Posted At ZWire

BY : Stephen Singer

Seniors on Medicare are about to be swamped with choices as the federal government enacts a massive prescription drug program and health insurers begin battling to sign up customers across the country.
Federal health officials will formally announce this month which companies will participate, but some insurers jumped the gun by announcing Wednesday that they have been chosen. Initial estimates project that Medicare Part D, part of the greatest expansion in Medicare's 40-year history, will cost nearly $400 billion over 10 years.

It promises to be an earnings bonanza for the nation's largest health insurers, according to Goldman Sachs & Co. The investment firm estimated in July that the prescription drug program will generate as much as $10 billion in revenue and $250 million in earnings next year for nine large insurance companies.

Insurers already are spending millions to ramp up marketing campaigns and prepare for the formal rollouts of their programs, even if the system is designed to invite competition and hold down costs. Aetna Inc. in Hartford and PacifiCare Health Systems Inc. in Los Angeles are each spending $50 million, Humana will spend $80 million, Cigna HealthCare in Philadelphia is spending up to $40 million, Indianapolis-based Wellpoint has committed $30 million and UnitedHealth Group Inc. said it will spend $75 million.

"I know I sound like Pollyanna, but the theory is capitalism says that people will have higher value (and) lower price or they won't be very successful in the private marketplace," said Scott Latimer of Kentucky-based Humana Inc. "I certainly expect that's going to be happening in spades next year."

Medicare beneficiaries will be able to sign up for a stand-alone drug plan or join a health plan that offers drug coverage. Goldman Sachs projects that nearly 17.5 million seniors _ about 41 percent of those eligible to participate _ will enroll in the drug plan in 2006.

Premiums for the drug program and Medicare Advantage, which offers a range of health plans, are estimated at $32 a month, according to a spokesman for the federal Centers for Medicare and Medicaid Services. Premiums could be as low as $20 a month for the drug program.

Participating seniors will spend an average $792 for prescription drugs in 2006, excluding premiums, or 37 percent less than the $1,257 cost without the benefit, according to a July 2004 report by the Congressional Budget Office.

Contracts were sent recently to insurance companies bidding for the business nationally and locally. The insurers and CMS are not giving details about the terms of the contracts, but Torchmark Corp. said Wednesday that its United American Insurance business plans to market the plans to its existing 300,000 Medicare supplement policyholders and other Medicare beneficiaries.

Wellpoint, Aetna, PacifiCare, United Health and Cigna HealthCare, a unit of Cigna Corp. in Philadelphia, are all seeking to offer drug benefit plans nationwide. Humana wants to offer its products in 46 states.

Several insurers _ such as Pacificare, Aetna and UnitedHealth, based in Minnetonka, Minn., _ expect to rely on some form of pharmacy business they are already running.

Marketing the large and confusing drug program to seniors will be among the major challenges facing insurers. Federal rules prohibit sales campaigns from starting before Oct. 1. Enrollments begin Nov. 15 and coverage starts on Jan. 1.

"I think the risk is that there will be information overload and many people who will be able to benefit from this product will be confused by the array of choices," said Susan Rawlings, Wellpoint's president of senior services.

UnitedHealth Group, the nation's second-largest health insurer, struck a deal to put the AARP's name on United Health's main Medicare drug offering and it placed educational booklets in pharmacies. The booklets carry the company's logo, but do not steer seniors toward UnitedHealth offerings.

Aetna has established relationships with CVS Corp. and Rite Aid Corp. to provide prescription information, and Humana dispatched a fleet of recreational vehicles to publicize the prescription drug program and answer seniors' questions. Ten RVs will make nearly 500 stops by the end of October in 300 cities.

Gaps in the program pose problems for seniors who will participate. Those who obtain drug coverage through a stand-alone plan in 2006 will pay an estimated $35 monthly premium with coverage for 75 percent of costs, after satisfying a $250 annual deductible. Costs will be covered up to $2,250, where the plan stops paying benefits until costs reach $5,100, then the plan resumes paying 95 percent of remaining costs.

PacifiCare will offer several plan designs including coverage intended to eliminate the gap, known as the doughnut hole, while Aetna will provide some generic drug plans to close the gap.

Rawlings of Wellpoint said the regulations make it "very difficult to fill the doughnut hole completely." Wellpoint will likely have plans that provide some coverage in the gap, she said.

Insurers are divided on whether the federal government will try to limit money-making by insurers. Opponents to the legislation criticized it as a giveaway to insurers and drug companies.

Frank McCauley, head of retiree markets at Aetna, said he does not believe the government will step in to prevent excess profits.

Humana's Latimer said the burden is on insurers to serve seniors and keep costs down.

"Clearly in the long term, if the private sector can provide the right value for the members and do a better job limiting the inflationary trend, these products have a good future," he said. "If we fail to do that, it's likely the government will intervene."

As complicated as the program is for insurers, the complexities may daunt seniors who may come to rely on the low-cost drugs.

"The benefit of having 10 or 15 competitors is great choice and lots of information," Wellpoint's Rawlings said. "The downside, of course is 'My Lord, there's so many choices, I might freeze.'"