Sierra Health Services and PacifiCare Health Systems are the main players in Nevada's Medicare business right now, but that is likely to change when Part D prescription drug plans are offered later this year.

Major insurers and managed-care companies want a piece of the Medicare pie because of its profit potential in covering 42 million Americans. The federal government has pledged to subsidize companies that offer drug plans so they cannot lose too much money. On the flipside, Medicare will take its cut if the company earns too much Medicare profit.

Aetna, Cigna Corp., PacifiCare, Sierra Health, UnitedHealth Group and WellPoint Inc. are among the companies that have applied through their subsidiaries to offer drug plans in Nevada. All of them currently offer traditional health plans locally.

In all, 19 companies -- some of which are subsidiaries of the previously mentioned companies -- have submitted proposals for 29 standalone drug plans with the Centers for Medicare & Medicaid Services, or CMS. In the coming weeks those companies will learn whether their plans are approved.

Wall Street analysts say Medicare is likely to be a profitable venture in the near future, but some of them say Nevada won't be among the lucrative markets.

Patrick Hojlo, a managed-care analyst of Credit Suisse First Boston, said in his research report Aug. 17 that Nevada has the second-lowest Medicare bids of all of the regions. (Nevada is considered one of 34 regions by CMS.)

Nevada's total per-member-per-month bid is $92, which includes $68.54 in government contributions, according to Hojlo's report. The state's bid is 27 percent below the average bid and 36 percent below Mississippi, which had the highest per-member-per-month bid at $142.71.

Nevada's pricing is "seemingly unjustified by both its small size and only slightly below-average drug utilization patterns," Hojlo said in his report. "Granted its very high population growth is attractive, which in all likelihood explains the aggressive bidding."

Arizona, Ohio, California, and the Pennsylvania-West Virginia region were also listed in the report as less profitable Medicare states and regions.

The report also said national health plans were likely to fare better than regional ones. Hojlo and his team's top picks: Aetna, WellPoint and UnitedHealth.

Medicare bids are based on actuarial formulas that account for the cost of providing a prescription drug benefit, administrative costs and a profit for the insurers.

Companies must meet basic CMS requirements such as covering some brand name and generic drugs, but they can offer more or less rich plans beyond the basic standards. The major plan differences will be in the list of prescription drugs that are covered, the co-payments for those drugs and any deductibles that must be met before the coverage kicks in.

For example, Sierra looked at prices based on Medicare beneficiaries' drug utilization, said Darren Sivertsen, vice president of operations and chief operating officer of Sierra's managed health care division.

States have different drug utilization frequencies, which is why the premium bids vary so much, he said, adding that is comparable to others in the industry.

Sierra is looking to generate a profit of between 2.5 percent and 4 percent, he said.

In 2006 and 2007 CMS will offer some protection to make it harder for insurers to lose a lot of money. After an insurer reaches a 2.5 percent loss, CMS absorbs 75 percent of that loss for the next 2 percent of losses and 80 percent after that, Sivertsen said.

On the flipside, if an insurer's profit surpasses 2.5 percent, CMS takes 75 percent of the next 2 percent of the profits and 80 percent after that, he said.

That is how CMS will attempt to level the playing field.

Sierra Health and PacifiCare, through their subsidiaries, currently offer private managed-care Medicare plans, which offer drug coverage and other benefits that are currently unavailable through traditional Medicare.

So why do these companies want a bigger share of the Medicare portfolio?

"About 16 percent of Americans are 65 or older," said Jackie Kosecoff, executive vice president of PacifiCare's specialty companies. "In a few short years it's going to be up to 30 percent."

Those people will need an increasing amount of health care services and "at PacifiCare we feel very strongly that one size doesn't fit all," she said. "There are plenty of people who will want an HMO product but plenty who won't want that."

PacifiCare has its own pharmacy benefit manager company and says it can generate savings for seniors from that, she said.

For Sierra it's a chance to offer additional options to a population it knows well as a locally based company.

Sierra and PacifiCare agree that they will make more money in some states than in others, but are confident that the venture is worth the investment.

Sierra's Senior Dimensions and PacifiCare's Secure Horizons are likely to continue to add policyholders, but they are not expecting a flood of retirees who are currently covered under employers' group plans to sign up.

That's because employers are being offered annual tax breaks of about 28 percent to maintain prescription drug coverage for their seniors, Kosecoff said.

Employers that do not pay taxes are not eligible for the tax breaks, she said.

Retirees could choose a standalone Medicare Part D plan in lieu of their employer's coverage, but there are potential consequences for doing that.

"If they drop their retiree drug benefit, they will not be able to go back to that benefit," said David Spivack, senior vice president of PacifiCare's Medicare prescription drug program. "In most cases retiree drug benefit plans are pretty good."

Michelle Swafford covers health care and small business for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached by e-mail at swafford@lasvegassun.com or at (702) 259-2326.