Premium Increases May Cut Enrollment in UnitedHealth Drug Plans

UnitedHealth Group Inc. (UNH) may lose 500,000 poor elderly enrollees in its market-leading Medicare drug plans next year because of a premium increase, a study found.

Premiums for the Minnetonka, Minnesota-based insurer’s plan sold by AARP, the senior citizen advocacy group, are set to increase by 14 percent in 2012 on average, Avalere Health said in a report today. Premiums for competing plans from Humana Inc. (HUM) sold through Wal-Mart Stores Inc. will rise 2 percent.

“You have a number of plans that are taking aim at the market leader,” said Dan Mendelson, chief executive officer of Avalere, a Washington consulting firm, in a phone interview. Louisville, Kentucky-based Humana’s Wal-Mart plan carries the cheapest premium in the U.S. and will average $15.10 a month next year, his firm said. UnitedHealth’s premiums will cost a monthly average of $39.70 in 2012, up from $34.82 this year.

UnitedHealth, with 4.8 million people enrolled in its Medicare drug plans this year, will lose about 535,000 subscribers in 2012 because premiums for its AARP plan are too high to qualify for federal low-income subsidies in most parts of the U.S., the Avalere report found. UnitedHealth’s AARP plan has about 4.7 million subscribers this year.

Higher premiums are justified because UnitedHealth offers robust drug benefits designed to appeal to “the broader population,” said Tom Paul, CEO of UnitedHealthCare Medicare & Retirement, the operator of the insurer’s Medicare plans. He didn’t dispute Avalere’s findings.

‘Really Important’

“We have a very broad formulary, we’ve got a very broad network, this year we’re the only national plan with no deductible,” he said in an interview. “Those are the things that consumers have told us are really important to them.”

James Dau, a spokesman for AARP in Washington, directed questions to UnitedHealth.

UnitedHealth hasn’t disclosed its projections for enrollment in Medicare drug plans, Paul said.

“We do believe consumers will still resonate well with the offering we have in the marketplace,” he said. UnitedHealth’s AARP plan will still qualify for subsidies in some parts of the country, and the company expects to maintain about 1 million low-income customers, spokesman Matt Burns said.

Mendelson said he doubts United can increase its enrollment despite losing the low-income subscribers.

“The competitive environment is a lot tighter,” he said. “Every year the plans try to out-do one another.”

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net.

To contact the editor responsible for this story: Adriel Bettelheim in Washington at abettelheim@bloomberg.net.

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