Product Strategy in Zero or Low Premium Markets
by Richard Hamer


In this post we raise the question, “What is the best strategy when price competition is removed from markets?” We recommend using conjoint analysis to discover the menu of similarly priced benefit designs that a health plan can offer to appeal to the greatest number of people.

Price/premium used to be a primary driver of consumer decisions in health insurance. But because of government subsidies and relentless competition, many people in Medicare Advantage and Affordable Care Act (ACA) plans pay fairly small premiums. For instance, this year 65% of Medicare Advantage-Prescription Drug (MAPD) enrollees are in a plan that charges no premium ($0); and in 48 states, consumers can find an MAPD that actually gives money back, effectively offering a negative premium! 

Among ACA enrollees, 88% receive an advanced premium tax credit (APTC) yielding an average net premium of $92 (73% also receive an additional cost-sharing reduction (CSR) that steers them into Silver level plans and further reduces the impact of money on their choice).

The new American Rescue Plan Act (ARPA) extends subsidies to higher-income people and increases subsidies for lower-income people. For the ACA market, ARPA means 15 million uninsured people will be offered lower net premiums. And an additional 14 million currently insured on the individual market will see either new eligibility for, or an increase of, APTC’s.

The upshot is that premium differentials and the impact of health insurance premiums on consumer choices have been diminishing – or to state it another way, price commoditization has become prevalent. Over 100 million Americans in Medicare and ACA plans have an opportunity to be in health plans with a low-price to them. This raises the question, “What is the best strategy when price competition is removed from markets?”

When consumer options are priced essentially the same, consumer focus shifts to a search for a plan that best suits their needs. In a market where price fixation was rampant, reduction in price differences suppresses that and gives rise to the question, “Which plan is best for me?” It encourages more consumer effort to fully appreciate the range of options available. There is evidence of this: last year as net premiums continued to fall and converge, of the people renewing health plans through, 5.5 million actively shopped before enrolling compared to 3.9 million who were passively auto-enrolled in their existing plan.

In parallel to a consumer’s thinking, a health plan product management team considering preferences across a population will find price manipulation has become the wrong tool for assuring enrollment goals will be met. The situation calls for the need to understand “the heterogeneity of personal preference”.

For more than ten years, Deft Research has been a pioneer in using conjoint analysis to help health insurers create new benefit designs. Conjoint analysis is a unique market research method that allows us to capture the heterogeneity of personal preference like no other technique. For instance, using conjoint analysis, it is possible to discover correlated benefit preferences. Some examples might be: those who gravitate toward a broad network also gravitate toward a large drug formulary; or, those who accept primary care gatekeeping also accept greater use of telemedicine; or, those who are sensitive to specialty care cost sharing are attracted by supplemental benefits for home-based care.

For any health benefit package, a conjoint analysis produces a measure of the consumer value of every component benefit. Further analysis can show which benefit designs can be composed of different sets of correlated consumer preferences.

The temptation here is to call for a new market segmentation strategy. But segments are difficult to implement and often difficult for the whole team to accept. We recommend using conjoint analysis to discover the menu of benefit designs that will appeal to the greatest number of people. Optimized menus do not require assigning each prospective consumer to a segment, nor do they call for specialized marketing strategies per segment. Instead, the best strategy is to offer optimized menus and let consumers naturally pursue the task of finding one plan that suites them best. Let their choice be their segment assignment.

There is a lot more about conjoint analysis that can be discussed. Please let us know if you’d like to learn how conjoint analysis could fit into your health plan’s future.

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