Now that the Medicare Modernization and Improvement Act of 2003 is in force, large US health insurers are eagerly competing to sign up current retirees for new Medicare products, including the Part D drug benefit and a revamped Medicare Advantage program.1 The market is a sizable one: in 2006, Medicare products sold to current retirees could generate $150 billion in revenues and as much as $8 billion in profits for health insurers. The annual profits will probably at least double by 2014. But there's an even more promising opportunity for insurers: future retirees—notably a large number of aging baby boomers—face drastically increased out-of-pocket health care bills because of a significant reduction in employer-funded benefits, greater longevity, and ever-rising medical expenses (Exhibit 1).
Products to help retirees plan for and manage that spending could generate an estimated $80 billion in revenues and $12 billion in profits for health insurers and other financial institutions by 2014 (Exhibit 2). That might lift the revenues and profits of a single leading health insurer by as much as $10 billion and $1 billion a year, respectively. And this kind of...