©2003Westport Consulting Group, Inc. Presented by: Westport Consulting Group, Inc. 140 Water Street...

©2003Westport Consulting Group, Inc.

Presented by:

Westport Consulting Group, Inc.140 Water Street

South Norwalk, Connecticut 06853

203-866-6200

www.westportconsulting.com

Confidential

A Product/Business Development A Product/Business Development Case StudyCase Study

‘‘Identifying Retiree Healthcare Identifying Retiree Healthcare Issues & Business Opportunities’Issues & Business Opportunities’


Workshop ObjectivesWorkshop 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.


CaveatsCaveats

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.


Important Takeaways From Today’s WorkshopImportant 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.


Case Study Project’s Case Study Project’s ObjectivesObjectives

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.


Start With A Project PlanStart 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.


Retiree Product Line Market Sizing & Retiree Product Line Market Sizing & Customer Analysis Project PlanCustomer Analysis Project Plan

PROJECT START

1. Extant scan of all related

literature client

documents & research

2. Internal work session with

client Commercial

Retiree Team

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




7. Quantitative research (projectible to client corporate market universe) to

validate key marketing

assumptions

7. Quantitative research (projectible to client corporate market universe) to

validate key marketing

assumptions

9. Creation of comprehensive

spreadsheet model to test all assumptions

against client ROI/ROE objectives including the sizing of the commercial

retiree market

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

11. Creation of internal capabilities, staffing,

training, legal and operational requirements

12. Pilot to test/validate

marketing plan and operational

implementation

12. Pilot to test/validate

marketing plan and operational

implementation

13. New Program ROLL-OUT

13. New Program ROLL-OUT

10. Based on model, the creation of formal

Business & Marketing Implementation Plans

10. Based on model, the creation of formal

Business & Marketing Implementation Plans

3. Synthesis of all data & creation of working

set of operating hypotheses for client Retiree sponsorship

8. Analysis & internal research to

validate key operational assumptions

Go/No Go

Go/No Go

Go/No Go

Phase I Phase I - - 4 weeks4 weeks

Phase III -Phase III -Task 11=Task 11=1-2 weeks1-2 weeks

Phase IVPhase IVTBDTBD

Phase II -Phase II -6 to 8 6 to 8 weeksweeks

2. Two days of structured phone interviews with

sample of current client retiree

benefit sponsors


Secondary Research FindingsSecondary Research Findings


Retiree Product Line Market Sizing &Customer Analysis Project Plan

PROJECTSTART

1. Extant scanof all related

literatureclient

documents &research

2. Internal worksession with

clientCommercialRetiree Team

5. Minimum of 4 focus groups(designed to bracket relevant markets)with senior HR and Benefits corporate

decision makers to explore decisionmaking process & behavior, exposingand gaining insights into potential new

product, positioning, pricing andpromotional opportunities for client




7. Quantitativeresearch (projectibleto client corporatemarket universe) to

validate keymarketing

assumptions



assumptions

9. Creation ofcomprehensive

spreadsheet model totest all assumptions

against client ROI/ROEobjectives including the

sizing of thecommercial retiree

market





market

6. Refinement &review of

potential clientprogram

opportunitiesbased on

research findings

11. Creation of internalcapabilities, staffing,

training, legal andoperational requirements

12. Pilot totest/validate

marketing plan andoperational

implementation



implementation

13. New ProgramROLL-OUT


10. Based on model, thecreation of formal

Business & MarketingImplementation Plans



3. Synthesis of all data& creation of working

set of operatinghypotheses for clientRetiree sponsorship

8. Analysis &internal research to

validate keyoperationalassumptions

Go/NoGo

Go/NoGo

Go/NoGo




Phase II -Phase II -6 to 86 to 8weeksweeks

2. Two days ofstructured phoneinterviews with

sample ofcurrent clientretiree benefit

sponsors


PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors

PROJECT START

1. Extant scan of all related literature

client documents & research


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


How Do You Properly Find & Obtain Secondary How Do You Properly Find & Obtain Secondary Data?Data?

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.


Workplace Dynamics First Drove Demand for Workplace Dynamics First Drove Demand for Retiree Health CoverageRetiree 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.


