Segmentation Assignment Situation Care4US (Care) is a major health insurer operating in the western part of the United States.  It is interested in entering the east coast marketplace and is trying to determine which segment of the health care market it should initially target. Care’s current market has four segments, described below: Retail:  The retail segment covers private individuals.  Care, which does not sell directly to individuals, services this market through Health Insurance Marketplaces, more commonly known as health exchanges. These exchanges are mandated under the Patient Protection and Affordable Care Act (ACA), and are usually state-run organizations offering government regulated and standardized health plans to those eligible for federal subsidies through the ACA.  States that decline to offer their own health exchanges offer this insurance through the federal program.  Care only offers insurance through the state exchanges, not the federal government, and contracts with each state in its market area offering an exchange.  There are six state exchanges Care would be negotiating with in the new market.  While many insurers initially signed up to offer insurance through these exchanges, some are finding that the regulations are making it unprofitable for them to offer insurance and are withdrawing from the exchanges.  There is limited market growth data as the health exchanges have only been in operation since they were implemented in 2014, but enrollment did grow significantly between 2014 and 2015.  Overall this market is expected to be counter-cyclical with the economy, i.e. when the economy is good and unemployment lower, more people are expected to have insurance through their employers and fewer from the health exchanges, and vice versa. Employer:  Most people have health insurance through their employers. Insurance companies offer a variety of group plans to companies and organizations, which choose the options best (and most cost-effectively) suited for their workforces.  It should be noted that under the ACA, employers with more than 50 employees are required to offer health care to their employees; those who work for employers with less than 50 employees who do not offer health care can obtain it through the health exchanges.  Care offers a variety of products to companies and organizations using its own sales force, who sell directly to employers in Care’s market.  Insurance sales to employers took a jump under the provisions of the ACA as smaller employers were forced to add health insurance for their employees; sales have leveled off since then and are expected to follow economic and employment trends. Military:  The military provides health benefits to active personnel, retirees, and dependents through Tricare, a Department of Defense (DoD) administered program.  The DoD contracts with private companies on a regional basis to provide this insurance.  Insurers negotiate directly with the DoD to be the sole Trica.

1. Segmentation Assignment
Situation
Care4US (Care) is a major health insurer operating in the
western part of the United States. It is interested in entering the
east coast marketplace and is trying to determine which segment
of the health care market it should initially target.
Care’s current market has four segments, described below:
Retail: The retail segment covers private individuals. Care,
which does not sell directly to individuals, services this market
through Health Insurance Marketplaces, more commonly known
as health exchanges. These exchanges are mandated under the
Patient Protection and Affordable Care Act (ACA), and are
usually state-run organizations offering government regulated
and standardized health plans to those eligible for federal
subsidies through the ACA. States that decline to offer their
own health exchanges offer this insurance through the federal
program. Care only offers insurance through the state
exchanges, not the federal government, and contracts with each
state in its market area offering an exchange. There are six
state exchanges Care would be negotiating with in the new
market. While many insurers initially signed up to offer
insurance through these exchanges, some are finding that the
regulations are making it unprofitable for them to offer
insurance and are withdrawing from the exchanges. There is
limited market growth data as the health exchanges have only
been in operation since they were implemented in 2014, but
enrollment did grow significantly between 2014 and 2015.
Overall this market is expected to be counter-cyclical with the
economy, i.e. when the economy is good and unemployment
lower, more people are expected to have insurance through their
employers and fewer from the health exchanges, and vice versa.

2. Employer: Most people have health insurance through their
employers. Insurance companies offer a variety of group plans
to companies and organizations, which choose the options best
(and most cost-effectively) suited for their workforces. It
should be noted that under the ACA, employers with more than
50 employees are required to offer health care to their
employees; those who work for employers with less than 50
employees who do not offer health care can obtain it through
the health exchanges. Care offers a variety of products to
companies and organizations using its own sales force, who sell
directly to employers in Care’s market. Insurance sales to
employers took a jump under the provisions of the ACA as
smaller employers were forced to add health insurance for their
employees; sales have leveled off since then and are expected to
follow economic and employment trends.
Military: The military provides health benefits to active
personnel, retirees, and dependents through Tricare, a
Department of Defense (DoD) administered program. The DoD
contracts with private companies on a regional basis to provide
this insurance. Insurers negotiate directly with the DoD to be
the sole Tricare provider in a region. Given the size and nature
of health care benefits, however, switching health care suppliers
is a difficult task. Demand for Tricare in general follows
military enlistments and employment, including recent declines
in the number of active military personnel.
Healthcare Services: Care also contracts with a variety of
health care providers to provide services under health insurance
plans, both their own plans and those offered by other health
insurance companies. These providers include pharmacies,
home based care services, occupational and physical therapy,
behavioral health assistance, and other health care specialists.
Under this model, insureds (customers of Care or another health
insurer) can use Care’s providers at a previously negotiated,
less-than-market rate, and have billing and payment handled
through Care. (Depending on their plan, insureds can generally
use other providers, but must pay out-of-pocket at often higher

