Companies involved in the massive expansion of the nation's health insurance program for the elderly are positioning themselves to profit as Medicare launches a ground-breaking prescription drug benefit in January.

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Health insurers are lining up to sell government-backed prescription drug plans to Medicare beneficiaries, pharmacies that cater to seniors are eyeing their own plans, and employers and unions with retiree drug benefits are hoping to use the new program to ease spiraling drug costs.

The movement comes as many critical questions about the new program -- called Part D, for short -- won't be answered until October, when health insurers can begin explaining the details of their prescription drug plans.

But at least one thing already seems clear: There is money to be made -- and saved. The government projects spending $720 billion on the program over the next 10 years.

"There's a lot of money on the table, and it could be lucrative," said Marsha Gold, a senior fellow with Mathematica Policy Research in Washington, D.C.

Created by the Medicare Modernization Act of 2003, the prescription drug benefit provides new ways for health insurance companies to generate Medicare revenue.

During the first year of the program, medical insurers will collect an average of $32 per month from beneficiaries and $94 per month from the government for each Part D enrollee. It's estimated about 29 million Medicare beneficiaries will opt for the Part D benefits next year alone.

Insurance companies are moving quickly to capitalize on the opportunity. Aetna Inc. in July said that it was doubling its projected spending, to $50 million, this year to sell and administer Part D programs.

CIBC World Markets analyst Carl McDonald predicts that the new drug benefit will boost revenue at seven of the nation's largest health insurers by at least $4.45 billion next year, lifting earnings by 2 percent to 4 percent.

The prescription drug benefit isn't the first time managed care companies have seen a chance to make money on Medicare.

In 1994, Aetna was the first of several insurers to serve the Pittsburgh market with a so-called Medicare HMO. Such HMOs -- now called Medicare Advantage plans -- provide benefits to about 13 percent of all Medicare consumers, said Michelle Strollo, senior policy analyst with the Kaiser Family Foundation.

Government payment rates to the plans have been so favorable in the past two years that some health insurers are receiving up to 140 percent of what the standard Medicare program would pay to care for beneficiaries, said Robert Berenson, senior fellow at the Urban Institute in Washington, D.C.

But these "overpayments," as Berenson calls them, follow years when insurers including Aetna pulled out of some Medicare markets because they perceived government payments as getting too tight.

Similarly, the government's long-term commitment to healthy payment levels for Part D providers is a concern, said Edmund E. Kroll, an analyst who follows managed care companies for SG Cowen & Co. in New York.

Nonetheless, Kroll believes Part D will provide growth opportunities for well-positioned HMOs.

"In the near term, it's in everybody's best interest to have a smooth rollout," he said. "I'm not anticipating any squeeze on the reimbursement."

The Part D program allows consumers to stay in traditional Medicare while buying drug coverage from private companies that market "standalone" pharmacy plans.

This is where most of the action will be once consumers start selecting plans in October, Kroll predicted, since many consumers in the traditional Medicare program purchase supplemental "Medigap" policies that either lack drug coverage altogether or have benefits that, in most cases, won't be as rich as Part D.

In Pennsylvania and West Virginia, 23 companies including Highmark and HealthAmerica have applied to the government to sell standalone benefits.

Health insurers can go after Part D business in other ways, as well.

They can provide Medicare pharmacy coverage as part of preferred provider organizations, or PPOs, that operate throughout regions and manage all aspects of beneficiaries' health care.

Insurers also can choose to couple the new drug benefit with existing Medicare Advantage plans, which typically operate in smaller geographic areas. Locally, such plans have proven much more popular than elsewhere -- 40 percent of the 468,567 beneficiaries in the metro area are enrolled in Medicare Advantage plans.

Many of the local plans already include pharmacy benefits and likely will be converted to incorporate Part D benefits. Such conversions would allow enrollees to take advantage of the new benefit by simply staying put, while helping established insurers maintain their share of the market.

While much of the Part D activity has been concentrated among health insurers, they aren't the only companies affected by Part D.

Pharmacy benefit managers -- the companies commonly called PBMs that insurers often hire to manage drug benefits within managed care plans -- have announced plans to market standalone Part D plans, too.

Nationally, about one-third of Medicare beneficiaries receive retiree prescription drug benefits, and the proportion in the Pittsburgh region likely is higher given its history of benefits-rich manufacturing jobs.

The Part D program offers subsidies of $611 per eligible retiree to companies and unions that provide drug benefits that are at least as good as those in the new government plan.

Locally, Highmark works with about 1,700 employers who provide retiree health benefits to about 285,000 people. In the coming months, employers who provide such benefits must notify retirees in writing about how existing pharmacy benefits compare with Medicare's and must submit applications to the government for their subsidies.

While some have speculated that employers will seek to shift the burden for retiree drug benefits onto Part D, Thomas F. Duzak, director of pensions and benefits for the United Steelworkers union, said he expected that many employers would opt against making changes this year.

Since the government subsidies are pretty good, and the prospect of communicating changes to retirees this fall is daunting, Duzak predicted that companies would take a wait-and-see approach. A survey released in August by the benefit consulting firm Towers Perrin found that most employers planned on continuing retiree coverage this year.

But analysts say the real test on what employers will do will come in the next year or so.

Changes at the pharmacy are coming sooner.

Pharmacists already have signed contracts with many private companies that will administer Part D so they can continue dispensing drugs for Medicare beneficiaries, and the pharmacy networks in Part D in many cases will be broader than networks in Medicare Advantage plans.

At the UPMC Health Plan, for example, an additional 1,100 pharmacies are being added to insurer's network of pharmacies in Western Pennsylvania in preparation for Part D, said Linda Choiniere, the company's vice president for Medicare.

Some large national pharmacy chains also have announced joint ventures with health insurers to distribute educational information about Part D to consumers. For instance, Rite Aid has formed a "strategic alliance" with Aetna and a "Part D collaboration" with Coventry Health Care Inc., the parent company of Health America.

It's expected pharmacies will be filling more prescriptions for generic drugs since Part D plans will offer incentives to use the less costly medications, a potential boost for such generic manufacturers as Canonsburg-based Mylan Laboratories.

But retail pharmacists fear that when details of Part D plans are unveiled in October, there will be considerable incentives to steer consumers to mail-order pharmacies, said Mary Ann Wagner, senior vice president of pharmacy, policy and regulatory affairs for the National Association of Chain Drug Stores.

The bottom line for most health insurers and pharmacy benefits companies is that the sort of massive Medicare expansion that's coming with Part D doesn't happen everyday. Firms don't want to miss business because they were slow to act.

This "once-in-a-lifetime opportunity'' has "created considerable momentum," said Robert E. Hurley, a health administration professor at Virginia Commonwealth University.

"There's so much money literally in play, moving from public sector to private sector, that it's overcome any qualms about the uncertainty."