Boomer loyalty: Insurers draw on a little help from their friends to market pre-Medicare coverage

Health plans are marketing hard to baby boomers, a generation that was once overlooked. Insurers hope the ties they establish now with this giant demographic group will transfer to their Medicare Advantage plans later.

By Emily Berry — Posted April 28, 2008

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With marketing campaigns complete with Beatles lyrics, vinyl records and classic cars, health plans are vying for the attention of a group that, by traditional logic, should be far-from-ideal customers.

Baby boomers, by virtue of their age, are more likely to have a "few chinks in their armor" that make them seem riskier to insure, said Jude Thompson, senior vice president for Indianapolis-based WellPoint and president of Anthem BlueCross BlueShield's individual business.

But despite their age, Thompson said, the group actually is the most profitable demographic among those who buy individual policies -- and perhaps more important, they have the potential to be valuable customers for the rest of their lives.

Whichever company they choose already has a leg up in the very competitive market for Medicare Advantage products.

To win their loyalty, insurers aren't waiting for boomers to turn 65 and become eligible for Medicare. They believe it's better to start now by capturing the attention of early retirees, business owners and others who need to buy their insurance directly.

"The competition for the senior today is greater than it's ever been," Thompson said.

Health insurance in general is a "sticky" product, meaning consumers are prone to keep the status quo, and Medicare Advantage has a retention rate "north of 90%," said David McNichols, general manager of individual Medicare products for Cigna.

At least so far, boomers are brand loyal, WellPoint's Thompson said.

On average, Medicare Advantage insurers this year would be paid 13% more than the government would spend for services under the traditional fee-for-service Medicare program. Even if legislators attempt to eliminate that difference -- which the AMA has called for -- health plan executives say they still expect growth in the Medicare Advantage business segment, and any reduction in payments will take at least a few years.

As Humana's CEO Mike McCallister said: "Demographics are powerful. They're unstoppable."

Besides the simple fact of the population explosion the boomers represent -- 78 million people who need health care now and as they age -- other factors are pushing health plans for the not-yet-65 set.

For starters, more than 15% of 45- to 54-year-olds and almost 13% of Americans 55 to 64 were uninsured, according to 2006 census figures. That translates to a market of more than 10 million people. In 1987, by comparison, the number of 45- to 64-year-olds without insurance was close to 10%.

In addition, many, if not most, employers do not provide health insurance to retirees, and a growing number no longer offer it to active employees -- particularly small businesses.

"This is going to be a market that grows, and one of the segments where we have to have the right products at the right prices," said Rick O'Connor, vice president of marketing for individual products in Aetna's consumer segment.

Also, compared with other segments of the uninsured, boomers are more likely to understand the value of health insurance, and thus buy it themselves when their employer does not help, Thompson said.

That is in contrast to another group of uninsured that has won the attention of health plans recently: the so-called "young invincibles" from 18 to 24 years old, about 8.3 million of whom were uninsured in 2005.

People who are young and healthy must first be sold on the idea of health insurance before they even get to the point of choosing one company's product over another, Thompson said.

Beyond their apparent loyalty, it's hard to make generalized statements about the huge number of people 45 to 64 years old, so the products they need will vary as well.

"If you overgeneralize, you can get yourself into trouble," Thompson said.

So far, many of the boomers who buy their own insurance favor high-deductible plans paired with health savings accounts, he said.

Hartford, Conn.-based Aetna, which has an exclusive contract with AARP to market individual insurance to its members ages 50 to 64, launched a set of seven products in January with the AARP brand name, said Frank McCauley, Aetna's consumer segment senior vice president. Those are the same products they offer to other individuals: PPO plans; plans combined with a health savings account; and two "preventive and hospital" plans that cover a few office visits and catastrophic illnesses. The average monthly premium is about $350, he said.

According to a recent survey by insurance trade group America's Health Insurance Plans, during the 2006-07 survey period, the average annual premium for an individual policy for a person 60 to 64 years old was $5,090, or $424 a month. For 45- to 49-year-olds, the average monthly premium for an individual policy was $254.

Thompson said WellPoint this year will launch a product aimed at boomers who have retired early and have money set aside for health care.

It will come with a guaranteed premium and deductible over multiple years. He declined to specify for how long, but said, "It is not a low-cost product."

Got to get you into my plan

To catch the attention of the 64-and-younger group, health plans are carefully studying the huge baby boomer market, then crafting strategies around what they learn.

WellPoint, under the banner of its Anthem subsidiary, has created a suite of individual insurance products called "Open Road." Its Web site features videos with actors representing boomer subsegments, each headed by the name of a Beatles song.

"We Can Work It Out" features "Max," age 46, who describes being downsized from his architecture firm in favor of younger talent, then choosing to start a consulting business. But he needs health insurance. "Who has time to shop around for the right plan? What if we don't get accepted for new coverage? How do I know what kind of coverage I need now? Plus I don't want to put too much stress on my new business by paying more than I have to," Max says.

