Insurers Eye Medicare Drug Profits

The new Medicare drug benefit will generate lower profits than previously predicted in several key states, an analyst says.[@@]

Credit Suisse First Boston analyst Patrick Hojlo said that Ohio, California, Arizona and Nevada are among the states where increased competition could cut so-called Medicare Part D contributions to the bottom line of the nation’s health insurers.

The average California premium will be about 28% below the national average, Hojlo says. With 10% of the nation’s seniors in California, a total of 3.5 million, economies of scale could justify lower premiums in the state. But he doubts that could justify pricing that is so much lower than the nation as a whole, he says.

“Any way you look at it, even after careful analysis of state-by-state prescription drug utilization patterns, it appears to us that certain regions at the low end of the reimbursement spectrum are unlikely to be as profitable as some health plans had hoped,” Hojlo says.