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November 2015
The Power of Persistency
Tim Lauer, Principal Consultant 

Health Plans are Gaining Competitive Advantage with Portfolio Management and Persistency Modeling

In the health insurance industry, due to the introduction of the Affordable Care Act (ACA), the age of consumer-driven health plan selection is upon us. Developing an understanding of exactly who your members are, what motivates them to remain with your health plan, and how to maintain and grow your medical book of business is critical.  With more choice than ever before, and with individual members personally paying a larger percentage of their own healthcare costs, competition for members among health plans has never been so intense.  You can't simply rely on the long-held notion that says "The more products we sell a customer, the more likely they are to remain our customer."  Instead, you must understand and control the underlying factors.

Banks and insurance companies have realized that the more products a customer buys, the greater the chance the customer will persist. Healthcare companies are finding the same thing.  This requires creating a portfolio of products that work together to complement each other, retain customers, and enhance relevance. These portfolios must appear as tightly integrated from the consumer's point of view. Understanding the interplay between products and why customers purchase them is key to being able to price packages competitively and gain market advantage. Persistency measurement provides a basis for measuring the interaction between products. When combined with retention and pricing models, it can help health plans predict and measure the impact of consumer behavior on the top and bottom line. 

Know Thy Members; Know Thy Self
The more you know about your members, the better you'll be able to serve them, which in turn means you are more likely to earn their loyalty. Persistency modeling provides the pathway to this knowledge.

Our research and experience using persistency modeling with major health plans shows that introducing ancillary benefits can increase persistency. The key is in understanding how, when, and where to add them. The size of the health plan, membership attributes, specific business channels, regional factors, timing, and types of ancillary benefits are all factors that must be considered.  Also, understanding the interaction between ancillary benefits and medical plans will help you determine which ancillary benefits are the best strategic fit for your lines of business. In the end, a relatively small investment in the right ancillary benefits can generate a surprising improvement in persistency.

Measuring Persistency and Modeling Retention
Ben Hunt-Davis is a former British competitive rower and Olympic champion. After years of disappointing results, his team (Team GB) decided to change its focus and approach things differently. They decided to focus on one simple goal, against which they would measure all future decisions. That goal was in the form of a simple question: "Will it make the boat go faster?"  They faced decisions about a wide range of things such as boat design, training, diet, racing apparel, shoes, or rowing technique. If the answer was "yes," then whatever the team was considering would be accepted and pursued. If the answer was "no," it would be scrapped as non-essential. The result of this new approach was that Team GB won the gold medal for men's 8+ team rowing at the 2000 Sydney Olympics.

Applying Hunt-Davis' approach to the health insurance industry, persistency is the "boat," and things that increase persistency "make the boat go faster."  For health insurance, persistency is measured over a time period - typically one, two, three, and four years. The criteria for measurement is intuitive: Was the customer present at the beginning and at the end of the period? If the answer is yes, then the customer persisted. For other products, persistency is measured at different times. For example, a life carrier may be interested in 7- and 13-month persistency, to coincide with premium due dates.

Every part of the value chain affects persistency, thus a laser-focus on potential impacts is critically important - just as in the Hunt-Davis example. Missteps in service, pricing, network operations, sales channel operations, etc., will end up decreasing persistency and driving up costs.  Conversely, strategic improvements in IT, digital platforms, service operations, broker enablement, and member outreach can all help improve persistency, which in turn significantly reduces operating costs and enables payers to pass on savings to their members.

Retention models use statistics and financial inputs to quantify the impact of changes in persistency. Questions like "What is the impact of one percent additional retention on the enterprise in terms of Revenue, Contribution Margin, and Enrollment?" or "Which segments of our business have the lowest retention?"  Tracking and trending retention on a quarterly basis with a running 12-month snapshot can help executives make corrections and test whether or not strategic initiatives are moving the needle.

The Need for Speed
A key advantage of persistency modeling, in addition to what it can contribute to business results, is the speed at which it can be deployed. Unlike other strategic initiatives and analytical efforts that can take months or even years to complete, a thorough and actionable persistency modeling analysis can be finished in a matter of weeks.  A properly designed program will:
  1. Build an in-depth profile of your book of medical business.
  2. Identify specific factors in your medical business that impact member persistency.
  3. Integrate your health plan's product and enrollment data with industry data to create a model that quantifies how adding ancillary benefits will impact your top and bottom line.
  4. Develop a strategic roadmap that defines which of your medical products to start with, which ancillary benefits to add first, and which sales channels are most appropriate.
  5. Define the operating model required for integrating ancillary benefits into your organization.
  6. Identify the ideal "build, buy, or partner" scenario for ancillary benefits specific to your organization's needs.
Health plans today are facing enormous challenges. In the post-ACA business environment, health insurers are under increased pressure to provide superior products and customer service while at the same time managing their operating costs and maintaining profitability. Fortunately, as the health insurance industry has changed, new strategic approaches to understanding, retaining, and building membership and profitability have evolved along with it.  Persistency modeling is an important tool for rapidly unlocking competitive advantage and creating market differentiation in today's dynamic health insurance market.

I welcome your questions and comments about improving persistency.  Please contact me at
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