Insurers Make Bids for Medicare Drug Plan

Despite fears that private health insurers may shy away from participating in Medicare’s new prescription drug program, the federal government has received bids from enough companies to assure Medicare’s 42 million beneficiaries of a wide range of choices when the program starts up next year, industry and government officials say.

Industry officials say 10 major insurers have submitted bids to offer plans in all 50 states, and a number of other companies are competing to provide benefits in various regions of the country.

Medicare spokesman Gary Karr said the agency was not ready to release specifics, but that it was “getting a robust amount of interest from prescription plans.”

Under the prescription drug program, created by Congress as part of larger Medicare overhaul legislation, the government will approve plans offered by private companies to provide medicines at reduced prices in exchange for monthly premiums and co-payments. Plans may vary in their costs and benefits. Low-income recipients can receive government assistance with the costs.

This week was the deadline for companies to submit their offers. Medicare has until Sept. 14 to pick those it will approve.

Insurers who win government approval are to begin marketing their plans in October. Elderly and disabled beneficiaries can sign up beginning Nov. 15 for outpatient drug coverage that starts Jan. 1.

Separately, Medicare announced Friday that “all or substantially all” drugs in six key categories must be provided by the private plans that will administer the prescription benefit. These include cancer drugs, HIV/AIDS medications, antidepressants, antipsychotic drugs, anticonvulsive medications for epilepsy and other illnesses, and immunosuppressants, including those used by organ transplant patients.

The agency’s ruling was intended to reassure advocates who feared that some seriously ill patients could be denied access to costly medications. But it is unlikely to dispel all the concerns.

For example, drugs introduced after Jan. 1 in the six categories will not be subject to the same requirement. Each plan’s provider will be able to evaluate such new drugs and judge whether to offer them.

Nonetheless, the fact that insurers are flocking to enter the new Medicare program underscores demographic and economic realities. America is graying as a nation, and the elderly are the biggest consumers of prescription drugs.

Though many Democrats and some advocates for the elderly complain the drug benefit comes with onerous cost-sharing requirements, insurers are clearly motivated to get a piece of a program that is expected to spend $724 billion over the next 10 years.

Companies “want to become involved and equated with the program so they don’t get left behind in years to come,” said Mark Merritt, president of the Pharmaceutical Care Management Assn., a trade group representing drug plans used by many large employers for their workers.

Competition among insurers could work to the advantage of the government and elderly beneficiaries.

Many companies are proposing a range of coverage options. Though the different plans would have the same insurance value, they could be tailored to suit the preferences of individual consumers.

For example, seniors who are willing to pay somewhat more out of pocket, or limit their use of brand-name drugs, could get a plan that would shrink the standard plan’s $250 annual deductible.

“We can lower premiums, eliminate the deductible and offer better drug coverage options that will allow seniors to select for themselves,” said Howard Phanstiel, chief executive of PacifiCare Health Systems Inc., which is bidding to become a national provider.

Phanstiel said PacifiCare was proposing to offer five options, ranging from a plan for people who don’t need many medications to “a very rich design for those who haven’t met a drug they don’t like.”

Seniors who sign up for Medicare coverage will save about $465 on prescriptions next year, according to a congressional analysis. For the typical middle-class retiree, Medicare will pay about 75% of the monthly premium, with the beneficiary’s share averaging $37.

The Bush administration believes that competition among private plans will help rein in drug costs, though some experts say a proliferation of choices may prove confusing. Dozens of providers have been offering Medicare discount cards until the new benefit takes effect, but the response among beneficiaries has been lukewarm.

“With more choice, seniors have a better shot at finding a plan that meets their needs,” said Patricia Neuman of the Kaiser Family Foundation. “But too much choice can also be paralyzing. There is a concern that too many choices could create a ‘deer in the headlights’ phenomenon.”

Eric Elliott, president of Aetna Pharmacy Management, said he expected that seniors in most parts of the country would have about 10 plans to choose from.

Some industry officials expect Medicare to simplify things by whittling down the number of bids it approves. And retirees who already have drug coverage through a former employer, or those who are enrolled in a health maintenance organization, probably will not have to switch plans. The new benefit will be incorporated into their existing coverage.

The rush of insurers looking to sign up Medicare beneficiaries may not last if the plans prove unprofitable. It’s a gamble that involves a great deal of uncertainty.

“We don’t know if the day we start marketing we’re going to get 100 calls or 1 million,” Phanstiel said.

“The real years to watch are 2007 and beyond,” said Merritt, of the drug plans association. “While there is certainly an opportunity here, there is also risk. There are a lot of setup costs for companies, and they may find out after some time that it isn’t what they expected. This is a brand new market that has no track record.”

But Elliott, the Aetna executive, said major insurers were likely to remain with the program.

“It’s almost like a long-term investment, and we’re taking a long-term view of this,” he said. “We are hearing from the government that they have a commitment to keep this program viable, and because of that, we are absolutely committed.”