Medicare Map Favors Aetna

PacifiCare Health Systems (PHS Quote), one of the country's largest Medicare players already, was among the first to come out and cheer.

"CMS has clearly managed a process that encourages private-sector creativity, competition and choice for the nation's seniors," declared CEO Howard Phanstiel. "We're excited about the opportunity to participate nationally in the Part D program and feel that PacifiCare has competitive product offerings in all regions."

But PacifiCare is better positioned than most. The company is set to be acquired by UnitedHealth Group (UNH Quote), a national giant with the kind of reach that may be needed to become a winner in the new Medicare game. Otherwise, Hojlo's analysis shows, the company could have found itself playing an underdog role as a smaller player on a particularly tough home field.

PacifiCare's stock rose 54 cents to $75.47 Wednesday. It has more than doubled over the past year due to looming Medicare opportunities and, more recently, the offer to join forces with UnitedHealth.

California Cheap

For now, anyway, PacifiCare continues to be a regional player with a strong presence in California.

After reviewing the recent Medicare bids, Hojlo identified that particular state -- along with five others -- as a possible source of disappointment. On average, he said, California companies submitted the lowest bids of all for participation in the new Medicare program. The difference between their bid and the highest average bid, submitted by Mississippi, was 36%. That difference dropped to just 28%, he said, when compared to the national average.

In fairness, Hojlo noted, California includes a huge senior population -- 10% of the country's total -- that offers market opportunities and economies of scale that could justify somewhat lower prices. Still, he indicated, the discounts reflected in the government data seem to be unjustifiably steep.