do you get information about health care coverage, benefits, and issues relating to retirees? (CIRCLE AS MANY AS APPLY IN FIRST COLUMN.)

  Who is most influential in assisting you in making your selection of a health care company for your retirees? (CIRCLE ONE IN SECOND COLUMN. READ LIST IF NECESSARY.)

Source Most

Brokers... 1 1

Consultants... 2 2 Insurance companies... 3 3

Internal peers and associates... 4 4

People with your job in other companies... 5 5

Professional organizations... 6 6

Government agencies... 7 7

Coalition members... 8 8

Industry trade journal and newsletters... 9 9

Your legal department or counsel... 0 0

Others (specify:)_____________________

©2003Westport Consulting Group, Inc.


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Compared to all your other benefit decisions, such as other health insurance, 401(k), disability, and so on, how important do you feel is the issue of retiree health care for your organization? Please use a 10-point scale, in which 10 is “the most important issue” and 1 is “not really important at all.” _______

Some organizations prefer to let their health insurance carrier do all the work in delivering information to retirees, from setting up meetings to discussing options, to responding to questions. Others prefer to let the insurance company just pay the claims and have their own people do that work. What is your company’s preference, where 1 means you prefer a total “turn key” operation with the insurance company doing as much as possible and 10 means you prefer to do as much of the hands-on work yourself as possible? ______

23. Who in your organization makes the final decision regarding whether health care coverage will be provided to retirees and, if so, which coverage will be offered?

VP of Human Resources... 1

President/CEO... 2

Benefits Committee, or similar committee... 3

Board of Directors... 4

CFO/Controller/Finance officer... 5

Other (specify:)___________

24. Would you say your company considers its role in its retirees’ health care to be...

Becoming critically important... 1

Very important... 2

Important... 3

Not very important... 4

Not important at all... 5

DK... x

In making decisions about the health care program for your company’s retirees, which of the following do you feel are critical and which are very important, or somewhat important, or not important at all? (READ LIST.)

Critical Very Some Not DK

Cost containment... 1 2 3 4 x

Portability of medical care and benefits... 1 2 3 4 x

Availability of non-Medicare coverage.... 1 2 3 4 x

Quality of health care providers... 1 2 3 4

Costs to retiree... 1 2 3 4 x

Range and scope of provider network... 1 2 3 4 x

Employee dependent insurance... 1 2 3 4 x

Ability of retiree to keep current physician... 1 2 3 4 x

©2003Westport Consulting Group, Inc.


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  • Finally, to help us classify your replies, please tell us a little about your company. How many years has it been in business? _______

  • What is its annual revenue, approximately? $_________million

    28. What kind of business is it? (READ LIST.)

    Manufacturing... 1

    Sales... 2

    Marketing/advertising... 3

    Service... 4

    Retail.... 5

    That completes our interview. Thank you for your help.

©2003Westport Consulting Group, Inc.


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What We Learned From the Quantitative Study little about your company. How many years has it been in business? _______

  • Is this a business?

  • How big is it?

  • Is there anything we can do to make it better?

Data are developed only to make actionable

(and imperfect) decisions.

“Perfect and ‘nice to know’” data will always take too long and be too expensive.

©2003Westport Consulting Group, Inc.


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Respondent Demographics And Observations little about your company. How many years has it been in business? _______

  • “Small” companies are defined as having employees between 1,000 and 5,000. “Large” companies are defined as having 5,000 or more employees. All companies had a minimum of 100 retirees.

  • There were no significant differences between the small and large company responses except as explicitly noted in the report.

  • There were no significant differences observed between responses by type of business (e.g., manufacturing vs. services).

  • There also appears to be no difference in company behavior by the number of retirees.

  • The range of companies included in the survey was from $200MM to $2.8B in annual revenues.

  • The median size respondent had $850MM in annual revenue. “Small” company median revenue was $480MM and large company median revenue was $1.2B.

©2003Westport Consulting Group, Inc.


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Respondents Represented Middle-Market little about your company. How many years has it been in business? _______to Large Corporate Employers

More than 20,000

16%

52%

1,000-5,000

33%

5,000-20,000

% Distribution of Survey Respondents

by Number of Active Employees

©2003Westport Consulting Group, Inc.


Demographic profile of survey respondent employers l.jpg
Demographic Profile of Survey Respondent Employers little about your company. How many years has it been in business? _______

Refused

2%

Manufacturing

42%

Other

22%

Marketing

3%

Services

21%

Sales

2%

Retail

6%

©2003Westport Consulting Group, Inc.