Changing Workplace Dynamics Have Now Altered theChanging Workplace Dynamics Have Now Altered theEmployer’s Response to Retiree Health 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.


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

High

Low

People

People

Technology

High

Low

TechnologyMid 1980’s to Present

Cost toEmployer $

Cost toEmployer $

1950’s to Mid 1980’s


Most Most ActiveActive Employees Are Expected To Employees Are Expected To Contribute To Their Healthcare CoverageContribute To Their Healthcare Coverage

5%

79%

10%

Employee Pays All

Company Pays All But Deductible

Company Subsidizes

2%Company Pays All

% 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


Historically, Healthcare Cost Per Historically, Healthcare Cost Per ActiveActive Employee Grew Employee Grew Until Retirement ...Then Diminished SubstantiallyUntil Retirement ...Then Diminished Substantially

Historical View

Age 25 Age 65“Normal Retirement”

Retiree:MediGap CoverageMediSup CoverageEmployer Sponsored

Health Coverage

EmployerCost $

Medicare

EmployerCost $


However, Changing Workplace Practices Have Created A However, Changing Workplace Practices Have Created A “Second” More Expensive Phase of Healthcare Costs For “Second” More Expensive Phase of Healthcare Costs For

Those Individuals Who Have Left the Active Workforce But Those Individuals Who Have Left the Active Workforce But Are Not Yet Medicare EligibleAre Not Yet Medicare Eligible

Conceptual View

Age 25Active

Typically About Age 55

Retired Non-MedicareEligible

Age 65MedicareEligible


1992 1993 1994 1995 1996

Concurrently, Employer Sponsored Costs For Retiree Concurrently, Employer Sponsored Costs For Retiree

Healthcare Coverage Have Also Continued to RiseHealthcare Coverage Have Also Continued to Rise

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

$2,548

$2,859

$3,131$3,182

$2,751


And, Average Annual Costs Per Cobra Participant And, Average Annual Costs Per Cobra Participant Demonstrate That Employers Are Subsidizing The Claims Demonstrate That Employers Are Subsidizing The Claims

Costs Of Continued Coverage (Mostly For Older, Non-Costs Of Continued Coverage (Mostly For Older, Non-Medicare Eligible Individuals) By An Average of 30%Medicare Eligible Individuals) By An Average of 30%

1991 1992 1993 1994 1995 1996

Source: Charles D. Spencer & Associates, Inc.

$2,769

$3,854 $3,903$3,420

$2,852

$3,710

$4,206

$5,703$5,844

$5,301

$4,307

$5,399

Active Employee Cobra


5

7

9

11

13

15

17

19

21

23

25

1988 1989 1991 1993 1995

And, With An Ever Increasing Pool of Non-Medicare And, With An Ever Increasing Pool of Non-Medicare Eligible Retirees, The Trend For Employer Funding Eligible Retirees, The Trend For Employer Funding

Of All Of These Benefits Is DecliningOf All Of These Benefits Is Declining

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

24%

18%

16% 13%

9%

20%

17%

17%19%

6%

% ofEmployersPaying AllBenefits

Employer Pays All < 65 Employer Pays All 65+


Laying A FoundationLaying A FoundationCreating A Working HypothesesCreating A Working Hypotheses



PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors


PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors

2. Internal work session with client

Commercial Retiree Team

2. Two days of structured phone interviews with

sample of current client retiree benefit

sponsors


Why Did We Conduct Interviews With Clients Why Did We Conduct Interviews With Clients First?First?

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.


Preliminary Explorations With Current Preliminary Explorations With Current Commercial Retiree Healthcare ClientsCommercial Retiree Healthcare Clients

IntroductionWho we areWhat we want

Understanding what you doTell me about your current products

What do you offer?Why those?How well do they work?


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”?


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”?


Qualitative Research FindingsQualitative Research Findings

Building On Working HypothesesBuilding On Working Hypotheses



PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors


PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors








Why Did We Choose To Conduct Focus Groups?Why Did We Choose To Conduct Focus Groups?

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.


