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High Fives at HHS Over Signs of Budding Competition to Offer Medicare Drug Benefits

March 7, 2005—Spirits are up at HHS following reports that two of the nation's biggest health insurers are likely to square off next year in a Medicare drug benefits marketplace some analysts predicted would never materialize.

Both UnitedHealth Group and Aetna said they intend to offer drug coverage nationally.

HHS Secretary Michael O. Leavitt now predicts perhaps "the most competitive market we've ever seen in prescription drugs."
Saying it will offer plans "for both individuals and employers in every state," Aetna boasted it aims to play "a leadership role" in offering prescription drug plans starting Jan. 1 under the Medicare overhaul law (PL 108-173).

Part D of the law allows companies to offer benefits either through "Prescription Drug Plans" (PDPs) in the traditional part of Medicare or through "Medicare Advantage" (MA) plans in the managed care part of the program.

Aetna said Feb. 23 that it will offer drug coverage both through PDPs and MA plans. Aetna said it also intends to offer fully insured drug benefit plans to employers who want to provide drug benefits for their retirees.

Minneapolis-based UnitedHealth Group also plans to offer PDPs in all 34 regions into which Medicare has divided the Part D marketplace. That means every Medicare beneficiary in the country who intends to stay in traditional Medicare would have the option of signing up for a United PDP plan, said Tom Paul, head of United's Ovations Pharmacy Solutions unit.

The Medicare drug benefit also will be offered through United's Medicare Advantage plans, which now enroll some 330,000 Medicare beneficiaries, said Paul. United also aims to enter new markets next year with its Medicare Advantage plans and will offer the Medicare drug benefit in those areas as well.

Although a hopeful sign for the Part D program, the announcements by the two companies do not necessarily mean they will actually offer the benefits, only that they intend to do so.

Companies interested in offering Part D benefits had to file a "notice of intent" by Feb. 18 stating they plan to apply to offer drug benefits. The applications are due March 23 and qualified applicants must file bids to offer coverage by June 6. CMS plans to award contracts by early September.

Critics of the Medicare law said the competitive scheme didn't make sense because drug-only insurance plans didn't exist in the commercial marketplace. Insurers themselves challenged the viability of the plans, saying they would not generate profits. The frequency and predictability of covered expenses would make offering drug-only plans akin to offering insurance for haircuts, said one industry executive.

But business considerations other than profitability in Medicare itself may enter into a decision about participating in the Medicare private plan market. The ability to offer a company a full menu of services, including coverage for retirees, may help an insurer land an employer as a customer in the commercial market, for example.

Paul wouldn't comment directly on expected profitability, but said "it is important to offer a full suite [of products] to our customers."

Paul said he expects national competition beyond the plan provided by Aetna. United currently handles the Medigap plans the senior lobby AARP offers to its members. Medigap covers expenses not currently paid by Medicare including drug costs.

Analysts have speculated that AARP will offer a PDP, but Paul said only that the senior lobby is "exploring solutions with United HealthGroup at this time."

An AARP spokeswoman said "the board hasn't made a decision."

According to published reports and company press releases, other companies that may offer PDPs nationally include Medco Health Solutions and Caremark. Both are pharmacy benefits management firms that manage drug benefits for insurers and employers. One of the considerations pharmacy benefits managers face in deciding whether to offer PDPs is the possibility that they will end up competing with their own customers.

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