After 40 years of providing America's seniors with health insurance for hospitalizations, surgeries and physician visits, Medicare is completing its benefit package with the new Prescription Drug Plan (PDP).
Open enrollment begins November 2005 and benefits go into effect January 2006. The impact will be huge for insurers, brokers and, most importantly, consumers.
First, the basics: Seniors have come to depend on Medicare Part A and B as well as private Medicare Supplement or Medicare Advantage policies to fill the gaps in coverage for hospital and physician costs (15+ million seniors have these coverages). Now, with PDP, they'll be protected from the high cost of prescription drugs–without going to Canada. (See box.)
The opportunities flowing from PDP are numerous. Here are examples:
Carriers. With enrollment estimates as high as 30 million and potential annual payments to Medicare contractors pegged at $60 billion, competition among carriers should be intense. Medicare has divided the country into 34 service regions and over 300 national and regional carriers are seeking approval from the Centers for Medicare & Medicaid Services, hoping to claim a piece of PDP market share.
Many carriers already are adding retail pharmacy partnerships to their sales strategy, in order to leverage brand recognition and local customer loyalty.
Many companies see the senior or mature market as the next great sales opportunity. Today, there are 36 million Americans over age 65, and every 8 seconds another of the 77 million baby boomers turns 50. Insurers are scrambling to figure out how to establish a foothold in this burgeoning market. For some, Medicare PDPs are a launching pad for other senior products. For others, it's a practical way to retain and grow the existing customer base. Strategic, operational and marketing implications of servicing and selling in this specialized senior niche affect every aspect of a company's business.
Brokers. Coming on the heels of a weak Drug Discount Card program, the PDP is being viewed with uncertainty. Consumers are unsure of the details, and many seniors are reportedly wary about PDP's value. They are questioning what the new benefit means for them. As a result, brokers will need to make customer education an essential component of the sales process. This entails discussing how PDPs work, what's covered (and not), and why protection against future drug costs is a critical purchasing consideration.
Brokers will also want to cross-sell from the PDP. This will work well for brokers who are seeking sales opportunities within their current books of business or as a first step into senior market sales. Medicare drug coverage will be a great door opener for selling Medicare Supplement or Medicare Advantage plans, not to mention other senior insurance cross-selling opportunities such as long term care, pre-need or financial services products.
Consumers. PDP expands Medicare. That's important, because though seniors greatly value Medicare, its lack of a drug benefit has been a glaring omission. Now Medicare has stepped up–in a big way–with a plan that pays a generous part (about 75%) of senior prescription drug bills.
But remember: Seniors are shoppers. Especially when faced with as many as 20 competing PDPs in a local market, they will judge Medicare PDPs based on carrier reputation, sales tactics, benefit/premium options and customer service. Comparisons will be hard-hitting. Drug costs will add urgency to this. Seniors are the biggest consumers of prescription drugs, and for them, access to affordable prescription drugs is often a matter of life and death.
There is a tight time frame around the introduction of Medicare PDPs. Carriers are not expected to receive final approval for their plans much before October 2005. Once sales start, open enrollment will run for 7 months and end in May 2006. After that, PDPs will cost more and seniors will be penalized for late sign-ups.
