Sierra Health, the leading health plan in Nevada, is already losing money in its 2007 senior Medicare Part D prescription drug program.
For 2007, Sierra offered two primary Part D programs--a basic Part D drug plan and an enhanced plan that covers senior's medication in the "gap" or "donut hole." This "gap" lies between the first layer of coverage and the catastrophic insurance that Part D offers.
Sierra announced last week that, just based upon one month of data in January, they can already tell that their "enhanced" gap coverage plan will be a big money loser for the full year. The health plan announced that they lost $3 million in the first month on just the enhanced plan. They pointed to "adverse selection" in the enhanced plan for the big losses--the plan was disproportionately purchased by sicker people.
Their basic Part D product is expected to earn $11 to $14 million for the full year in 2007.
How the two enhanced and basic programs will end up netting each other out is unclear. However, losing just $3 million in the first month on the enhanced program doesn't bode well for the combined product effort.
You will recall that Humana had a terrible year in its Part D product line last year because of poor results with its enhanced gap plan. Humana reported an overall 2006 Part D medical cost ratio of 92.5% (116% in the gap plan alone). Adding on 15 more points for expenses, Humana's likely Part D medical cost ratio for all of its offerings was close to 108%--well into the red.
Clearly, seniors are savvy Part D buyers--they are careful to find the plan they can make the most money on. No surprise there.
It is clear that pricing Part D plans is no small challenge. Sierra is a very well run managed care company. So, being so far off in its 2007 Part D pricing is notable.
With the Democrats now in charge of the Congress, and no friends of the managed care companies offering the Medicare Part D drug plan, there isn't a lot of hope that Part D payments to the health insurance industry are going to get a lot better in the next few years.
Against that outlook, starting out in the red is not the place to be.