3. rates.) Providers pay a fee to Care for access to customers in
any of Care’s market segments and/or those of other health
insurers. Selling in this market takes a two-pronged approach:
selling the network of providers to Care’s own segments and/or
to other health insurers, and selling this network service to
providers. Data below assumes Care is selling through other
health insurers to the healthcare services segment only, and
assumes it is not offering health care insurance to any other
segment (which would improve insureds’ access to Care’s
healthcare services network.
In general, the health insurance market is highly competitive
with few barriers to entry. Tricare aside, there are multiple
companies (including large ones like Humana and Aetna)
fighting for business in all segments, and very different sales
and marketing investments required depending on market
fragmentation. In Care’s east coast expansion case,
fragmentation will depend on the number of potential customers
in Care’s segments, ranging from being the single provider for
Tricare to the many employers who buy health insurance.
Remember that Care does not sell to individual consumers; its
customers are the states, employers, military, or health
insurance companies using Care’s healthcare provider network
(plus the need to market to the providers themselves),
depending on the segment.
There is also a high level of pricing pressure from the all
segments of the market. Offering a variety of policies (with
varying deductibles, co-pays, coverage levels, etc.) where
possible is important with plans ranging from the very basic
with high deductibles and limited coverage to “concierge” type
policies with generous benefits. While it is unclear what will
happen to the ACA politically, Americans are for the most part
in favor of some form of access to affordable health insurance.
As the Baby Boomers age and Millennials start to have families
and create their own “Echo Boom,” health care needs and

4. expenditures, along with pressures on profitability for the
health insurers are only expected to increase. As part of this
trend, use of related health care services is expected to grow as
well. Increasing use of home health care, primarily for the
elderly, insurance treatment of mental health issues like any
other health issue, and more use of non-interventional therapies
(physical therapy, alternative medicine, etc.) are resulting in
growing demand for a variety of health care services.
Care’s current data, based existing financial results and research
into the east coast market, appears below. In health insurance
financials, the benefit cost is what is actually paid to health care
providers (doctors and hospital bills, prescriptions, etc.). This
number is similar to the cost of goods sold number for a
tangible goods producer. Operating costs include sales,
marketing, and other acquisition/retention costs, the costs to
administer the policies, and other non-benefit costs associated
with running the company. All numbers are 000s.
Category
Retail
Employer
Military
Healthcare
Services
Number of potential customers
3,610
7,513
3,203
9,326
Projected market share
25%
15%

5. 100%
18%
Revenue
$15,162
$41,434
$16,143
$3,591
Benefit cost
$11,372
$28,175
$14,367
$2,872
Operating cost
$3,487
$10,773
$1,372
$431
Profit
$303
$2486
$404
$287
Assignment
In Excel:
Create a table similar to what we used in class or the example in
the text (Exhibit -7-), showing Care’s four segments across the
top, and
all
the criteria (both quantifiable and non-quantifiable) you feel
Care should use in segmenting its market. You can include
appropriate raw data from the table above, especially if you are
using it for ratings or further calculations.
To more clearly analyze the segments, simplify the data, and
make it more comparable, convert it to percentages and/or
develop some common ratios (operating, profitability, etc.)

6. Assign ratings (you can use the 1-5 scale we used in class, or
another one as you prefer) for
each criteria
you are using in segmentation (including those on which you
have or have calculated quantitative data). Sum the ratings at
the bottom of the spreadsheet for each segment.
In a separate Word document, answer the following questions.
For each of the criteria you used in your spreadsheet, describe
why you feel it would be important to Care in segmenting this
market.
Include a
brief
rationale behind your ratings, especially those for which you
don’t have quantitative data, or for those for which you have
quantitative data but for which your ratings might not be
intuitively obvious (for example, a segment with a low profit
margin that you gave a high rating to). While some of your
ratings will be obvious, I should not have to guess your
reasoning on those less so.
Which segment(s) should Care target for its entry into the east
coast market? Why do you feel this would be the best
segment(s)? Are there other factors Care should consider in
segmenting its market(s)?
Note: This assignment will require an iterative process, i.e. you
shouldn’t do the spreadsheet and then write your paper. You
may need to develop the segmentation criteria for question 2a
before starting on the spreadsheet; once you have started
working with the data available on your spreadsheet, you may
wish to add categories to your paper. Eventually, the two
should match.
Format
This assignment will be submitted to in two pieces: your Excel
spreadsheet with your answers to question 1 and your Word
document with your answers to question 2. Note that this should
be a “working” spreadsheet and include formulas in the cells.

7. No credit will be given for a non-working spreadsheet.
Grading
Question
Grade Weight (%)
1a
20
1b
15
1c
10
2a
20
2b
10
2c
15
Style*
10
*Please note that “Style” for this assignment will include a
properly formatted and easy-to-read and understand
spreadsheet. Think of this spreadsheet as part of a “deck”
you’re creating as part of a presentation to Care on its
segmentation opportunities.
NOTE:- The segmentation chart attached is for reference only ,
it is not for copying only to help format the assignment.