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Respondents All Had Significant little about your company. How many years has it been in business? _______Numbers of Retired Employees

500-1,000

Retirees

More than 1,000

Retirees

16%

40%

400-500 Retirees

7%

11%

16%

10%

300-400 Retirees

100-200 Retirees

200-300 Retirees

% Distribution of the Number of Retirees

Among Survey Respondent Corporations

©2003Westport Consulting Group, Inc.


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And A Significant Number of the Retiree Population Was Under Age 65

% of Companies

23%

20%

17%

16%

15%

9%

Number of Retirees Under Age 65

©2003Westport Consulting Group, Inc.


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Retirees Today Receive Similar Benefits ... Although They Pay More For Them Than Active Employees

Receive Different

Healthcare Benefits

Pays Less

Than Active

Pays Same

As Active

9%

16%

28%

Receive Same

Healthcare

Benefits

25%

Pays More

Than Active

65%

53%

Receive

Slightly

Different

Healthcare

Benefits

Comparison of Retiree

Healthcare Benefits to

Active Employees

Comparison of Retiree

Healthcare Costs to

Active Employees

Source: WCG, Inc. Quantitative Survey of Retiree Health Benefit Decision Makers At Mid and Large Employers 3/98

©2003Westport Consulting Group, Inc.


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Almost All Survey Respondents Were Offering Health Pay More For Them Than Active EmployeesInsurance Benefits to their Retirees. Pre-Medicare Retirees Appear To Receive More Benefits Than Those Medicare Eligible Individuals

2%

Planning to Offer

Only Offered to

Under 65

21%

Offered to Over &

Under 65 Retirees

75%

2%

Only Offered to

Over 65

% Distribution of Health Benefits

By Age of Employee

©2003Westport Consulting Group, Inc.


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As A Result, The Majority Of Corporate Benefit Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit Programs

% of Respondents

Rating Importance

of Retiree

Healthcare Benefits

Relative to Other

Benefit Decisions

40%

20%

16%

12%

9%

4%

1-2 3-4 5-8 7-8 9 10

Not Less Somewhat Important Very Vital

Important Important Important Important Important

Source: WCG, Inc. Quantitative Survey of Retiree Health Benefit Decision Makers At Mid and Large Employers 3/98

©2003Westport Consulting Group, Inc.


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Despite the Much Heralded Need to Reduce Costs, All Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit ProgramsRespondents Offer Their Active Employees An IndemnityPlan Option. Most Offer HMO and Half Offer a PPO Option

% of Employers

Offering

Employees

Health Plan

Option

100%

77%

52%

19%

1%

©2003Westport Consulting Group, Inc.


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And, Not Surprisingly, An Indemnity Plan Option Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit ProgramsWas Less Prevalent For Retirees Compared With Their Active Counterparts

% of Employers

Offering

Retirees

Health Plan

Option

70%

63%

34%

11%

©2003Westport Consulting Group, Inc.


Employers were less likely to cover the costs of retirees under age 65 or 65 retiree dependents l.jpg

Company Subsidizes Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit Programs

Retiree Dependent

Coverage

Retiree Pays

All

Company Pays

All Dependent

Coverage

Company Pays

All But Deductible

Employers Were Less Likely To Cover The Costs OfRetirees Under Age 65 or 65+ Retiree Dependents

Pre-65

Post-65

3%

3%

9%

6%

28%

58%

27%

59%

% Distribution of Pre- and Post-65 Retiree Cost Sharing For Dependent Coverage

©2003Westport Consulting Group, Inc.


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Growth of Pre-65 Retiree Population Is Rising Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit ProgramsAt A Faster Rate Than Post 65 Retirees

Employer

Perception of

Retiree

Population

Growth

12%

Growing Rapidly

5%

39%

Not Growing Very Rapidly

23%

31%

Growing Slowly

36%

27%

Staying About The

Same or Declining

25%

Pre-65 Retirees Post-65 Retirees

©2003Westport Consulting Group, Inc.


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Medicare Is Clearly Factored Into Older Retiree Benefits Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit Programs

Pre-65

Post-65

Medicare Only

Different Healthcare

Benefits

Coordinated

with Medicare

as Primary

Unique Plan

Independent of

Medicare

4%

48%

25%

52%

69%

Same

Healthcare

Benefits

Pre- & Post-65 Retiree Healthcare Benefits

©2003Westport Consulting Group, Inc.


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Surprisingly, Employers Are Willing to Share Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit ProgramsMedicare Out-of-Pocket Expenses With More Than Half of Their Older Retirees

Company Pays All

5%

Company

Pays Some

48%

46%

Retiree

Pays All

% of Company Participation in Cost Sharing

of Medicare Out-of-Pocket Expenses

©2003Westport Consulting Group, Inc.


