The surprising news comes from CVS Caremark's (NYSE:CVS) loss of 30 to 35% of its Low income Subsidy (LIS) Part D members. This drop will reduce earnings per share for the company. See CVS Caremark Statement Regarding Results of 2010 Medicare Part D Bidding Process.
Here’s a quick look at what happened last week. I’ll save my speculations on the status of CVS Caremark’s PBM business for another day.
NEXT YEAR’S PART D BENEFIT
The best analysis of the new 2010 Part D plan landscape (planscape?) is Medicare Part D Spotlight: Part D Plan Availability in 2010 and Key Changes Since 2006 from the Kaiser Family Foundation.
The Kaiser report contains a useful snapshot of the Part D benefit, including these interesting factoids:
- There will be 1,510 PDPs offered nationwide in 2010, down almost 20% from the 2007 peak of 1,875 plans.
- The average monthly PDP premium in 2010 will increase 11% versus 2009, although premiums will vary widely both within and across regions.
- 80% of Part D plans will offer no coverage in the “donut hole” gap.
CVS’ loss comes from its “benchmark” plans, which are PDPs available for no monthly premium to Low income Subsidy (LIS) enrollees.
According to the Kaiser analysis, more than 3 million people—four of every ten LIS beneficiaries—are enrolled in benchmark PDPs that will no longer qualify as benchmark plans in 2010. These enrollees must switch plans, pay extra premiums, or be reassigned by CMS.
Here’s the data over time per Kaiser. (Click the chart to enlarge it.)
As the chart indicates, the CVS Caremark plans—Silverscript and Accendo—will only be qualified to receive automatically-assigned LIS members in 15 regions in 2010, a sharp drop from 2009.
As a result, investors will have to pin their hopes for a positive earnings surprise at CVS Caremark on the Obama Chia.