Other Qualitative Research OptionsOther Qualitative Research Options

In-depth personal interviews. In-depth telephone interviews. Dyads and Triads. Net Meetings.

Target your technique to your need, audience and budget.


Discussion Guide:Focus GroupsDiscussion Guide:Focus Groups

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 opinionsTopic 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?


Evaluating new concepts and products: the process (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” offeringThat is the ideal; again, realistically, what is the usual product offering like? How far short of the ideal does

it fall?


Evaluating new concepts and products: the players (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 tasksWho 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.


Top Line Findings & Top Line Findings & ObservationsObservations

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.


Differences Between Large and Small EmployersDifferences Between Large and Small Employers

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.


Employers Mostly React To Employers Mostly React To Retiree Healthcare Benefits Retiree Healthcare Benefits

IssuesIssues 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.


In Most Cases, Pre-Medicare Eligible Retirees Are In Most Cases, Pre-Medicare Eligible Retirees Are Not Perceived As A Critical Employee Benefit PopulationNot 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.


Formal Pre-Retirement Healthcare Practices Are Formal Pre-Retirement Healthcare Practices Are ScantScant

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.


Cost Containment Initiatives Appear To Be More FocusedCost Containment Initiatives Appear To Be More FocusedOn Medicare Eligible Than Non-Medicare Eligible On Medicare Eligible Than Non-Medicare Eligible

RetireesRetireesMedicare 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.


The Decision Making Process For Retiree The Decision Making Process For Retiree HealthcareHealthcare

Benefits Is Fairly UniformBenefits 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.


Drivers In the Retiree Decision Drivers In the Retiree Decision MakingMaking

Process Are Also Fairly UniformProcess Are Also Fairly UniformCost 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’.


Issues Surrounding Retiree Issues Surrounding Retiree HealthcareHealthcare

Plan Design Are UniversalPlan Design Are UniversalContinuity 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.


Retiree Healthcare Opportunities Are Retiree Healthcare Opportunities Are RealReal

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.


Program Suggestions In Creating Program Suggestions In Creating The “Ideal” Retiree Health PlanThe “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


Qualitative Group ExerciseQualitative Group Exercise

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.


Quantitative Research FindingsQuantitative Research FindingsDimensioning Market & ValidatingDimensioning Market & Validating

and/or Refining Working Hypothesesand/or Refining Working Hypotheses



PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors


PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors

7. Quantitative research (projectible to client

corporate market universe) to validate key marketing assumptions

7. Quantitative research (projectible to client

corporate market universe) to validate key marketing assumptions


Why Did We Do Quantitative Research?Why Did We Do Quantitative Research?

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.


QuestionnaireQuestionnaireBEGIN 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… 4Don’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... 2Yes, for both over and under 65... 3No... 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 restartDK/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?


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... 1HMOs... 2PPOs (Preferred Provider networks)... 3POS (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... 1Company pays for all, except for deductibles and co-payments... 2Company subsidizes employees but employees pay part... 3Company 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... 1Slightly different health benefits as compared to employees... 2Different health plan benefits than for current employees... 3

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


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... 2PPOs... 3POS... 4(Do not read:) Other (specify:)


Would you say that these retirees...

Pay the same amount as current active employees... 1Pay somewhat less than active employees 2Pay somewhat more of their costs than active employees 3

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

Yes... 1No... 2 (Skip to Q.9)

8. Who pays the premiums for these dependents?


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... 1Growing, but not rapidly... 2Growing slowly... 3Staying about the same... 4

or Declining... 5DK... 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


12. In what way is it different?

Those over 65 are covered by Medicare alone... 1Over 65 get insurance that is coordinated with get more benefits than Medicare... 2Plan 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... 1Company pays part, retiree pays part... 2Retiree pays all... 3

14. 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.)

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

Includes Most importantPrescription plan... 1 1Vision plan... 2 2Dental plan... 3 3Chiropractic plan... 4 4“Wellness” care... 5 5Exercise plan... 6 6Psychiatric plan... 7 7Acupuncture/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... 1Pay somewhat less than active employees 2Pay somewhat more of their costs than active employees 3

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

Yes... 1No... 2 (Skip to Q.18)


17. Who pays the premiums for these dependents?


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

Would you say this number is...

