MCOs use drug plans to attract seniors

December 1, 2005

One reason so many insurers and health plans are sponsoring Medicare prescription drug plans (PDPs) is to attract traditional Medicare beneficiaries into the Medicare Advantage (MA) program. While there is considerable uncertainty about how stand-alone prescription drug plans (PDPs) will fare, insurers are willing to invest in the new drug coverage program to expand enrollment in local Medicare HMOs and PPOs, as well as new regional PPOs designed to attract seniors fearful of managed care.

One reason so many insurers and health plans are sponsoring Medicare prescription drug plans (PDPs) is to attract traditional Medicare beneficiaries into the Medicare Advantage (MA) program. While there is considerable uncertainty about how stand-alone prescription drug plans (PDPs) will fare, insurers are willing to invest in the new drug coverage program to expand enrollment in local Medicare HMOs and PPOs, as well as new regional PPOs designed to attract seniors fearful of managed care.

Almost 6 million elderly beneficiaries-14% of Medicare patients-now belong to MA plans. Both government and private analysts expect that number to double to 12 million by the end of the decade, with some projections much higher as seniors opt for MA plans with drug benefits (MA-PDs). At the National Medicare Rx Congress in Washington last month, Dale Wolf, CEO of Coventry Health Care, described the Medicare prescription drug program as the "largest jump-ball opportunity in a generation" for health plans to expand.

CHEAP DEALS

Such results rely on MA plans offering lower out-of-pocket costs for seniors. "HMOs will be the cheapest option," pointed out Tom Scully, former head of the Centers for Medicare and Medicaid Services (CMS), because some FFS patients will end up paying $300 a month in premiums when one adds up fees for Medicare part B, Medigap and a PDP plan.

While many seniors initially may decide to join a PDP in order to keep their current doctors, MA-PDs will be more cost-effective, noted Bob Atlas of Avalere Health. MA plans are able to spread administrative and marketing costs over a broader revenue base and can manage drug usage better through provider networks. The average MA-PD premium for the coming year is $19 per month, compared with an average of $37 per month for PDPs. Moreover, one-third of MA-PDs are offering zero-premium drug coverage options. In addition, some MA plans are offering extra benefits plus extended drug coverage (usually for generics) for seniors that exceed the basic benefit.

SCUTTLING STABILIZATION

The bright outlook for MA plans could dim considerably if pressure to cut Medicare spending prompts Washington policy makers to squeeze MA payments, as has occurred in the past. Critics of managed care point to higher payments to MA plans (107% of prevailing FFS rate) as the reason plans can afford to reduce premiums.

In fact, Congress already is proposing to eliminate the $10 billion "stabilization" fund established to support PPOs in rural areas. Senate Finance Committee chairman Charles Grassley (R-Iowa) says that heavier-than-expected competition makes the emergency fund unnecessary, and that cutting it provides a good way to reduce government spending in order to finance Hurricane Katrina relief efforts.

The managed care community strenuously opposes such action: "Now is not the time to change signals," protested Karen Ignagni, president of America's Health Insurance Plans (AHIP). With significant attrition predicted in the crowded PDP and MA-PD markets, signs that the government will not remain a strong business partner could undermine the MA program before it has a chance to grow.