Humana CEO Michael McCallister On The New Medicare Drug Prescription Plan
Thursday, May 11, 2006PAUL KANGAS: United is the largest beneficiary of the new Medicare drug prescription plan, so far garnering 27 percent of enrollees. Right behind United is Humana, which has already signed up 18 percent of eligible seniors. The main enrollment deadline for the plan is this coming Monday. Stephanie Dhue sat down with the CEO of Humana, Michael McCallister to get his take on this new drug plan. She began by asking about his company`s experience with it.
MICHAEL MCCALLISTER, PRESIDENT & CEO, HUMANA: I think we`ve had a great enrollment period here with a lot of activity, a lot. We`ve guided the Streets for Humana to have 2.7 to 2.9 million members at the end of `06, so it`s a big success in terms of involvement. We`ve managed an incredible short-term implementation process and there`s been a few bumps. Where we are today, we have a huge percentage of our people who have received their cards. They`re getting their medications. They saved hundreds of millions of dollars just in our broker business already, and our information would say that people are largely satisfied with how it`s gone.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: You saw a hit in recent earnings because of the start-up costs of introducing the new plans. Will Medicare part D pay off for Humana?
McCALLISTER: It will. It`s never going to be a really high-margin business, but we didn`t actually think it would be. But it`s going to be profitable for us. The timing of it is odd and it affected our earnings look this year because of the way the benefit is structured. You have benefits early on and then you enter a coverage gap so the math gets a little unusual and it`s not a traditional benefit structure that we would have in the rest of our business. So it`s affected the way the earnings look, but in terms of all the projections around membership, the risk selection dynamics that would take place with all the multiple products, the mail order drug utilization, the generic drug utilization, all those metrics that we look at actually are on course.
DHUE: Some of your prescription drug plans high premiums of $1.87 a month. What`s your strategy with those plans?
McCALLISTER: Our theory has always been that we don`t look at the senior population - actually, we don`t look at any population -- but we don`t look at the senior population as a homogenous group. We know that they`re very diversified around their economics, their risk tolerance, their health status and so we basically approach the market with a strategy of offering different types of plans to different people. So they go from low premium with deductibles and all those things in place, all the way up to high premiums and very rich benefits and we find these people have a different desire. Some are interested in paying the higher premium, and getting the richer benefits and others are basically saying I`m looking for financial protection but I don`t need all this finance and I don`t want to pay high premiums. So it`s a segmentation strategy around meeting people where they are.
DHUE: Do you make the money off the $1.87 plan or do you hope that those people get introduced to Humana and then buy other kinds of HMO coverage?
McCALLISTER: We`ve been very straightforward. We think the Medicare advantage plans offer incredible value. And we think that we`re going to have people that are going to see that value over time, and we do think there will be some transition for some people from PDP (ph) plans into MA (ph) plans. We priced all of our products to make money, even the lower priced products, because you do have the benefit offsets. There`s been a real focus on the premium and I think inappropriately so. Unless you really look at the premium in the context of what the benefits look like, it`s hard to come to a conclusion how they`re economically going to work.
DHUE: There are 90 companies offering 3,000 plans. People are already predicting consolidation. What do you see happening in the next few years?
McCALLISTER: Well, if you look at the early data, it`s clear that there`s going to be a handful of very significant players and I can`t speak to what all the others might do. I`m a believer that if you`re going to do this sort of work, you need to do a lot of it. That way you can invest in technology, invest in information, stay very close to your customer, consumers. And I think information that`s actionable is important, that is driven by technology and data management. That requires a lot of business to really do that well. So I think that there`s likely to be less players going forward. We`ll have to see how that plays out. DHUE: Policy makers envision insurance companies being able to negotiate better prices with drug companies. Are you on target to make that happen?
McCALLISTER: Sure. We did that even before. I mean, it`s something we do every day. People in our space negotiate with pharmaceutical companies for the price of their drugs. We negotiate with retail chains for what they`re going to charge to fill these prescriptions. So it`s something we were already doing as part of our business and now we`re basically just bringing those techniques into Medicare. I say to people all the time - because there`s some that would say well, government should be out negotiating prices for drugs. My push-back to that is well that is exactly what we`re doing on behalf of both the government and the individual.
DHUE: We have been speaking with Mike McCallister, CEO of Humana, thank you.
McCALLISTER: Thank you.
