March 27 Reuters) - Planned cuts in U.S. government payments
for private Medicare Advantage insurance may not be as severe as
first proposed, a prospect that could boost the shares of
insurers such as Humana Inc and UnitedHealth Group Inc
The government is expected to announce on Monday final
details about the proposed rates for the private health
insurance program for seniors and the disabled which has 14
Analysts see a chance reductions to 2014 payments the
government will make to insurers who run the program could be
less than expected, given risks too steep a cut could make firms
drop certain coverage.
A congressional agency said in a memo that it believed Health
and Human Services Secretary Kathleen Sebelius has the legal
latitude to change her view on how to calculate the payments,
potentially making the reduction less onerous.
Susquehanna Group analyst Chris Rigg said the decision could
go either way, and could mean a 10 percent swing higher or lower
in the share price of Humana, whose Medicare Advantage business
accounts for about two-thirds of revenues.
"It's impossible to predict," Rigg said.
The proposed reduction follows administration efforts to
reduce how much money it pays private insurers as an incentive
to participate in Medicare Advantage. Officials say they are
bringing the payment rates for Medicare Advantage more in line
with traditional fee-for-service Medicare.
On Feb. 15 the government proposed a Medicare Advantage
payment reduction of 2.3 percent. Including the cuts in doctor
rates, the plan amounted to an 8 percent cut worth $11 billion,
according to the insurance industry trade group. Wall Street
says the insurers may stop offering Medicare Advantage plans if
the government does not temper its reductions.
The Congressional Research Service looked at the legal
issues around the way the government could calculate doctor
payments in 2014 for Medicare Advantage patients and sent a memo
to Congress on March 26. The government's proposed plan was
based on expectations of steep cuts in Medicare payments to
doctors, which would allow the government to pay insurers less
for Medicare Advantage because their costs would fall.
In the past, these proposed Medicare cuts of 25 percent to
30 percent in doctor payments have been overridden by Congress.
If the government decides to account for this so-called "doc
fix" in its formula for Medicare Advantage, it could make the
proposed rate reduction less severe.
Joe Antos, a health policy expert at the conservative
American Enterprise Institute in Washington, believes there is a
good chance the government agency will roll back the proposed
"The prospect of numerous plans dropping participation in
marginal markets is pretty ugly," he said. "I thought the
initial notice was saber-rattling, with some relief in the final
rule proving that this administration is actually reasonable."
The initial announcement was a surprise to investors. Shares
in Humana dropped sharply in the following days and are now
trading near their recent lows at $68.20, a drop of about 13
percent from before the announcement. UnitedHealth has largely
UnitedHealth shares rose 1.7 percent, or 97 cents, at $56.62
Humana rose 3 percent to $68.72. During the last month,
insurers intensely lobbied against the Medicare Advantage cuts,
aiming a broad television campaign at seniors with this kind of
private Medicare insurance.
Should the government stick with its original payment cut
proposal, insurers will seriously consider dropping their
Medicare Advantage business for 2014, CRT Group analyst Sheryl
Skolnick said in a recent interview.
"That's why the plans are really turning up the efforts to
lobby Congress to get the pressure put on the agency to do what
it's done in the past and calculate a rate that would allow the
plans to operate," Skolnick said.
Humana and UnitedHealth declined to comment.