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WellPoint spends $50M to burnish brand

September 17, 2012

WellPoint Inc. is spending $50 million this year on branding work in an effort to burnish its image before the launch of health insurance exchanges in 2014. And it probably will spend just as much next year, too.

That’s because the Indianapolis-based health insurer expects the future purchase of health insurance to function more like online retailing than ever before, where brand name, along with price and convenience, win the day.

WellPoint’s Blue Cross and Blue Shield plans have one of the most recognizable brand names around in health insurance. But WellPoint is taking nothing for granted.

“As you think about 2014, you’re going to have to market in a more retail environment, something that this industry hasn’t had to do historically, and branding is going to become more relevant,” said Wayne DeVeydt, WellPoint’s chief financial officer, at a Sept. 10 talk with investors in New York.

Also, WellPoint has run simulation programs with more than 22,000 of its 34 million customers to test possible products it could sell on the exchanges. WellPoint has been evaluating what those customers valued the most: price, brand, doctors in the network and other factors.

Next year, WellPoint will pilot some of those exchange-like products in real-life tests, to see if consumers react the same way they did in the simulations. The exchanges, called for in the 2010 Patient Protection & Affordable Care Act, will be online marketplaces for insurance run by the state or federal governments.

“While simulation was done with real consumers, it’s always different when they’re actually having to make the buying decision and it’s a dollar out of their pockets,” DeVeydt said.

The reason WellPoint is taking the exchanges so seriously is that they could substantially replace the existing markets for individual and small-employer insurance. WellPoint makes more money from those customers than from large employers because it actually takes on the financial risk if the cost of individuals’ or small employers’ claims spike.

So-called “fully insured” customers make up the lion’s share of WellPoint’s profits, even though they account for only 40 percent of its revenue from non-government sponsored programs. Large employers are typically “self-insured,” and hire WellPoint only to negotiate discounts with doctors and process patients’ claims.

That will make WellPoint more vulnerable than most big health insurers when the exchanges launch in 2014. Insurers will no longer be able to charge unhealthy individuals and companies significantly higher premiums, and its overhead for those customers is now capped at 20 percent of premiums.

So to keep its profits from plunging, WellPoint must gain a big chunk of the 24 million Americans predicted to flood into the exchanges.

“You’ll see [profit] margin compression, and then you’ll offset some of that compression with the new members that are coming in to the system,” DeVeydt said. “But net-net, we believe that's the bucket that will be slightly backwards and down in year one, and then you’ll kind of grow off of that.”

 

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