A New Prescription

In the midst of recent controversy surrounding health maintenance organizations covering Medicare beneficiaries, HMOs are stepping up their use of direct marketing.

On one hand, these organizations are looking for more effective ways to reach target audiences in the face of growing competition. Others are seeking ways to cut marketing costs recent reductions in government subsidies have reportedly forced on them. At present, these organizations cover about 6.5 million of the total pool of 39 million Medicare recipients.

Medicare HMOs have become very popular with beneficiaries for several reasons, such as their coverage of prescription drugs, something lacking from standard government issue Medicare. But in the last two years, the government has cut back its subsidies to these HMOs, leading many insurers to unilaterally drop Medicare patients reportedly because they’re not profitable. This prompted President Clinton to call for a massive nationwide “targeted” information campaign to inform these newly uninsured that the government will act promptly to get any them quickly enrolled in another plan. Clinton brought in the American Association of Retired Persons (AARP) and several other organizations to assist him in this effort.

Just the same, Medicare HMOs and other insurance plans are seen as a big growth area for direct marketing with relatively low penetration. One big DM advocate is Peoples Health Network, in Kenner, LA, outside New Orleans. The company, which already spends about $2 million a year on DM, wants to raise its direct mail and telemarketing proportion to 50% of its total marketing expenditures, 30% of which would be DR print and television This is all being done in an effort to keep the cost of generating a lead down to $100 and converting that lead down $500.

At deadline, Peoples was set to embark on a multi-pronged direct response print and mail effort to reach the local market, which numbers in the hundreds of thousands for Tenet Choice 65, which, in addition to hospitalization and doctor visits, covers prescription drugs-something standard government issue Medicare reportedly doesn’t.

Dan Thomas, Peoples’ marketing director is also trying out a seemingly unusual strategy in this case: DR space ads in a number of decidedly small but responsive publications like church bulletins and other small circulation publications, something he’s able to do thanks to an advertising database system he developed. This allows Peoples to store, save and send veloxes of ads of several different sizes to different publications along with checks. Thomas asserts this method, while cumbersome, was effective for marketing medical insurance to self-employed people in a previous job.

Peoples maintains a database of 158,000 customers with information on their ages, sexes, incomes and buying habits. The company wants to grow to about 200,000 names and serve as a model to use in other states.

Part of the reason why HMOs and other insurers are using more direct marketing is that the Healthcare Finance Administration (HCFA)-which reimburses insurers that cover Medicare beneficiaries-cut back its subsidy from about 5% of the costs of total care to about 2%. This was tacked onto the Balanced Budget Act of 1997 and is seen as the most profound revision in Medicare since its inception in 1965.

At the same time,; the HCFA is phasing in changes for private Medicare insurers (mostly HMOs) that only allow them to sign up new clients for a single three-month period, probably at the end of the year. Currently, Medicare beneficiaries add or drop insurance plans on nearly a monthly basis. By 2001, this phase-in should be complete.

This change in policy is leading at least one company, Dallas-based Cigna Healthcare, to consider eliminating salespeople altogether and relying entirely on direct marketing, says assistant VP of government affairs Paul Carter. But Peoples’ Thomas was not quite so sure about this as his company still uses its sales force or “benefits advisors” to close sales.

To market its HMOs, Cigna runs DRTV spots followed by mailings in 50,000-piece bunches per month in Dallas and Houston, where about 400,000 seniors live. The lead generation mailings usually get around a 1.5% to 2% response.

Cigna has been selling Medicare HMOs since 1982 in about 16 markets nationwide. It entered Dallas and Houston in the last two or three years because it recognized an opportunity emanating from the markets’ growing seniors population. So did Aetna US Healthcare, NYLCare, PacifiCare, United Healthcare, and local HMO Harris Methodist Hospital, which Carter concedes made these markets all the more competitive.

To deal with the same HCFA-generated and competitive problems, Ty Tabor, marketing manager at Kaiser Group Health in Washington State, has increased its mailings over the past two years but cut back its coverage area from about 13 counties to about six, while still spending close to $2 million a year on DM.

Late last month, the Clinton Administration began implementing its plans regarding the Medicare HMOs. While not all final plans were ready at deadline, some of these groups said they’re using Web sites and newspapers to spread the message. For example, the HCFA late last month began running on its sites (www.hcfa.com and www.medicare.com) lists of all the insurers who had dropped Medicare coverage.

The AARP, ever sensitive to telemarketing fraud against the elderly, ruled out any phone contacts, relying on its magazine Modern Maturity and monthly newsletter, according to senior lobbyist Tricia Smith.

The National Council on the Aging, which works with more than 2,000 senior centers across the country, will publicize the Medicare HMO situation in its newspaper, and may launch an inbound 800 number or mail campaign “just as soon as we can figure out what the government is saying,” says legislative assistant Victoria Wagman.

Despite HMOs dropping Medicare beneficiaries, the niche still represents a fertile field for DMers.

“There’s still only about 15% penetration of the Medicare market and it’s worth hundreds of millions,” says Jay Klitsch, senior vice president at Langhorne, PA-based DR agency DiMark.