Afresh market that could be worth billions of dollars lies just over the horizon for health insurers like Indianapolis-based WellPoint Inc.
Medicare, the U.S. government program for the elderly and disabled, will add a prescription drug benefit starting Jan. 1, and it could spend as much as $60 billion next year on medicines for 30 million people, according to Bloomberg News.
But before insurers can start cashing in on this potential, they must develop their drug plans, win over some skeptical consumers, and avoid the pitfalls that have come with other Medicare ventures.
The benefits and potential for success are certainly there.
Consider, for instance, the customer base. Starting Jan. 1, all 42 million Medicare beneficiaries will have an opportunity to enroll in the program, according to Lynne Gross, vice president and general manager of WellPoint's government programs. An aging baby boom generation means more than 25 million new Medicare beneficiaries will pass age 65 and start collecting benefits over the next 20 years.
WellPoint hopes to enroll many of the million people it already counts among its Medicare Supplement or Medicare Advantage programs.
"For us, this isn't a new business; this is just adding to our portfolio of products," Gross said. "I candidly think that should be comforting to people."
There are other possibilities for more growth.
"We can also see an opportunity over the next 10 years where large employers offering retirement coverage may look for other alternatives," Gross said.
The stability a Medicare program might offer also could be another benefit, according to Matt Boice, a health care securities analyst for Carmel-based Conseco Inc. subsidiary 40/86 Advisors Inc.
"The payments are stable, you know it's going to be consistent, and they're going to make it somewhat conducive to business or they wouldn't have put this legislation through in the first place," he said. "It's got to make economic sense or the companies wouldn't do it."
The government laid out some parameters for this benefit. For starters, all people collecting Medicare benefits qualify, regardless of income.
Enrollees will pay a monthly premium of around $37 and a $250 deductible, according to Peter Ashkenaz, a spokesman for the Center for Medicare and Medicaid Services.
After that, they pay 25 percent of the first $2,250 in cost. Then they pay all of the next $2,850 in cost before catastrophic coverage kicks in. After an enrollee spends $3,600 annually, he or she then pays only 5 percent of the cost.
Ashkenaz said the drugs bought through the plan will be discounted, so the money a person spends will stretch further than it does now.
Low-income participants pay no premiums and have a sliding scale of co-payments, Ashkenaz said.
Those are the basic parameters, but all the insurance companies lining up to offer them will not crank out duplicate products. Gross said, for instance, that there's nothing to stop an insurer from offering better alternatives. She declined to discus specifics regarding WellPoint, but she did say her company plans to offer a "portfolio of choices."
"There are going to be a lot of different product offerings out there," she said.
In March, WellPoint filed plans with the Centers for Medicare and Medicaid Services to offer Medicare prescription drug plans in all 50 states. The company announced last month that it will spend $30 million on networks of pharmacies and marketing Medicare drug-insurance plans, according to Bloomberg.
WellPoint won't be alone. Hartford, Conn.-based Aetna Inc. plans to spend $50 million, and Cypress, Calif.-based Pacificare Health System Inc. will spend $12 million.
UnitedHealth Group Inc. announced in July that it plans to buy PacifiCare for more than $8 billion, a move that will help the Minnesota-based insurer triple the number of participants in its Medicare insurance plans.
As Jan. 1 and the enrollment start date of Nov. 15 draw closer, more insurers may make a bit of a rush to establish their Medicare prescription plans. Some might worry that if they don't get in at the start and establish their brand, they might fall behind, according to Jon Oberlander, a University of North Carolina medical school professor and author of "The Political Life of Medicare."
"They don't want to miss the opportunity to get in on this," he said. "Whether they stay in on it is a different question."
The Medicare prescription drug program is far from a blank check waiting to be cashed. Several variables could shape how popular it remains with insurers.
"It's attractive to get involved in the beginning, but it carries some very big risks," Oberlander said.
He pointed to the birth of Medicare in the 1960s as one example. The government started out essentially offering that blank check to cover medical expenses for the elderly and disabled. But as costs skyrocketed, reimbursement restrictions were introduced.
Oberlander thinks the same thing could happen to the prescription drug plan.
"I think they're going to get regulated; it's just a question of when," he said.
The insurers also do more than just administer this program. They will receive government subsidies for participating, but they also will assume the risk.
"It's probably different than anything the government's funded for, I think that's safe to say," Gross said.
Oberlander also noted that no one knows how many people will sign up or who might sign up.
Gross said many people believe the prescription drug program will eventually be viewed as an entitlement, something consumers expect to have, just like other Medicare coverage.
However, for that view to develop, the plan will have to answer some questions and overcome skepticism.
Indianapolis resident Sarah Zimmerman, 67, said she is underwhelmed by the Medicare plan. She gets most of her medication through a United Senior Action of Indiana connection to some Canadian pharmacies.
"[The Medicare plan is] not good enough, especially for people like me because I'm not in the low income levels that get the most help," said Zimmerman, who spends at least $100 a month on prescriptions. "I don't like paying out of pocket for coverage that I'm not sure how it's going to benefit me in the long run."
Another Indianapolis resident, Albert Freije, 76, shares her concern.
He also gets most of his medications from Canada, and he's not sure whether the Medicare plan will make a difference. Both he and Zimmerman are concerned about the middle area that makes participants pay all costs until catastrophic coverage kicks in.
"You're going to be paying Medicare for coverage you don't get," he said. "I don't know if it will help me or not."
Zimmerman, for one, has no plans to change her current purchasing habits. She believes she's saving about 40 percent by buying drugs north of the border.
"As long as Canada is an open source, I can do better," she said.