Health plan operators have Jan. 1 circled on their calendars.
That’s when the federal Medicare system rolls out its new prescription drug benefit. The move stands to help Medicare recipients,seniors who have had to buy supplemental insurance or pay for drugs themselves in the past,by providing pharmaceutical coverage for the first time.
Health plan operators active in the Medicare market also should benefit from the new drug plan via new policies they’re set to launch.
Consider PacifiCare Health Systems Inc., a longtime Medicare HMO player that’s in the process of being acquired by UnitedHealth Group Inc. for more than $8 billion.
“If you’re going to be in healthcare, you’re going to be in the senior business,” said Kathy Feeny, the Cypress-based company’s executive vice president who oversees Secure Horizons, PacifiCare’s Medicare unit.
Besides the much-touted drug benefit known as Medicare Part D, PacifiCare’s initiatives include a newly launched private, fee-for-service Medicare health plan, Feeny said.
PacifiCare also is using insurance brokers in addition to its direct sales staff to sign up new seniors, she said.
It wasn’t long ago that Medicare was considered a liability for PacifiCare. Earlier this decade, Wall Street frequently fretted about the company’s dependence on the federal healthcare plan for senior citizens.
That’s changed since President Bush signed the landmark Medicare Prescription Drug Improvement and Modernization Act of 2003, which earmarked some $14 billion worth of funding to Medicare plan providers such as PacifiCare.
Providers have benefited from higher reimbursement rates for treatments, while Medicare recipients get drug coverage. UnitedHealth likely was drawn to PacifiCare’s Medicare business, some analysts said.
“Considering the aging demographic trends in the U.S. and President Bush’s leanings toward more privatization, the (PacifiCare) merger would strategically position (UnitedHealth) to further benefit from those trends,” said K. Newton Juhng, an analyst with US Bancorp Piper Jaffray, in a research note.
UnitedHealth has about 345,000 Medicare-related members. PacifiCare has some 766,000 Medicare members in eight states.
“(UnitedHealth) is in the senior business, and they’re a formidable player, but they play where we don’t play for the most part,” said PacifiCare’s Feeny.
PacifiCare’s Prescription Solutions drug distribution unit also is seen as benefiting from the new Medicare drug benefit.
Costa Mesa-based Prescription Solutions is set to build a large distribution center in Overland Park, Kan., in part to meet expected demand from Medicare Part D.
Not every company is as excited about Medicare.
Earlier this year when the PacifiCare-United Health deal was announced, some analysts speculated whether another buyer for PacifiCare would try to outbid UnitedHealth.
Two potential health plan operators with enough heft to buy PacifiCare,Wellpoint Inc. and Aetna Inc.,were dismissed as suitors because of PacifiCare’s big share of the Medicare market.
Wellpoint and Aetna largely provide health plans to the commercial market.
WellPoint has about 1.1 million enrollees in its senior Medicare plan. But that’s just a fraction of the 28.8 million enrollees in all of its plans.
Blue Shield of California plans to stay active in the Medicare market. Blue Shield counts some 55,000 Medicare members in the state.
“They will continue to be a growing segment of our population,” said Gina Stassi, a Blue Shield senior director of product and marketing who oversees Medicare, among other responsibilities.
In 2011, the first baby boomers will turn 65, retire and become eligible for Medicare.
“We feel it’s a very important segment of the market,” Stassi said.
Stassi addressed one drawback to the Medicare market: volatility in federal reimbursement rates.
“As I look at Blue Shield of California, our margins have not changed over time, but benefits have had to be adjusted as there have been changes to what’s covered by Medicare and the reimbursement,” she said.
Rising Medical Costs
The pace of rising medical costs historically have outpaced reimbursement from the government.
“So that’s when we saw plans pulling out of the marketplace, restricting benefits,” Stassi said.
Orange County’s Medicare market is a “good business” for Health Net, said Phil Orr, vice president of Medicare programs whose office is in Huntington Beach.
Health Net has about 1 million members in its Medicaid and Medicare plans, with about 20% in the latter plan.
Health Net stayed active with Medicare earlier this decade, despite reimbursement cuts and other challenges, Orr said.
Like other plan operators, Health Net passed on the recent gains in Medicare funding to members, Orr said. Copayments have been cut.
Orr downplayed Medicare-related risk.
“I’m really optimistic,” he said.
Health Net has applied to the Centers for Medicare and Medicaid Services to introduce its own Medicare Part D prescription drug benefit.
The company wants the drug benefit to be available to Medicare members who stay either in the traditional, fee-for-service Medicare plan, or have supplemental policies, Orr said.
Health Net also applied for what’s called a “special needs plan” that would provide coverage for Medicare beneficiaries with long-term illnesses such as congestive heart failure and chronic obstructive pulmonary disease.
_________________________________________________________
Wither PacifiCare?
Observers say UnitedHealth Group Inc.’s buy of Cypress-based PacifiCare Health Systems Inc. isn’t expected to shake up PacifiCare’s local operations when the deal closes in the next six months or so.
“What we’ll find is that the changes will be more subtle,” said Holly Collins, a healthcare practice principal in the Newport Beach office of Mercer Human Resource Consulting.
“For (UnitedHealth), this will allow them to re-enter the fully insured business in California, which they’d stepped out of in the past,” she said. “The bigger benefits are for PacifiCare, I think, because this allows them to have a national network that they can provide to their members.”
Collins also said she didn’t expect any health plan rate hikes.
“There’s still enough competition so that the (premium) rates will be competitive,” Collins said.
She said rates might even fall because of the negotiating power of the combined company.
Karen Nixon, a Corona del Mar insurance broker, said she’s cautioned her clients that there may be some glitches related to the merging of the companies’ computer systems. But Nixon said she didn’t believe such issues would be enough to drive clients away.
As for PacifiCare’s local operations, UnitedHealth officials said it planned to run PacifiCare as a distinct unit under Howard Phanstiel, PacifiCare’s chief executive.
,Vita Reed
