Health Insurance

Case Study: Balancing Retention and Acquisition With Compensation Plan Alignment

Aligning Incentives With Desired Seller Behavior Helps Achieve Growth Goals

Background: The Future Requires Net New Member Growth

A Regional Blue health insurance carrier sought to increase market share and motivate their sales team to capture net new memberships that are essential for growth.

While the carrier enjoyed a high regional market share, the organization suffered from a lack of clearly defined role responsibilities, which created a sales culture that relied primarily on existing relationships rather than sales execution. As a result, the current coverage model brought high customer retention but low customer acquisition.

Upon closer review, the root cause of the lower sales productivity was a lack of a defined sales process. But despite the below-market sales productivity, the existing commission-based incentive plan paid sellers above-market earnings.

The Regional Blue engaged with Alexander Group to design a compensation plan that would drive net new customer acquisition, maintain the current retention rate, instill a pay-for-performance sales culture and offer market-competitive earning potential.

Approach: Detailed Current State Analysis

The Regional Blue set a goal of retaining at least 90% of current members. They also designed FY25 membership growth targets to include organic conversion and new member strategies.

The Regional Blue also sought to realign its Medicare Advantage Group sellers and ensure that jobs, role execution and sales compensation plans aligned with their new go-to-customer (GTC) model. The current GTC model struggled with slow turnaround time for new quotes and challenges coordinating between sales teams. The new GTC model focused on combining traditional Medicare Advantage and ACA sellers into a single role that could sell both products. This approach simplified sales plan complexity, equalized earning potential and addressed lower-than-benchmark pay levels.

Alexander Group developed a coverage model with defined sales responsibilities that supported new member acquisition goals without negatively impacting customer retention. As a first step, Alexander Group performed a detailed current state analysis. The project team reviewed existing Regional Blue strategy and initiatives, conducted interviews and analyzed pay-for-performance data, identifying areas for improvement, including:

  • Job Responsibility Confirmation. Comparing existing roles and responsibilities to compensation strategy, identifying new hunting and farming roles and junior sales roles that would drive net new membership and retention.
  • Compensation Review. Analyzing data associated with pay-for-performance, payout breakdowns, leverage and related factors.
  • Stakeholder Collaboration. Selecting appropriate client stakeholders to design a compensation plan and clear job responsibilities that supported business goals.
  • Selecting critical measures for each role that would incentivize desired behavior and reward top performers.
  • Rules of Engagement.Designing sales workflows that would ensure seamless customer interactions.
  • Strategic Alignment. Incorporating industry benchmarks, best practices and Alexander Group expertise to align compensation plans with the Regional Blue strategy.
  • Cost Modeling. Calculating cost options using appropriate TTC and pay mix options and creating plan abstracts that best fit the Regional Blue’s needs, including headcount re-alignment.

Key Findings: Incentives Drove Customer Retention Sales Behavior

Alexander Group’s analysis revealed two key insights:

  1. A high correlation (r=0.78) between tenure and incentive earnings indicated unequal earning potential, also known as a residual commission plan. The Regional Blue had previously compared their pay levels against industry benchmarks but struggled to attract new sales talent as the initial earning potential was lower than the average. The company also struggled with seller turnover with low tenure sellers since higher earning potential was limited in the near term.
  2. Over 30% of sales rep incentive earnings came from the current membership retention measure, a metric over which sellers had minimal influence. The Regional Blue wished to de-emphasize the metric, shifting the mindset and priorities of their sellers to hunting for new customers. Additionally, the incremental earning potential for new membership growth was not significant enough to differentiate the pay for top performers, adding to the misalignment between sales compensation and the company’s growth strategy.

Alexander Group worked closely with the Regional Blue to understand the root cause behind these key findings and how the future-state compensation plan could be updated to reflect future strategic goals.

Recommendations: Quota and Cost-of-labor Compensation Models

Alexander Group’s recommendations included a cost-neutral plan designed to realign the company’s and rep’s priorities, using a cost-of-labor model rather than a cost-of-sales model. Based on the assessment, it was recommended that the Regional Blue:

  • Cleary define a metric that rewards membership growth from net new customers and lower plan incentives for current member retention.
  • Transition away from monthly performance periods and move towards annual performance periods with monthly payouts.
  • Incorporate quota-based bonuses and add acceleration for overachievement of goals.
  • Provide ancillary product add-ons for other components to incentivize other product sales where opportunities exist.

The future-state model included quota-based compensation plans and appropriate metrics for each sales role. Target compensation and pay mixes aligned with industry benchmarks, unproductive metrics were eliminated and replaced with ones that targeted desired seller behaviors. As a result, the future-state plan resulted in overall cost savings that rewarded high-achieving sales reps while regulating underperformance.

Driving Growth for Healthcare Payers

Driving sales rep behavior is essential for achieving aggressive growth goals. However, without the proper alignment between strategy and incentives, achieving goals that sustain and expand market share remains increasingly difficult.

Alexander Group designs health payer compensation strategies for leading companies that will provide value, reduce cost and incentivize behaviors that drive growth. Our virtual roundtables provide a platform for industry leaders to discuss and share insights on current challenges and opportunities.


Contact Us

For more information on how to optimize your current coverage model, increase customer retention and reduce customer acquisition costs, please contact an Alexander Group Health Insurance practice lead.

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