Growing very rapidly... 1Growing, but not rapidly... 2Growing slowly... 3Staying about the same... 4

or Declining... 5DK... 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 MostBrokers... 1 1Consultants... 2 2

Insurance companies... 3 3Internal peers and associates... 4 4People with your job in other companies... 5 5Professional organizations... 6 6Government agencies... 7 7Coalition members... 8 8Industry trade journal and newsletters... 9 9Your legal department or counsel... 0 0Others (specify:)_____________________


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... 1President/CEO... 2Benefits Committee, or similar committee... 3Board of Directors... 4CFO/Controller/Finance officer... 5Other (specify:)___________

24. Would you say your company considers its role in its retirees’ health care to be...Becoming critically important... 1Very important... 2Important... 3Not very important... 4Not important at all... 5DK... 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 DKCost containment... 1 2 3 4 xPortability of medical care and benefits... 1 2 3 4 xAvailability of non-Medicare coverage.... 1 2 3 4 xQuality of health care providers... 1 2 3 4Costs to retiree... 1 2 3 4 xRange and scope of provider network... 1 2 3 4 xEmployee dependent insurance... 1 2 3 4 xAbility of retiree to keep current physician... 1 2 3 4 x


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

27. 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.


What We Learned From the Quantitative StudyWhat We Learned From the Quantitative Study

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.


Respondent Demographics And Respondent Demographics And ObservationsObservations

“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.


Respondents Represented Middle-Market Respondents Represented Middle-Market

to Large Corporate Employersto Large Corporate Employers

52%

16%

33%1,000-5,000

More than 20,000

5,000-20,000

% Distribution of Survey Respondentsby Number of Active Employees


Demographic Profile of Survey Respondent Demographic Profile of Survey Respondent EmployersEmployers

Refused2%

Other22%

Marketing3%

Sales2%

Manufacturing42%

Services21%

Retail6%


Respondents All Had Significant Respondents All Had Significant

Numbers of Retired EmployeesNumbers of Retired Employees

40%

16%10%

500-1,000Retirees

100-200 Retirees200-300 Retirees

% Distribution of the Number of RetireesAmong Survey Respondent Corporations

300-400 Retirees

400-500 Retirees

More than 1,000 Retirees

11%

7%

16%


<50 50-100 100-200 200-500 500-1000 >1000

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

9%

20%17%

23%

15%16%

Number of Retirees Under Age 65

% of Companies


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

25%

65%

Receive DifferentHealthcare Benefits

Receive Same Healthcare

Benefits

Receive Slightly

Different Healthcare

BenefitsComparison of RetireeHealthcare Benefits to

Active Employees

53%

28%

Pays LessThan Active

Pays SameAs Active

Pays MoreThan Active

Comparison of RetireeHealthcare Costs toActive Employees

9% 16%



Almost All Survey Respondents Were Offering Health Almost All Survey Respondents Were Offering Health

Insurance Benefits to their Retirees. Insurance Benefits to their Retirees. Pre-Medicare Retirees Appear To Receive More Pre-Medicare Retirees Appear To Receive More

Benefits Than Those Medicare Eligible IndividualsBenefits Than Those Medicare Eligible Individuals

21%

75%

2%

Planning to Offer

Only Offered to Over 65

Offered to Over & Under 65 Retirees

2%

Only Offered to Under 65

% Distribution of Health BenefitsBy Age of Employee


As A Result, The Majority Of Corporate Benefit As A Result, The Majority Of Corporate Benefit Decision-Makers See Retiree Healthcare As An Decision-Makers See Retiree Healthcare As An

Important Topic Relative To Other Benefit ProgramsImportant Topic Relative To Other Benefit Programs

% of RespondentsRating Importance

of RetireeHealthcare Benefits

Relative to OtherBenefit Decisions

4%9%

20%

40%

12%16%


1-2 3-4 5-8 7-8 9 10Not Less Somewhat Important Very Vital

Important Important Important Important Important


Indemnity HMO PPO POS Other

Despite the Much Heralded Need to Reduce Costs, AllDespite the Much Heralded Need to Reduce Costs, AllRespondents Offer Their Respondents Offer Their ActiveActive Employees An Indemnity Employees An Indemnity

