Providing Health Insurance and Care to Hispanics: The Profitable Solution
Thomas Federico
Poverty & Prejudice: Breaking the Chains of Inner City Poverty


Summary of Research

This paper examines the potential profit opportunities in creating and marketing health insurance services to domestic Latino populations. Currently no major health insurance plans, such as HMO plans, are specifically tailored to serve the needs of Hispanic consumers. This status quo reflects several prevalent thought paradigms among modern business leaders. First, the perception exists that because of its lower median income level, the Latino population provides less profitable and less reliable clients than other ethnic groups, such as whites and Asians. Second, because of cultural concerns such as language barriers, Latinos seem much harder to attract and serve as customers than mainstream Americans. As a result, many businesses-including those in the health care industry-have not yet developed specific initiatives to target the Hispanic market.

The research done for this paper serves to refute many of the popular myths surrounding Hispanic consumers. Unlike what many business leaders believe, the domestic Latino population represents a huge and rapidly growing source of disposable income. When targeted effectively, using techniques such as Hispanic marketing, this population promises to bring businesses handsome profits. Businesses on the forefront of targeting Hispanic populations can not only reap short-term rewards, but can also competitively position themselves for sustained future growth, given the dramatic increases in Hispanic population and purchasing power predicted to come over the next 25 years.

Several characteristics of the health care industry make it a favorable one for establishing Hispanic-targeting services. These characteristics include the following:

· The inability of current health care providers to meet the needs of the Latino population

· The trend toward consolidation of physical facilities to decrease cost structure

· The dependence upon initial rapid growth in customer bases to help offset the tremendous costs of building, buying, and operating physical facilities

In addition, the successes of publicly-funded pilot projects in ethnic-focused health care validate the feasibility and profit potential of a Hispanic-focused business model. The opportunity therefore exists for a pioneering player in the health care industry to address the incredibly promising, yet latent, market for Latino-tailored health insurance. More importantly, this strategy would not only serve to reward shareholders, but would also help in insuring a major segment of the 40 million-plus American residents who live without health care.1

 

 

Hispanic Market Potential

The Hispanic American population is large and growing at a breathtaking rate. This population-which primarily includes people of Mexican, Puerto Rican, Latin American, and Spanish descent-is currently the fastest growing minority group in America, and is predicted to hold this title at least through the year 2015.2 In 1997, 30 million Latinos officially resided in the United States, a number which represents a 20% increase over the 1993 population.3 By the year 2008, Hispanics are predicted to be the nation's largest minority group.3 In the 1990's, they will account for 40% of U.S. population growth, partly as a result of the average yearly influx of 350,000 Hispanic immigrants.4

With this population boom has come a disproportional increase in purchasing power. In fact, employment opportunities in the United States, coupled with a strong cultural work ethic, are effecting increases in aggregate disposable income for Hispanics that far outpace the singular effect of population growth. The aggregate purchasing power of the Latino population-which totaled $348 billion in 1998-is expected reach nearly $1 trillion by 2010, which would represent an increase of 287% in just 12 years.5

Besides its size and projected growth rate, the Hispanic market also serves as an attractive target because of population concentration. On account of the cultural importance of families and communities, many Latinos have congregated in certain geographical areas of the United States. These areas, termed as Designated Market Areas (or DMA' s) in the world of Hispanic marketing, include six major urban localities: Los Angeles, Miami-Fort Lauderdale, New York, Houston, and Chicago.6 This clustering effect, together with the community-based culture of the Hispanic population, helps marketers tremendously in executing promotional campaigns aimed at Latinos.

 

 

Hispanics and Health Care

Despite their economic success in the United States and the $49 billion they spend each year on health care, Hispanic Americans nevertheless make up a large proportion of 40 million-plus Americans who currently lack health insurance.5'7 This discrepancy clearly warrants investigation. However, it first helps to review the status quo of health insurance in the United States.

