Healthcare in Transition

Healthcare in Transition

Reviewing 401(k) reform to gain insight into consumer and market patterns

In the 1980s, the retirement planning industry transitioned from defined benefit plans to defined contribution plans - 401(k)s. This shift provides an excellent basis of comparison for the reforms presently occurring in healthcare. Working from several studies, especially DeCenzo and Fronstin's analysis, we compared the pre- and post-reform retirement planning markets to gain insights into potential future states for healthcare.

We paid special attention to past solutions, as well as to areas of strength and weakness that may be applicable to healthcare.

The healthcare and retirement industries share four key features, which are influential in driving consumer behavior:

Both industries have multifaceted products and complex purchase and delivery systems, which risk leaving consumers overwhelmed with options and unable to choose. 

Both industries provide delayed-benefit products, which require immediate spending for long-term gain.

Both industries must comply with strict federal and state regulations.

Both industries place the burden of knowledge on the consumer, from purchase through service utilization.

Market Segments

The analysis was done with specific consideration given to some of the key market segments in the American healthcare community: the Medicare population (65+) and the typically younger, less-educated uninsured population. We highlighted any consumer behavior trends, such as option overload, that might be more pronounced within these demographics. In addition, we gave particular attention to any regulatory efforts, such as mandated insurance consumption, which might affect consumer or provider sentiments and purchasing patterns.

Key Implications for Health Insurance Providers

Early education is key

As shown with retirement planning, consumers develop inertia once a product is selected and purchased, making it less likely that they will change products down the road. Still, providers must remain on guard against long-term dissatisfaction. Early education, new customer capture, and customer retention are vital for a successful and sustainable market expansion.

Service selection process and product packaging must be simple

This is particularly important given three factors:

  • The mandated consumption of healthcare
  • The statistically lower levels of education among the uninsured population
  • The disproportionately high consumption of healthcare among the Medicare population

As shown through 401(k) reform, if consumers are forced into purchasing, and are either unfamiliar with the system, or lack access to information through channels such as the Internet, they are more likely to feel unprepared and overwhelmed by the purchasing process. This inevitably leads to reduced satisfaction and increased consumer skepticism.

This effect is amplified by the health insurance industry's historically poor reputation for customer service. Given that the uninsured and the elderly, despite their lower levels of education and information access, will be forced into obtaining healthcare through either need or law, there will likely be an exaggerated sense of consumer anxiety and dissatisfaction within these population segments.

Plans must be outlined with relevant supporting information

When purchasing complex products such as retirement packages and health insurance, consumers must receive supporting information, not only about the products, but also about their appropriate use (e.g., the benefits of preventative care). Given the human tendency to delay expenses that do not lead to immediate gratification, consumers run the risk of passing over expensive yet comprehensive packages for less expensive but less effective packages. This, in turn, risks decreasing the overall health of the consumer pool, raising both the cost of healthcare and its future rate of consumption

Consumers must be accessed through familiar routes

Consumers typically become confused by and skeptical of products as their cost and complexity increase. Therefore, they fall back on familiar and reliable sources when making purchase decisions. A 2007 Watson Wyatt Worldwide study found that 57% of consumers rely on family and friends as their primary information sources when deciding on healthcare. According to a recent Kaiser Poll, 73% of the population has received information on healthcare reform from families and friends, and nearly 10% considers these to be the most important sources of healthcare information.

Key Findings

Similarities and shared challenges within both industries are concentrated in three key areas: consumer behavior, product design, and consumer knowledge. The key findings and suggested solutions on each of these market drivers are listed below:

Improving Product Design: The complex natures of retirement and healthcare plans, in both their product options, and their purchasing and utilization processes, increase the risk that consumers will choose poorly, and become dissatisfied over the long term. Thus, it is necessary to frame the product with clear, useful information that reduces confusion, and helps the consumer to choose the products most appropriate to their needs.

Understanding Consumer Behavior: The cost, importance, and complexity of healthcare and retirement products make consumers anxious, and diminish their long-term satisfaction. In addition, the delayed-benefit structures of both products make consumers less likely to choose packages that are more expensive, yet appropriately comprehensive.

Increasing Consumer Knowledge: Consumers need above-average education and product knowledge to understand the issues surrounding the purchase and use of health and retirement products. Moreover, studies show that, as more information is provided to patients, especially the Medicare population, the information becomes less useful in aiding the product selection process. Thus, the information provided to consumers must be selected wisely to ensure that they receive only the details most conducive to appropriate choice.

In general, this comparison indicates that, with the advent of direct-to-consumer retail sales, the health insurance industry will face a long and challenging road. It is likely that insurers will be dealing with a market marked by consumer confusion, changing consumer preferences, and increasing consumer demand.

That said, the personal retirement planning industry has shown that a successful transition from B2B to B2C can be made. Focusing on predicting trends in consumer demand, early education, superior customer service, and products that are easy both to choose and to use, will create the potential for significant expansion in the growing consumer market. This will lead to increased revenue for providers, and improved coverage for consumers. Healthcare reform that works for both consumers and providers can be achieved, if both parties take the appropriate steps to educate, communicate, and work together.

This paper covers several of the key points drawn from a comparison of the healthcare and retirement planning industries. For a more detailed analysis, please contact Ron Cappello at: [email protected] or 212-463-5101.



DeCenzo, Jodi,  Paul Fronstin, "Lessons From the Evolution of 401(k) Retirement Plans for Increased Consumerism in Health Care: An Application of Behavioral Research". ERBI Issue Brief, no. 320 (Employee Research Benefit Institute, August 2008).

Kaiser Family Foundation. Kaiser Family Health Tracking Poll, (Conducted April 9-14 2010), Washington DC: The Henry J Kaiser Family Foundation, 2010.

Watson Wyatt Worldwide. Employee Perspectives on Health Care: Voice of the Consumer. Washington, DC: Watson Wyatt Worldwide, 2007.

Harris Interactive Inc. Public Relations Research. Retirement Made Simpler Survey. Washington, D.C.: RMS, 2007. 21 April, 2010, pp B6.

McCormack, L.A., S.A. Garfinkel, J.H. Hibbard, E.C. Norton, and U.J. Bayen. "Health Plan Decision Making with New Medicare Information Materials." Health Services Research. Vol. 36, No. 3 (July 2001): 531-54.

Kutner, Mark, Elizabeth Greenberg, Ying Jin, and Christine Paulsen. "The Health Literacy of America's Adults, Results from the 2003 National Assessment of Adult Literacy." U.S. Department of Education, NCES 2006-483. Washington, DC: National Center for Education Statistics, 2006.

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