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Almost All Respondents Offer Prescription Services to Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit ProgramsTheir Medicare Eligible Retirees.Vision and Dental Care Are Offered in More Than Half of the Plans Surveyed

94%

Prescription Service

61%

Vision Care

47%

Dental Care

Chiropractic

33%

Wellness

17%

6%

Exercise

3%

Psychiatric Care

1%

Acupuncture

% of Companies Offering Ancillary Healthcare Benefits

©2003Westport Consulting Group, Inc.


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Uses Source Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit Programs

Best Source

Corporate Retiree Healthcare Decision-Makers Rely On A Number Of Sources of Information. Consultants Are Clearly the Most Important Source Today

81%

Consultants

42%

75%

Insurance Co.’s

15%

61%

Professional Organizations

2%

People with Same

Job In Other Co.’s

59%

1%

54%

Coalition Members

2%

51%

Internal Peers & Associates

11%

42%

Government Agencies

1%

40%

Brokers

9%

39%

Legal Department

2%

Industry Trade Journals

15%

1%

Not surprisingly, larger companies rely more on consultants and

smaller companies rely disproportionately on brokers

©2003Westport Consulting Group, Inc.


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The Majority of Corporate Benefit Decision-Makers Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit ProgramsSee Retiree Healthcare As An Important TopicRelative to other Benefit Programs

% of Respondents

Rating Importance

of Retiree

Healthcare Benefits

Relative to Other

Benefit Decisions

40%

20%

16%

12%

9%

4%

©2003Westport Consulting Group, Inc.


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Corporations, Regardless of Size, Appear to Want A Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit Programs“Turnkey Solution” Relative to Retiree Healthcare Benefit Plans

% of Respondents

Rating Importance

Degree of

Involvement With

Retiree Healthcare

Administration

25%

28%

18%

16%

10%

1-2 3-4 5-6 7-8 9-10

Wants Hand Wants Turnkey

On Involvement Solutions

©2003Westport Consulting Group, Inc.


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Cost and Quality of Provider, Lead the Decision-Making Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit ProgramsCriteria When Selecting Retiree Healthcare Benefits

Not

Important

At All

Not

Very

Important

Very

Important

Important

Cost to Company

28

1

12

58

Provider Quality

2

12

23

61

3

Cost to Retirees

50

14

30

Network Range/Scope

6

12

50

30

Availability of Non-

Medicare Coverage

10

9

44

32

Retiree Keeps

Current Physician

10

8

37

42

Dependent

Coverage

6

7

46

38

©2003Westport Consulting Group, Inc.


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Observations & Recommendations For Next Steps Decision-Makers See Retiree Healthcare As An Important Topic Relative To Other Benefit ProgramsCommitting to a Course of ActionCreating Metrics by Which to Measure Success Factors

©2003Westport Consulting Group, Inc.


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9. Creation of comprehensive spreadsheet model to test all assumptions against client ROI/ROE objectives including the sizing of the commercial retiree market

©2003Westport Consulting Group, Inc.


What we learned from modeling our options l.jpg
What We Learned From Modeling Our Options? assumptions against client ROI/ROE objectives including the sizing of the commercial retiree market

  • There are alternatives to ‘business as usual’.

  • Drivers to changing behavior involve both HR & Finance Decision Makers.

  • Change of this magnitude requires market leadership.

  • No one wants to be first.

  • Business realities will conflict with being popular.

Modeling alone cannot overcome fear of change nor identify all risks involved.

Piloting is key to gaining both experience and acceptance with change.

©2003Westport Consulting Group, Inc.


Today s practice of co marketing with commercial l.jpg
Today’s Practice Of Co-Marketing With Commercial assumptions against client ROI/ROE objectives including the sizing of the commercial retiree market

Medicare/HMO

Priced

Separately

Pre-Medicare

Retirees

Underwritten

Together

Commercial

Plan

Sponsor

Benefits

Plan

Sponsor

Constraints

• Permits easier administration for employers

• Minimizes any ‘negative’ impact on migrating pre-Medicare retiree employees

• Permits wider employee choice under multi-plan situations

• Raises true cost of active employee coverage

• Continues financial exposure to growing pre-Medicare retiree population

©2003Westport Consulting Group, Inc.