The marketing to pre-Medicare boomers could remind them that they need to understand their Medicare benefits and take care of their health, said Kim Holland, Oklahoma's insurance commissioner. But she said regulators are watching to ensure that insurers don't engage in abusive practices. Health plans recently have come under fire for how they have handled the Medicare Advantage and individual markets.

After complaints of abusive practices, seven companies, which represented 90% of Medicare private fee-for-service enrollment, agreed in June 2007 to suspend marketing those plans. After showing the Centers for Medicare & Medicaid Services they had adopted consumer safeguards, the firms resumed marketing in August 2007.

But in February the National Assn. of Insurance Commissioners reported that 34 states had received complaints about Medicare Advantage marketing abuses. That was almost every jurisdiction -- 34 states, the District and Columbia and Puerto Rico -- that responded to the survey. Congress has held at least three hearings on the matter this year.

Also, the practice of plans selling individual coverage is being scrutinized, especially in California, where the state has issued fines to multiple insurers accused of improperly dropping coverage after customers reported claims.

Oklahoma's insurance commissioner has testified in Congress about health plan abuses in the marketing of Medicare Advantage products. Holland said the same companies, if they choose, could have a positive role in educating consumers, particularly as they approach Medicare eligibility. According to the NAIC, only 36% of baby boomers can identify 65 as the age of Medicare eligibility, and two-thirds say they are not familiar with what Medicare options they will have when they turn 65.

"I think the federal government is transferring its responsibilities in many respects to private companies to perform a function [it] can't do or [can't] afford to do -- that is, use a marketing machine to educate the public," Holland said. "The industry does serve an important service in educating consumers. Our concern is when you push the limits."

More consolidation?

If health plans succeed in winning their Medicare customers in advance, it could mean diminished opportunity for smaller companies to compete, and further consolidation of the kind that organized medicine has railed against, experts say.

But consolidation is probably on the horizon either way, said Thomas Buchmueller, PhD, a professor of business economics and public policy at the University of Michigan's Ross School of Business in Ann Arbor.

"I'm not sure this would tip the scales," Dr. Buchmueller said. "Consolidation is the main concern for providers no matter what."

It does seem logical, he said, that boomers who have dealt with HMOs and PPOs at work will be more comfortable with them than their parents were, pointing to the potential for Medicare Advantage enrollment growth as boomers turn 65.

As of 2007, about 8.2 million Medicare beneficiaries were enrolled in Medicare Advantage plans, less than one in five of all Medicare enrollees. The Congressional Budget Office projected in October 2007 that under the current plan and contract design, Medicare Advantage enrollment would grow to 12.5 million by 2012.

"Boomers are a generation that has had two decades of direct experience with managed care," Dr. Buchmueller said. "I could see the argument for getting them into your plan sooner, because there is an awful lot of persistence in the market."

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Boomers are buying

With an eye toward future Medicare Advantage business, health insurers are gearing marketing campaigns to people nearing retirement. A 2006-07 insurance survey shows more than a third of all single policies and almost half of family policies were sold to people 45-64.

Policies purchased
Single Policies
Younger than 18 273,972
18-24 291,441
25-34 448,915
35-44 382,147
45-54 420,997
55-64 454,859
Total 2,272,331
Family policies
Younger than 18 15,434
18-24 9,821
25-34 91,785
35-44 205,764
45-54 216,824
55-64 105,954
Total 645,582

Source: America's Health Insurance Plans, "Individual Health Insurance 2006-2007: A Comprehensive Survey of Premiums, Availability, and Benefits," in pdf (link)

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How Americans 55 to 64 are insured

Although the percentage of Americans 55 to 64 years old buying their own private health insurance declined between 1999 and 2006, as baby boomers aged, the raw number in that age group buying their own insurance, and the number who are uninsured, rose.

55 to 64 year olds, in thousands
Through employer Individual purchase Government Uninsured
2006 21,701 (67.4%) 3,276 (10.2%) 6,122 (19.0%) 4,095 (12.7%)
2005 21,092 (68.1%) 3,194 (10.3%) 5,886 (19.0%) 3,826 (12.4%)
2004 20,254 (68.6%) 3,180 (10.8%) 5,478 (18.5%) 3,519 (11.9%)
2003 19,692 (69.4%) 3,051 (10.8%) 4,893 (17.2%) 3,335 (11.8%)
2002 18,844 (68.8%) 3,123 (11.4%) 4,882 (17.8%) 3,180 (11.6%)
2001 17,862 (69.0%) 2,832 (10.9%) 4,567 (17.7%) 3,054 (11.8%)
2000 16,792 (68.1%) 2,990 (12.1%) 4,185 (17.0%) 3,031 (12.3%)
1999 16,518 (68.9%) 3,008 (12.5%) 4,033 (16.8%) 2,899 (12.1%)

Source: "Income, Poverty, and Health Insurance Coverage in the United States: 2006," released 2007, U.S. Census Bureau

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