Plan Option. Most Offer HMO and Half Offer a PPO Plan Option. Most Offer HMO and Half Offer a PPO OptionOption

% of EmployersOffering

EmployeesHealth Plan

Option100%

77%

52%

19%

1%


Indemnity HMO PPO POS

And, Not Surprisingly, An Indemnity Plan Option And, Not Surprisingly, An Indemnity Plan Option Was Less Prevalent For Retirees Compared With Was Less Prevalent For Retirees Compared With

Their Active CounterpartsTheir Active Counterparts

% of EmployersOfferingRetirees

Health PlanOption

70%63%

34%

11%


Employers Were Less Likely To Cover The Costs Employers Were Less Likely To Cover The Costs OfOf

Retirees Under Age 65 or 65+ Retiree Retirees Under Age 65 or 65+ Retiree DependentsDependents

59%

6%

28%

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

3%

58%

9%

27%

3%

Company Pays All Dependent

Coverage

Company SubsidizesRetiree Dependent

Coverage

Company Pays All But Deductible

Retiree PaysAll

Pre-65Pre-65 Post-65Post-65


Growth of Pre-65 Retiree Population Is Growth of Pre-65 Retiree Population Is RisingRising

At A Faster Rate Than Post 65 RetireesAt A Faster Rate Than Post 65 Retirees

Growing Rapidly12%

Not Growing Very Rapidly

Growing Slowly

Staying About The Same or Declining

5%

39%

23%

31%

36%

27%

25%

Pre-65 Retirees Post-65 Retirees

EmployerPerception of

RetireePopulation

Growth


Medicare Is Clearly Factored Into Older Retiree Medicare Is Clearly Factored Into Older Retiree BenefitsBenefits

48%

Same Healthcare

Benefits

52%

Different HealthcareBenefits

Pre- & Post-65 Retiree Healthcare Benefits

25%

Medicare Only

4%Unique PlanIndependent of

Medicare

69%

Coordinatedwith Medicare

as Primary

Pre-65Pre-65 Post-65Post-65


Surprisingly, Employers Are Willing to Share Surprisingly, Employers Are Willing to Share Medicare Out-of-Pocket Expenses With More Medicare Out-of-Pocket Expenses With More

Than Half of Their Older RetireesThan Half of Their Older Retirees

46%

5%

48%

Retiree Pays All

Company Pays All

Company Pays Some

% of Company Participation in Cost Sharingof Medicare Out-of-Pocket Expenses


Almost All Respondents Offer Prescription Services toAlmost All Respondents Offer Prescription Services toTheir Medicare Eligible Retirees.Vision and Dental Care Their Medicare Eligible Retirees.Vision and Dental Care

Are Offered in More Than Half of the Plans SurveyedAre Offered in More Than Half of the Plans Surveyed

Prescription Service 94%

Vision Care

Dental Care

Chiropractic

61%

47%

33%

17%

6%

3%

1%

% of Companies Offering Ancillary Healthcare Benefits

Wellness

Exercise

Psychiatric Care

Acupuncture


Uses SourceBest Source

Corporate Retiree Healthcare Decision-MakersCorporate Retiree Healthcare Decision-Makers Rely On A Number Of Sources of Information. Rely On A Number Of Sources of Information.

Consultants Are Clearly the Most Important Source Consultants Are Clearly the Most Important Source TodayToday

Consultants 81%

Insurance Co.’s

Professional OrganizationsPeople with Same Job In Other Co.’s

42%75%

15%61%

2%59%

1%

Coalition Members

Internal Peers & Associates

Government Agencies

Brokers

Legal Department

Industry Trade Journals

54%2%

51%11%

42%1%

40%9%

39%2%

15%1%

Not surprisingly, larger companies rely more on consultants and smaller companies rely disproportionately on brokers


1-2Important

3-4 LessImportant

5-6SomewhatImportant

7-8Important

9 VeryImportant

10 Vital

The Majority of Corporate Benefit Decision-The Majority of Corporate Benefit Decision-MakersMakers