Combined with medicare hmo l.jpg
Combined With Medicare/HMO assumptions against client ROI/ROE objectives including the sizing of the commercial retiree market

Medicare/HMO

Vertically Integrated Downward

From A Successful Brand

Underwritten

Together

Pre-Medicare

Retirees

Underwritten

Separately

Commercial

Plan

Sponsor

Benefits

Plan

Sponsor

Constraints

• Completely eliminates employers’ responsibility for transitioning retirees

• Carves pre-Medicare retirees out of active population, thereby reducing costs for active employees

• Minimizes retiree network dislocation

• Permits client Medicare HMO acquisition costs savings to subsidize pre-retiree costs over and above active employees

• All or nothing enrollment

• Out-of-network coverage

• Change from current extension of active coverage

©2003Westport Consulting Group, Inc.


Promoted as a standalone retiree program l.jpg
Promoted As A Standalone Retiree Program assumptions against client ROI/ROE objectives including the sizing of the commercial retiree market

Priced

Separately

Medicare/HMO

A program separate from both commercial & Medicare/HMO Lines

e.g., “Medicare/HMO Lite”

Underwritten

Separately

Commercial

Underwritten

Separately

Plan

Sponsor

Benefits

Plan

Sponsor

Constraints

• Carves pre-Medicare retiree costs out of active population, reducing actives’ cost

• Permits more aggressive employer stance on retiree co-payment and/or cost cap

• Reduces financial exposure to growth in pre-Medicare retiree population

• Raises pre-Medicare retiree cost

• Change from current extension of active coverage

• Adds administrative layer

©2003Westport Consulting Group, Inc.


Program suggestions to create the ideal retiree health plan l.jpg
Program Suggestions To Create assumptions against client ROI/ROE objectives including the sizing of the commercial retiree market The “Ideal” Retiree Health Plan

  • Live person telephone assistance (i.e., no VRU or voice mail)

  • Minimal or no paperwork for employee

  • Eased access to key specialists

  • Commitment to established quality service standards that are measurable

  • Wellness programs

  • Enrollment exam and personalized healthcare program

  • Other suggestions included:

    • Tie-in to long-term care

    • Tie-in to at-home care

    • Simplified Rx service

    • Hospice care

    • Hearing aid and vision care

Source: WCG Commercial Employer Retiree Health Focus Groups

©2003Westport Consulting Group, Inc.


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Of Paramount Importance In Moving Ahead Is The Need To Re-Examine Client’s Retiree Underwriting Criteria

As a Medicare/HMO coordinated initiative ... to achieve:

  • Avoiding adverse selection by promulgating an “all retiree or nothing” policy.

  • Creating a competitive price which is less than what the pre-Medicare eligible employee could source independently.

  • Demonstrating how the employers’ “active” costs can go down.

  • Providing the employer with a range of co-pay options.

  • Demonstrating continuity of quality care within Medicare/HMO.

    As a Standalone Health Benefit initiative ... to achieve:

  • Avoiding adverse selection by promulgating an “all or nothing” posture with commercial pre-Medicare retirees.

  • Possible creation of a cross-employer or pool of pre-Medicare retirees.

  • Price point competitive with individual pre-Medicare retiree options independent of employer subsidy.

  • A range of employer subsidy/co-pay options.

  • Clear demonstration of how retiree “carve out” reduces active costs.

  • Demonstration of how XYZ Healthcare ease transition into superior Medicare HMO

©2003Westport Consulting Group, Inc.


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The Number of Employees of Mid to Large Size Companies Appears To Be A Better Leading Indicator for a Retiree Healthcare Sales Opportunity, than Annual Revenues of Those Companies

# of Employees <500 500-1,000 >1,000

1,000-5,000 71 23 26

5,000-10,000 26 7 43

>10,000 5 7 25

Number of Respondent Companies Arrayed by

Active vs. Retired Employee Populations

# of Retirees

©2003Westport Consulting Group, Inc.


Next development steps hold little risk and should be pursued l.jpg
Next Development Steps Hold Little Risk And Should Be Pursued

Identify

Select Group of

Target Commercial

Employers and

Consulting Firms

Refine

As Appropriate

Or Terminate

Initiative

Create

Underwriting

Model(s)

Package

Concept

Program

Expose

Concept

Sales

Underwriting

Marketing

Finance

Underwriting

Finance

Marketing

Marketing

Sales

Primary

Resources

Required

©2003Westport Consulting Group, Inc.


What we learned from our development process l.jpg
What We Learned From Our Development Process? Pursued

  • Our circa 1998 observations regarding the retiree healthcare marketplace came true in most cases.

  • These data were all available to anyone willing to look for them…and without much trouble.

  • Despite much angst about healthcare costs today, no one has provided leadership in this space.

Success requires both concept and execution.

©2003Westport Consulting Group, Inc.


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