Tests Yield Right Formula for Health Plan Provider

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Mark Owen has clear goals for his company's ongoing prospecting as it markets its Medicare health plan membership.

Owen, vice president and general manager at Medica, Minnetonka, MN, expects a 5 percent response rate for the current phase of an effort in which eight direct mail formats are being used. He also seeks a 20 percent conversion rate.

Since the current phase began in February -- the third phase of an effort that started more than a year ago -- 41,000 pieces have been mailed weekly.

"In the fourth week of [the third phase] we got 1,000 responses in one day," said Owen, whose company offers health plans in parts of the upper Midwest.

The current phase is to continue as long as it generates sales. Volume and formats can be adjusted based on changes in the program's goal on a quarterly basis.

"Early indications show that it's performing as expected," he said.

Though exact conversion and response rates have yet to be tabulated for the current phase, the stakes are considerable as the plan generates monthly revenue of $91 to $110 from each member, depending on which of the two plans are selected.

"We have riders available that include two prescription riders, two dental plans, and we also have an alternative-medicine package," Owen said. "These will generate additional income above the basic medical plans being offered."

For Owen, guesswork is not part of the formula. The company has been marketing its Medicare health plan membership for more than a year to people 64 or older. The Medica program is also available for some disabled individuals younger than 65. He can trace the effort's success to its first phase, which involved extensive testing.

Thirteen variations of a direct mail piece were tested, with 10,000 of each mailed to individuals whose names were obtained from 14 lists. Most were either compiled lists or ones with direct marketing campaign responders. Owen expected response to be 1.5 percent to 1.8 percent. It was 5 percent.

"I was surprised, but it was clearly a combination of things that worked," he said. "None of our competitors in our market had done anything like this before in any serious or formal way, and also the presentation and the message resonated well."

A survey piece gave the best response, generating rates above 5 percent, and is one of the formats being used currently. The survey asks six questions, including whether they are enrolled in Medicare; whether they have supplemental coverage; and, other than price, what is most important in a healthcare plan. The final question asks whether the respondent's current insurance premium "is a good value for the benefits you receive?" Those who return the completed survey get a free information kit.

"[Our plan] allows members self-referral and going out of network to receive benefits," Owen said.

Limiting the cost per acquisition has been a critical element of the campaign.

"This type of product is typically marketed one sale at a time across a kitchen table, which is very expensive," he said.

Spyro Kourtis, president of The Hacker Group, Bellevue, WA, the direct marketing agency that conceived and executes the campaign, recalled the success of last year's test phase.

"Our testing methodology allowed us to test multiple variables simultaneously, giving Medica a cost-effective and quick way to determine what works," Kourtis said. "We tested approaches that included both long and short letters as well as different formats, including self-mailers and package mailers. Some were designed to generate a phone call, have them mail back a reply card or generate attendance at a community meeting."

After compiling results of the test last fall, phase two began and delivered results similar to the test, as 260,000 pieces dropped.

"The test gave us the confidence to move on and continue mailing," Owen said. "It would've been difficult to achieve our growth targets in the Medicare segment without direct mail. It gives us an opportunity to reach remote areas of our market in a cost-effective way."


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