Medicare will drive health sector in 06

WASHINGTON, Dec. 30 (UPI) -- The new Medicare Part D prescription-drug benefit will be a major driver of the health-insurance sector in 2006, market analysts predicted, and certain health plans are already emerging as the front runners.

"I think Wall Street has been excited about the potential for the Medicare benefit, and the new members who will be booked into these plans (through) health maintenance organizations (HMOs) and preferred provider organizations (PPOs), but also, of course, the (Medicare Part D plan, Jane DuBose, a managed care market analyst with Nashville-based Health Leaders-InterStudy, told United Press International.

"I think the potential will be realized for some companies, but for others. it will not. I think the market will begin to reflect the winners and losers," she said.

In fact, according to DuBose, the difference between the clear winners and the also-rans, as with most business sectors, boils down to strategic alliances, getting the brand into consumers' consciousness, and location, location, location.

"I think United Health Group will clearly do well because they have this partnership with (American Association of Retired Persons) and that's a name that seniors trust," DuBose said.

"Humana will do well because they've been the most aggressive at marketing, and they have partnered with Walmart," she added. "I've seen statistics about the number of seniors who actually walk into a Walmart. Humana has had on site real people to answer questions. I think that's going to be a good strategy, so they've really blanketed in terms of marketing," she said.

In addition, Humana has entered into numerous new PPOs across the country that will further increase the health-insurance giant's exposure, DuBose noted.

Also, WellPoint -- expected to merge in 2006 with WellChoice -- is most likely to cash in on Medicare's Part D in the nation's heartland, she predicted. "WellPoint has very strong presence in the Midwest," DuBose said.

On the other hand, she predicted "a toss up whether Aetna, Signa and Pacificare will be able to get their share" in this emerging market.

Although there are 10 or 11 national (health insurance) carriers, DuBose pointed out, "in some states, you just don't see marketing from some of these vendors. Pharmaceutical benefit management organizations (PBMs) like Medco Health Solutions and Caremark, for example, just don't get into the (consumer) consciousness as much as these health plans in terms of marketing, so I'm not sure they'll do as well as some of the health plans," she said.

Medicare's new program, which takes effect Jan. 1, will also unveil another first-of-its kind plan, the Medicare PPO -- and another potential cash cow for the major health-insurance players, DuBose added.

"The interesting thing about the (Medicare) PPO is, this is the first time that seniors all over the country, rural areas and urban, are going to have access to these (plans). In the past, it was only financially feasible for these health plans to offer the plans in urban markets," she noted.

So which health insurer is most likely to benefit? "Humana, big time," DuBose predicted. "They're staking more than any other health plan on the acceptance of the Medicare PPO concept. The question is whether seniors want to do it, but if anybody gets uptake, it would be (Humana) because they simply have gone into more regions than anybody else in the country," she said.

WellPoint, with its high Midwest profile, is also banking on the Medicare PPO, launching regional PPOs in Ohio, Kentucky and Indiana, she said. Other potential PPO winners include certain Blue Cross plans, DuBose added. "Blue Cross of South Carolina, which is sort of a quiet giant that is not publicly held, is going to do the regional PPO concept in South Carolina and Georgia," she said.

Charles Boorady, a managed-care-industry analyst with Citigroup, agreed that Medicare's prescription-drug benefit will be a primary market mover in 2006.

"The summit ahead would be the largest expansion of Medicare since its inception and the largest privatization in our history: that of Medicare recipients (transitioning) into private health plans," Boorady said in a note issued earlier this week.

"Managed-care plans will likely grow their Medicare Advantage business by more than 1 million members, or 17 percent, next year and double to 24 percent penetration by 2009," he forecast.

"We think President Bush and the Republican-controlled Congress are committed to ensuring attractive payment and rules for managed-care plans," Boorady said. "WellPoint and United Health Group remain our favorite stock picks," he added.

Boorady and HealthLeaders-InterStudy's DuBose also predicted that consolidations between health-plan giants, which shook the sector in 2005, was a trend bound to continue in 2006.

"We expect merger and acquisition activity to continue in the group," Boorady said. "We reiterate our Buy-rating on HealthNet, Humana and Coventry Health Care as potential takeover targets and Aetna as a potential acquirer," he said.

United Health Group and PacifiCare merged earlier this month in a $9.2 billion deal, making it the second-largest buyout in the managed-care industry's history.

DuBose also called the health-plan-merger trend "inevitable" as a new year dawns and named names regarding which companies might be ripe for deals, either as suitor or target.

"You have to look at who's left," she said, adding that companies like Cigna, Aetna and Humana could all enter the acquisition chess game in the near future. DuBose said she thought Cigna and Aetna were particularly ripe targets.

The two companies "have both worked over the past two or three years to get their balance sheets and income statements in order. Cigna was hemorrhaging members and it had some tough financial times a couple of years ago," but both "are now in a position to grow again," she said.

While mergers are a boon for the health-plan sector, DuBose pointed out the trend's possible downside. "I don't know if it's good for consumers," she said. "Presumably, the administrative costs are going to go down with all of this merger activity, but I think the thing to be concerned about is the simple lack of choice in a lot of local markets. While nationally, we still have a pool of 10 or 12 publicly held healthcare plans, in any specific local or regional market, it's becoming thin in terms of choice," DuBose noted. "So if you're an employer and you're trying to find healthcare choices for your employees, you don't have nearly as many choices as you had a few years ago," she said.

DuBose also forecast possible rocky times for health plans in 2006 with the ongoing problem of increasing commercial business. In 2005 "the sector proved it was strong in terms of hanging on to membership," DuBose said, but in the year to come, "it will be a struggle for them to grow their commercial business because the economy is not creating new jobs."