The United States health insurance industry has seen many changes in both structure and policy in recent years. In terms of structure, rising costs of health care in the non-socialized system sparked a drive to consolidate services and reduce operating costs. This drive has resulted in the emergence of HMO' 5, or Health Maintenance Organizations. These organizations primarily attempt to control costs by consolidating facilities, restricting the number of doctors a patient can choose to see, and attempting to migrate much specialty care down to the primary care level.8 Regarding policy, major bills such as ERISA, the HIPAA, and COBRA have recently been passed into law. These bills seek to protect many Americans' rights to health insurance in an environment where often-unscrupulous insurance providers are pinching every penny.9

The current options for health insurance in the United States include HMO's, Indemnity Plans, Preferred Provider Organizations (PPO's), and Point of Service Plans (POS’s).10 These plans differ in terms of pricing-mainly offering different schemes of fixed payments and pay-per-usage fees-and the flexibility offered in choosing doctors. The most popular source of obtaining health insurance in the U.S. is through employers; of the 250 million-plus people who received health insurance in 1998, 120 million received it through their jobs.11

Despite the efforts to make health care more affordable, little progress has been made, and the U.S. health insurance system is currently experiencing serious problems. In short, HMO's have failed to make significant strides in reducing health care costs due to frequent mismanagement. 12 Premiums for all types of health insurance plans have risen consistently over the past decade, and these increases are expected to accelerate in the next few years.11 Between 1989 and 1996, the average amount an employee had to contribute for family coverage m an HMO nearly doubled, to $1,778 per year.11

Such is the situation that Hispanic Americans face in trying to obtain health insurance in the United States. Research finds that the working American middle class-of which Latinos are a large part-has suffered the most from increases in health insurance premiums. To avoid paying rising health care costs, the employers of many middle-class workers are increasingly hiring on a contingent basis only. In fact, contingent workers currently account for 10% of the U.S. workforce and over 17% of all uninsured workers. 13 This practice has been especially common within the retail trade and construction sectors, m which Latinos often work.11 Although individually-purchased health insurance is an option for these workers, these plans can cost up to twice as much as employer-sponsored plans.11 As a result, 32.2% of construction workers and 30.0% of the workers in retail trade live without health insurance. 13 These workers are caught in a trap; they make too much money to qualify for public health care assistance, yet they cannot afford to spend upwards of 20% of their disposable incomes on health insurance.

Hispanic Americans also face several challenges in both obtaining health insurance and receiving proper health care that are more specific to their culture. These include:

"Last year I was involved in a car accident, and sustained some heavy head injuries, and my ear was partially detached. When I arrived at the hospital I was put into a room, and left there for hours with no painkillers, despite calling out in pain. It wasn't until my spouse and others arrived that I was given attention, including reattaching my ear. I continued to have tremendous pain in my head and they still released me. The next day the pain became unbearable and I had to return to the emergency room. I can't help but wonder if a white person would have been treated in this same way."14

In his February 21, 1998 radio address to the nation, President Clinton acknowledged ethnic disparities evident in the U.S. health care system. "Nowhere are the divisions of race and ethnicity more sharply drawn than in the health of our people," Clinton stated. He went on to point out that Hispanic rates for diabetes are twice the national average, and that discrimination due to cultural differences plays a large role in why Latinos are less likely than whites to be routinely tested for disease. 15

The combination of all of the forces above has profound effects on the Latino population's spending on health care. In 1998, U.S. residents of Hispanic origin spent 40.1% less than their Caucasian counterparts--$l,167 per person per year compared to $1,950 for whites.2 This discrepancy occurred despite the fact that Hispanic consumers annually spend more money per capita on food, apparel, beauty products, and services than whites, and nearly as much on housing.2 Clearly, a lack of income is not causing their shortfall in health insurance spending. In fact, contrary to what many business leaders may think, the typical uninsured Latino is a fine profit target: a young adult, between the ages of 19-39, who eams $20,000 to $60,000 annually. 13 So how can health insurance companies effectively sell their products and services to this population?

