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Drug Plan Approvals Reveal Big Marketing Edge for Medicare HMOs and PPOs

SEPTEMBER 23, 2005 -- Medicare beneficiaries in 44 states will have access to private managed care plans that charge no premiums for drug coverage, Centers for Medicare and Medicaid Services administrator Mark McClellan said in a telephone press briefing Friday.

McClellan's announcement of the final approval of prescription drug plans to be offered in Medicare in 2006 also made clear that beneficiaries will have a very large number of other types of low-cost drug coverage plans from which to choose.

But the announcement also aroused concern that Medicare enrollees would be confused by having too many choices. And it fueled industry speculation that many plans would drop out in 2007 and that others would sharply raise premiums.

During the debate over the Medicare overhaul law, President Bush wanted to give an edge to private health plans by requiring beneficiaries to enroll in them if they wanted Medicare prescription drug coverage. That didn't fly politically, but now the president appears to have the next best thing: a marketplace created by the law in which Medicare HMOs and PPOs will be able to lure seniors with far more generous drug coverage than traditional Medicare.

"In 1971, Richard Nixon proposed Medicare HMOs," said Alec Vachon, a former GOP Senate Finance Committee staffer. "Thirty-four years later, George Bush and Mark McClellan may be living the dream."

Friday's announcement concerned both the prescription drug plans to be offered in 2006 in traditional Medicare—called "PDPs," or Prescription Drug Plans—and those in the managed care side of Medicare, called "Medicare Advantage."

While premiums charged to those who stay in traditional Medicare will be much lower than the $35 per month many analysts predicted—McClellan said all states except Alaska will have at least one PDP charging premiums lower than $20—that's still a lot more than zero, particularly for seniors on tight budgets.

Managed care enrollment in Medicare has never been big. Of the program's 43 million enrollees, only about 5 million are in Medicare Advantage plans.

Industry analysts shy away from forecasts, but the industry is buzzing about the potential enrollment impact of managed care plans charging zero premiums for drug coverage. "It could be big," says an industry executive. "People buy on the basis of premiums, brand name," and whether their doctor is in the network.

McClellan also announced that regional preferred provider organizations would be offered in 37 states. Drug coverage offered by those plans—the first such regional plans in Medicare—could lure rural residents into the managed care side of the program for the first time.

The approvals announced Friday indicate the marketplace created by the law has answered the complaints of rural lawmakers that their residents have no access to managed care plans.

In Iowa, for example, home state of Republican Senate Finance Committee Chairman Charles Grassley, at least five Medicare Advantage plans will be offered. And in Montana, home state of the committee's ranking member Max Baucus, at least four Medicare Advantage plans will be on the menu of choices.

Too Many Choices?
The statistics released Friday on approvals obscure the fact that beneficiaries in many states may have to sort through literally dozens of choices. McClellan said 11 to 20 organizations in each state will offer PDPs. But each organization may offer up to three different coverage options.

In addition, particularly with zero premiums, beneficiaries are likely to look hard at the Medicare Advantage plans offering drug coverage. In California, for example, a total of 37 Medicare Advantage or PDP organizations will offer drug options, and in a number of cases, each is likely to offer multiple options.

Administration officials stressed the advantage of the choices that will be available. "Thanks to the range of options ... everyone in Medicare will be able to choose a prescription drug plan that addresses their individual concerns about cost, coverage, and convenience," HHS Secretary Michael O. Leavitt said.

Leavitt and McClellan also said beneficiaries will have plenty of help picking a plan, noting the agency's Web-based tools, the 1-800-Medicare hotline, and 140 networks of counselors around the country, they said.

But at least some Democrats say that's not enough. Reps. Pete Stark of California and Jan Schakowsky of Illinois urged Friday that the enrollment deadline for the drug benefit be delayed from May 15 to Dec. 31 of 2006.

"Seniors citizens and people with disabilities will soon be inundated by marketers and have to sort through 40 to 50 plans without the support of independent counselors," said Schakowsky, urging adoption of a bill sponsored by the pair to slip the deadline.

Shakeout Ahead?
Veterans of the Medicare managed care market say they were floored by how many companies stepped forward to offer drug coverage and predicted a shakeout. "There are going to be a huge number of choices," said another industry source. "A lot of this is testing the waters." Given the mass pullout plans from the Medicare managed care market several years ago, beneficiaries may decide to stick with familiar names. AARP announced Friday it will offer a drug plan nationally that charges no deductibles. Blue Cross and Blue Shield plans also see themselves as having an edge because of their decades-long presence in the insurance market.

A total of 10 companies is offering drug coverage nationally, a number of them unfamiliar names.

Because premiums are priced low next year to grab market share and because there are a large number of plans, industry insiders predict price jumps for 2007 and fewer plans.

Reimbursement is a concern too. Blue Cross Blue Shield Association President Scott Serota expressed enthusiasm about the future of Medicare Advantage but also concern about possible Medicare cuts. A $10 billion "stabilization fund" to retain regional PPOs is "vulnerable," added Jane Galvin, Blues' director of regulatory affairs.

And if Congress yanks the $10 billion, it may make plans worry that it will later cut other types of payments too.

"It's not just the dollars, it's the signal Congress sends," Galvin said.

If news breaks of plan pullouts and rising premiums in late 2006, the Bush administration could have a senior backlash on its hands moving into the congressional elections. But if plans consolidate rather than pull out entirely, the hit may be diminished somewhat, because the enrollee wouldn't have to find an entirely new plan.

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