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August 19, 2004
Sales and Marketing
Another Look at Healthcare Marketing
Posted by Adam Hanft at 1:28 PM
Not long ago, I did a Public Radio commentary that predicted a new era of pricing transparency. The thought is that when we buy, say, a Nike sweatshirt, the price tag will tell us how much Nike pays its workers in Malaysia who produced it. (Think of it as a next-generation ingredient label.)
Behind this concept is the reality that consumers not only want, but are demanding: the whole "product biography" and judging companies by their corporate behavior, domestically and globally. This is driven by new levels of skepticism and distrust, by the transparency we are used to getting from the Internet, and from the psychographics of both baby boomer and Gen X consumers.
One area that could particularly benefit from this approach is the health insurance industry. Health care will no doubt be an election issue this fall, once again, and when that happens the industry gets vilified. The reason we have millions of uninsured, the rhetoric goes, is because health insurance companies charge exorbitant premiums that keep poor families out.
The industry could address this by employing this very notion of pricing transparency. How much of its premium income gets passed through to its members and their doctors and hospitals, versus how much is overhead and profit? Imagine how much better consumers would feel if they understood that HMOs exist to collect premiums from everyone in order to redistribute the money to those who need it. Essentially, it's a major re-education campaign.
This is a model that the non-profit world has adopted, as scandals such as the United Way mess focused attention on what percent of a contribution finds its way to those who need it. Indeed, these metrics have become part of their messaging strategy.
As an example, on their very own website United Way writes "A vast network of volunteers and the simplicity of corporate payroll deduction keep administrative expenses low - averaging 13 percent of all funds raised at the largest United Ways. This figure compares favorably with the suggested Better Business Bureau guidelines of up to 35 percent."
In many ways, consumers view health insurance companies as having non-profit attributes and qualities, since their mission is so critical to public health. As a result, they place high demands on these companies. Which means that adopting the approach which non-profits have taken would go a long way towards shifting public opinion in a more positive direction, and offsetting the horror stories of stingy providers more interested in hoarding money than paying claims.
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I would absolutely love pricing transparency on everything from health care to Nike shirts. Too bad corporations own Washington voters.
I think Mr. Adam Hanft makes a valid point.
Although Our company is in providing Senior care services and does not market healthcare insurance, pricing transparency will still leave millions of poor families out. Health insurance companies may still charge exorbitant premiums even with transparency in plain sight. Unless the government of a cooperative group of companies work together to bring about a system that encompasses poor families little will change.
I believe that transparency may have a slight effect on pricing, since insurance companies want to be perceived as caring; but when the main motivator is profit, healthcare insurance companies will find some loophole to continue business as usual.
JayCee James, V.P. Investor Relations
Twilight Healthcare, Inc.
Mr. James,
If the primary (main) motivator is not "profit", then what do you propose it should be? From my perspective and/or from your inference, the only other choice would be for them to provide the coverage, at any cost and if I remember correctly, that is "socialism".
Even if you simply want to limit profit and try and force the companies to spend the rest of the money (excess profit) on providing service to those not otherwise covered, you are still socializing the industry.
As a VP, my suspision is you would not like to have someone dictate to you how much you can make, both personally and as a corporation. Of course, maybe you already take the portion of your salary that is above the national "average" and give it to your company so those who can not otherwise afford it's services, can receive them.
I wasn't suggesting that the industry be socialized at all. On the contrary, I don't think the industry gets enough credit for the relationship between funds taken in and funds distributed, and that more transparency would improve its image.
As noted previously, insurance companies (and the related third-party providers) are in buusiness to make as much profit as they can, and their executives and employees wnat to make as much as they can. That is the basis of a free-market society.
Currently, many doctors and other health care providers question whether they should continue that line of work, and over half of the hospitals are in significant financial difficulty- both due to reduced payments from insurers and uncollected bills from uninsured that they have to serve. Businesses are avoiding hiring new workers and trying to negotiate different benefit programs because of the high cost of health care insurance benefits. Meanwhile, most health (and malpractice) insurance providers are and have been posting record profits.
Recent articles in other business magazines have noted that a growing number of CEOs are moving toward the tyoe of nationalized health care that a former first lady and current senator pushed for a few years ago as a means of stabilizing their cost of doing business in the US. Jobs do not go overseas just for lower wages.
I agree the previous posters in that while I concur with Adam that this would be a laudable act on behalf of the insurance companies, transparency without the possibility of legal reprimands would be unlikely to reduce large profit taking. These are for-profit companies, unless we are willing to nationalize our healthcare system we need to continue to treat them as such.
JHB,
While for profit is the mantra of our great country, the cry is just as loud to "include the poor". While we will always have the poor with us; should we not make certain industries accessable to them by right to the pursuit of liberty, justice and happiness? i.e health care & education. Maybe i'm one of the few that finds myself content where I am, of course I would not have anyone dictate to me my earnings capability.
When no one cares or looks the other way you ultimately wind up the with very problems you don't want (and ignoring it makes it get worse). when economies downturn and the very people supporting high insurance premiums find themselves on the out; the insurance business suffers as a result. A great quandry indeed.
So how do we "balance" things?
First: Make a portion of the system government managed to include those not able to participate in the for profit sector.
Second: Let the for profit sector fend for itself.
The emergence of a government managed system will ultimately do two things. 1) give healthcare insurance to the less fortunant and 2) Allow those paying high premiums to choose an alternate. Remember many of the same well to do bbaby boomers supporting high premiums will find tthemselves on the other side of the equation in their retirement years. In the words of Forrest Gump "Stupid is as Studid does".
Great to see some spirited conversation about this. Perhaps you noted this week that Fidelity lowered their management fee on index funds, and ran full-page ads touting this. Fidelity, Lord knows, is a for-profit company. But they are making a very public statement about how much profit they think is fair, and how much they want to return to investors. (Of course, were it not for Elliot Spitzer they never would have done this.)
That's precisely the kind of transparency I am urging HMOs to adopt. Health insurance purchasers, like mutual fund investors, are entitled to know what percentage of their premiums falls to the corporate bottom line.
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