Medicare Agency Maps Out Drug Coverage

The Bush administration said Monday it would carve the country into multiple coverage regions to get private insurers to offer Medicare (search) prescription drug plans and comprehensive health benefits beginning in 2006.

The number and shape of the regions is expected to figure prominently in how many private companies decide to participate in the new drug benefit for older and disabled Americans, the cornerstone of last year's Medicare law. The law's supporters hoped competition between plans would drive patient costs down and enhance benefits.

Insurers could bid to participate in one or all the regions.

The country would be divided into 34 regions for prescription drug plans. The largest would comprise seven states across the Upper Midwest, while many single states also would constitute regions.

New preferred provider organizations, which the administration sees as critical to moving people from traditional Medicare to privately run managed care, would operate in 26 regions.

Plans would have to offer identical benefits, at identical premiums, to every Medicare beneficiary in a region. The premium was expected to average $420 nationally in 2006 but could vary widely among regions.

Insurers have eagerly anticipated the coverage maps. Many have lobbied the administration to create 50 single-state regions. Smaller regions would maximize competition, they contended, and they warned that creating networks of doctors and hospitals across several states would be prohibitively expensive.

Writers of last year's Medicare prescription drug law, which provides for a much larger role in Medicare for private companies, wanted to create 15 to 20 regions, said Thomas Scully, the then-Medicare administrator who helped write the law.

Larger regions make it more probable that traditionally underserved rural areas would be paired with more profitable urban areas, Scully said. "Plans that want Minnesota have to say they'll take North Dakota and South Dakota as well," said Scully, a partner at the law firm Alston & Bird, who has health care clients.

Forcing private insurers to take rural patients was a major interest of Midwestern lawmakers, including Sens. Charles Grassley, R-Iowa, and Max Baucus, D-Mont., authors of the law.

Health and Human Services Secretary Tommy Thompson acknowledged at a news conference Monday the competing voices on regional designs. "We wanted them not too big, not too small but just right," Thompson said.

The Blue Cross and Blue Shield Association (search) said it would have preferred single-state regions, since its member health plans typically operate within a state. "Individual plans will have to decide," said Alissa Fox, the association's policy director. "We thought there would be more competition with 50 single-state regions."

Thompson, Medicare chief Mark McClellan (search) and other officials said they are increasingly confident that enough private plans would enter each region to avoid triggering a provision of the law that guarantees beneficiaries access to a government prescription drug benefit under Medicare if they lack a choice of private plans in their region of the country.

"I'm feeling more confident now than a month ago," said Leslie Norwalk, McClellan's deputy.

To allow insurers licensed in one state to operate in another within the same region, the administration said the Medicare law would allow state licensing regulations to be waived for up to three years. Insurers would have to apply for a license in the other state, however.