 

 

 

The Solution: Targeted Health Services

The answer, I propose, is to create a new breed of health insurance specifically to target and serve Hispanic consumers. In order to profitably execute such a plan, existing health insurance and care providers would have to do the following three things:

· Create new or alter existing health care facilities to be most hospitable and accessible to Latinos

· Acquire customers rapidly through Hispanic marketing and strategic partnerships

· Keep costs low by selectively targeting geographical markets

First and most importantly, Latinos must be comfortable with care facilities, and these facilities must be close to their tightly-knit communities. To achieve this goal, I suggest that health care providers either build, acquire, or partner with community health centers (CHC's) located in or near Hispanic population concentrations. These centers will provide both primary care and specialized care for select ailments that are prevalent among Latinos, such as diabetes. More importantly, providers should build and operate the centers to cater to the Hispanic culture. Examples include building family gathering rooms, establishing minimum quotas for Spanish-speaking staff, hiring staff from the community, using traditional art and colors in decorating, and even playing musica Latina in waiting rooms. These innovations, as simple as some of them sound, will accomplish the crucial milestone of making Latino clients feel as if they are truly being served.

Publicly-funded CHC's already exist, and they currently serve over 10 million people across the nation, most of whom are ethnic minorities. 14 Several success stories have chronicled the successes of ethnically focused CHC's. Two of these include the Family Health & Social Service Center (for Asian Americans) and Great Brook Valley Health Center (for Hispanic Americans), both located in Massachusetts. Great Brook, who serves mostly poor Latinos with little fluency in English, operates at near-l00% capacity and has had no problem attracting Hispanic clients. 14 It's secrets include the following:

· Implementing a culturally congruent, linguistically appropriate, and easy to understand health education system

· Employing multilingual nurses

· Composing the Board of Directors of Hispanic leaders from the local community

· Collaborating with other local leaders and participating in community events

Although publicly funded and non-profit, institutions such as Great Brook are nevertheless living proof of the rewards offered by effective Hispanic marketing and strategic partnerships. Likewise in the case of a for-profit health care provider, special tactics can be used to effectively attract Latino customers. I propose the following tactics for such a company:

Tie in to the Community. Latinos value family and community bonds far more than the typical American. Going hand-in-hand with these attitudes is the fact that 27% of Hispanic households have five or more people, compared with 11% in the general U.S. population.3 To build business, then, a Hispanic health insurance plan must serve individual, family, and community. As Great Brook proves, this can be done by soliciting community involvement at the operational level (especially in top management) and supporting community events.

Appeal to Cultural Pride. Latinos are proud of their heritage and their language. Marketers must be aware of this attitude, and exploit it in their communications and promotions. Besides just the changing facilities as described above, the health care provider should run ads in Spanish, choose the names of health plans so that they invoke positive cultural images, and print marketing literature in traditional colors.

Segment the Market. The Hispanic population of the U.S. is made up of many sub-segments, from Puerto Ricans to Cubans to South Americans to Europeans. The health care provider must therefore tailor its services and marketing based on local and regional demographics--not just national reports of consumer preferences that label Hispanics as one category. "Our clients always try to test their promotional materials with all the main [Hispanici groups," says Felipe Korzenny, president of Hispanic Marketing Communication Research. "They make sure all groups understand the language and that none of them are offended by any of the language used. "3

Seek New, Non-Traditional Promotion and Distribution Channels. Many Hispanics spend their time and money is different places than whites. For instance, 51% of Hispanics in San Francisco at least once a week.3 This rate is far higher than the national average. As a result, a Hispanic-targeting health care provider should be mindful of these behavioral differences. As counter-intuitive as it may seem to the typical insurance company, it may be more effective to sell Hispanic health insurance plans through churches and supermarkets than through more traditional brokers.

