Healthcare Reform Watch: Wal-Mart, Humana, and Low-Cost Drug Insurance (WMT, HUM, TGT, WAG, CVS, RAD)

Wal-Mart Stores Inc. (NYSE: WMT) has just pumped up the pressure on its competitors in the pharmacy business. The retailing giant has announced a joint program with Humana Inc. (NYSE: HUM) to offer a Medicare Part D prescription drug plan that cuts the premium payment for Medicare participants roughly in half.

Several years ago, Wal-Mart introduced its $4 generic drug pricing, forcing competitors like Target Corp. (NYSE: TGT), CVS Caremark Corp. (NYSE: CVS), and Rite Aid Corp. (NYSE: RAD) to follow suit or get left behind. This new prescription drug plan could have the same effect.

Under the Humana Walmart-Preferred Rx Plan, a participant would pay $14.80 per month to purchase the insurance. If a customer uses a preferred pharmacy, say Wal-Mart’s, co-payments could be as low as $2.00 for generic prescription drugs. Generic prescriptions filled through Humana’s home-delivery service may have no copayment at all.

The companies stress their customer-centered beneficence, but as always, there is more to the issue.  This plan really does reduce the premium payments for Medicare Part D. Customers stand to save as much as $450 annually on the cost of Medicare Part D insurance. That is real money to most retired people.  Of course that is no loss for either Wal-Mart or Humana because after the copayments, Medicare pays the rest of the cost of the drug. Who pays matters less than how much gets paid, and that doesn’t change.

The plan does nothing about the ‘donut hole’ gap in Medicare Part D coverage. That is, the plan pays up to $2,830 in total drug costs, after which the patient pays 100% of drug costs up to a total of $4,550 out of pocket. The ‘donut hole’ will close slowly through 2020, by which time Medicare patients will pay only 25% of costs out of pocket. In 2010, Medicare patients will get a $250 rebate if they top the $2,830 threshold, and in 2011 they’ll receive a 50% discount on brand name drugs while in the ‘donut hole’.

The new Humana-Walmart plan will benefit Medicare participants because it is cheaper than anything else out there.  A potential issue is that it seems to offer nothing new or unique in what it actually pays for.  Healthcare reform is bringing about many interesting twists as it continues to unfold.

Paul Ausick