See Retiree Healthcare As An Important TopicSee Retiree Healthcare As An Important TopicRelative to other Benefit ProgramsRelative to other Benefit Programs


of RetireeHealthcare Benefits

Relative to OtherBenefit Decisions

4%9%

20%

40%

12%16%


Corporations, Regardless of Size, Appear to Want A Corporations, Regardless of Size, Appear to Want A “Turnkey Solution” Relative to Retiree Healthcare “Turnkey Solution” Relative to Retiree Healthcare

Benefit PlansBenefit Plans


Degree ofInvolvement WithRetiree Healthcare

Administration

16%

10%

25%

18%

28%

Wants Hand Wants TurnkeyOn Involvement Solutions

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


Cost and Quality of Provider, Lead the Decision-Cost and Quality of Provider, Lead the Decision-MakingMaking

Criteria When Selecting Retiree Healthcare BenefitsCriteria When Selecting Retiree Healthcare Benefits

1 12 58 28

NotImportant

At All

NotVery

Important ImportantVery

Important

Cost to Company

2 12 61 23Provider Quality

3 30 50 14Cost to Retirees

6 30 50 12Network Range/Scope

10 32 44 9Availability of Non-

Medicare Coverage

10 37 42 8Retiree Keeps

Current Physician

6 38 46 7Dependent

Coverage


Observations & Recommendations For Next StepsObservations & Recommendations For Next StepsCommitting to a Course of ActionCommitting to a Course of Action

Creating Metrics by Which to Creating Metrics by Which to Measure Success FactorsMeasure Success Factors



PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors


PROJECTSTART


literatureclient

documents &research











assumptions



assumptions





market





market




research findings





implementation



implementation











Go/NoGo

Go/NoGo

Go/NoGo







sponsors

9. Creation of comprehensive spreadsheet model to test all assumptions against client

ROI/ROE objectives including the sizing of the commercial

retiree market

9. Creation of comprehensive spreadsheet model to test all assumptions against client

ROI/ROE objectives including the sizing of the commercial

retiree market


What We Learned From Modeling Our Options? What We Learned From Modeling Our Options?

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.


Today’s Practice Of Co-Marketing Today’s Practice Of Co-Marketing With CommercialWith Commercial

Medicare/HMO

Commercial

Pre-MedicareRetirees

PricedSeparately

UnderwrittenTogether

• 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

PlanSponsorBenefits

PlanSponsorConstraints


Combined With Medicare/HMOCombined With Medicare/HMO

Medicare/HMO

Pre-MedicareRetirees

Commercial

• 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

PlanSponsorBenefits


UnderwrittenSeparately

UnderwrittenTogether

Vertically Integrated DownwardFrom A Successful Brand


Promoted As A Standalone Retiree ProgramPromoted As A Standalone Retiree Program

Medicare/HMO

e.g., “Medicare/HMO

Lite”

Commercial

PricedSeparately



• 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

PlanSponsorBenefits


A program separate from both commercial & Medicare/HMO Lines


Program Suggestions To CreateProgram Suggestions To Create The “Ideal” Retiree Health Plan 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 careTie-in to at-home careSimplified Rx serviceHospice careHearing aid and vision care

Source: WCG Commercial Employer Retiree Health Focus Groups


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

CriteriaCriteria

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


The Number of Employees of Mid to Large Size Companies The Number of Employees of Mid to Large Size Companies Appears To Be A Better Leading Indicator for a Retiree Healthcare Appears To Be A Better Leading Indicator for a Retiree Healthcare

Sales Opportunity, than Annual Revenues of Those CompaniesSales 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


Next Development Steps Hold Little Risk And Should Be Next Development Steps Hold Little Risk And Should Be PursuedPursued

PrimaryPrimaryResourcesResourcesRequiredRequired

UnderwritingFinance

Marketing

Marketing Sales Sales UnderwritingMarketing

Finance

CreateUnderwriting

Model(s)

PackageConceptProgram

IdentifySelect Group of

Target CommercialEmployers and

Consulting Firms

ExposeConcept

RefineAs AppropriateOr Terminate

Initiative


What We Learned From Our Development Process? What We Learned From Our Development Process?

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.

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