Healthy Skepticism Library item: 1539

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Publication type: news

Gilpin K.
The Winners in the Medicare Bill, and Why
The New York Times 2003 Dec 14

Full text:

THE Medicare bill that President Bush signed into law on Monday could be a boon for health insurers. The law contains a new prescription drug benefit, but there is much more to it than that.

Charles Boorady, an analyst who follows the managed-care industry at Smith Barney, talked last week about the implications of the legislation. Following are excerpts from the conversation:

Q. Why have you said that the bill might backfire?

A. Whether or not this backfires depends largely on how the rules are written. This is an ideological battle. This bill is a big victory for health insurers and conservatives, because it increases the viability of Medicare H.M.O.‘s and puts commercial insurance on a course toward employers scaling back health care contributions and individuals taking on the responsibility for their own health coverage.

On the Medicare side, the complexity lies in determining how to modify supplemental insurance for those who stay in the government-run program. There are 10 flavors of supplemental insurance that are currently offered. The drug part, Part D, adds another. The challenge will be to see how they can modify the supplemental insurance to take advantage of Part D.

Q. What recommendations are state insurance commissioners likely to make about changes in supplemental insurance, commonly known as Medigap?

A. Some state insurance commissioners are happy to see Medicare get as complicated as possible, because some states benefit from Medicare H.M.O.‘s, and others don’t.

Insurance commissioners from rural markets would not prefer Medicare members move toward H.M.O.‘s, because Medicare H.M.O.‘s don’t exist in their markets.

How Medigap is structured will have a big impact on whether seniors leave Medicare for H.M.O.‘s or if seniors in Medicare H.M.O.‘s move back into Medicare. This law tries to close the gap by finding ways to provide prescription drugs in all markets. But there will still be gaps. And the way the drug part looks can be different from benefit plan to benefit plan.

Q. The bill creates tax breaks for health savings accounts. How will this work?

A. This savings account has to be integrated with a health insurance policy. It will save employers money in premiums. Ultimately, it gives employers a route to significantly pare back their contributions to the health benefits of their employees.

The H.S.A. piece of the legislation will invite companies from outside the insurance industry into the industry. Life insurance companies, 401(k) plan administrators, asset managers and other companies will be looking at this.

In the near term, this part of the bill probably won’t hurt the health insurance industry. But in the long run it will be a loser because revenues and profit margins are lower for the H.S.A. product than for traditional health insurance.

Q. Do health insurers benefit from other parts of the bill?

A. Yes. The opportunity to enroll seniors in this drug plan will allow health insurers to collect $35 a month from each senior, plus the government’s subsidy. Companies that are positioned best now are those who currently sell Medigap to seniors. UnitedHealth Group, which administers AARP’s program, is the biggest seller of Medigap insurance in the country.

Others are Torchmark and three Blue Cross/Blue Shield companies, Anthem, WellPoint and WellChoice. Anthem is acquiring WellPoint.

Q. What will the bill do for the so-called Medicare H.M.O.‘s?

A. This bill will give them a small boost in reimbursement. Humana and PacifiCare are the two most exposed to Medicare, and those stocks have gone up the most in anticipation of this bill. They will benefit, but not as much as Wall Street expects.

The stocks I like are Anthem, WellPoint and UnitedHealth. The commercial health insurance business is much more important to this industry than the government business. But additional Medicare money is coming in the nick of time because margins on the commercial side of the business are peaking.

Q. Who are the losers here?

A. Taxpayers are getting a lot less than they could out of this bill, which only makes sense at an ideological and political level.

Near term, the government would be able to do a much better job negotiating drug prices on its own. Just about every other developed country has the government negotiate prescription drug prices. But that is anathema to many in this country.

What we are betting on is that longer term, the private sector will be able to provide better utility for dollars spent than the government.

There is not a track record you can look at, particularly in health care, that shows the private sector is more efficient than the government in administering a benefit like this.