Allow Alternative Methods of Payment. Nationally, less than one-third of all Hispanics hold credit cards; more than two-thirds of Americans do.4 Only 30% of Hispanics have checking accounts, compared with a national average of 6l%.~ To effectively attract Hispanic customers, the health care provider must provide an accessible means of collecting payments in the form of cash and cashier's check.

The above innovations should be sufficient to drive adoption of Hispanic-targeted health care, as the current success of CHC's like Great Brook prove. However, CHC's like Great Brook predominantly serve poor Latinos as a social service, and therefore rely upon government funding to subsist. Yet I believe a new Hispanic health care plan, with the proper services and marketing, can attract middle-income Latinos who currently have money to spend on health care. Nevertheless, in order to tap into this population of potential customers, the cost of the Hispanic health plan will almost certainly have to be lower than existing alternatives, such as Kaiser. Thus, in addition to altering facilities and services to target Latinos, the health care provider must also do a better job than of controlling costs than the competition.

Two factors will help control costs in creating and operating Hispanic-focused facilities. First, the health care provider must take advantage of the Latino population clustering effect by selectively targeting DMA's. Selectively establishing operations in cities such as Los Angeles and Houston, with high Hispanic population densities, will maximize the number of potential customers able to easily access a facility. At the same time, this strategy will decrease costs by consolidating operations. Second, using alternative promotion and distribution strategies will drive down costs as well. These strategies include selling through churches and communities (lower commissions paid out), advertising on Spanish-speaking TV stations (lower ad rates than other networks), and using the community ties of Latinos to rapidly spread word about the plan (less advertising costs in general).

In the end, I believe that a targeted Hispanic health plan, in conjunction with a more competitive cost structure, can achieve rapid and sustained profitability. With the combined effects of the above strategies, Latinos will choose to spend their money on Hispanic health insurance because (a) it satisfies their need for a culturally acceptable means of obtaining health care, (b) it offers service and support that are unparalleled by other providers, (c) it is more easily accessible and obtainable than any other plan, and (d) it is cheaper than current solutions.

 

 

 

 

Conclusions

The potential to derive profits from a Hispanic-targeting health insurance services are great. The research presented in this paper shows the large and rapidly growing purchasing power of the Latino population, and the simultaneous failure of current health care providers to capture their share of this pool of disposable income. In the coming years, the smart health care provider will recognize that the Latino population is both unique and diverse in its needs, and will unearth a buried treasure chest of profits in the process. Hopefully, the solution will not only bring profits to some, but to all Americans, in the form of more residents with health insurance and a healthier population.

 

 

 

 

Footnotes

1 National Coalition On Health Care, Policy Studies Report, October 1997. Figure quoted is for 1995.

2Hispanic Association on Corporate Responsibility.

3 What Does Hispanic Mean?, American Demographics, June 1993.

4American Demographics, January 1997.

5 1997 Hispanic Consumer Market Report, Selig Center for Economic Growth, University of Georgia.

6 Hispanic Consumers: From Niche to Mainstream, by Maria Zate. Copyright 1999 Hispanic Business.

7 U.S. Census Bureau, Health Insurance Coverage Report, 1995.

8 Navigating the Health Care System, Copyright 1998 Employer Quality Partnership.

9 General Facts on Women and Job Based Health Benefits, Copyright 1998 United States Government.

10Navigating the Health Care System, Copyright 1998 Employer Quality Partnership.

11Health Care Facts, Copyright 1998 United States Government.

12Many large FIMO's, such as Oxford Health Plans, have run into problems due to failed consolidation attempts, overly aggressive acquisition strategies, and unchecked growth.

13Policy Studies, National Coalition on Health Care, Copyright 1997 United States Government.

14 Speeches at Boston Town Hall Meeting, July 10, 1998

15 Saturday Radio Address to the Nation, February 21, 1998

 





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