(Adds industry comment, new throughout)
By Caroline Humer
Feb 19 Proposed reductions in government
payments for Medicare Advantage insurance plans - estimated at
$11 billion by an insurance industry trade group - sent health
insurer shares lower on Tuesday.
Humana Inc said that the planned cuts would affect
its growth in 2014, and its shares fell as much as 10 percent.
Insurers UnitedHealth Group Inc, Aetna Inc and
Cigna Corp also were slightly down.
Medicare Advantage is the Medicare program in which private
insurers provide health insurance to seniors and are reimbursed
by the government.
"These changes will disrupt coverage for Medicare Advantage
beneficiaries at a time when evidence clearly demonstrates that
Medicare Advantage provides higher-quality care than the
fee-for-service part of Medicare," Karen Ignagni, president of
America's Health Insurance Plans, said in a statement.
On Friday, the government's Centers for Medicare and
Medicaid Services announced several proposed rules for Medicare
programs, including lower payment rates for Medicare Advantage.
Changes are now subject to a comment period and the final rules
will be published on April 1, CMS said.
The government also proposed the level of profits that
insurers can earn on their businesses, known as Medical Loss
Ratios, for Medicare Advantage and Medicare prescription plans.
Insurers receive a set fee per person for Medicare
Advantage's members from the government to pay doctors. In other
Medicare health insurance plans, doctors are reimbursed by the
government based on each service they provide. About 14 million
people have Medicare Advantage plans, AHIP said.
Humana, which has about 2 million customers in Medicare
Advantage, said in a regulatory filing that the government's
proposed 2014 payment rates were too low.
The preliminary base payments rates for Medicare Advantage
implied a mid-single-digit decline in rates for the company,
Humana said. The company said it based its membership and
earnings growth outlook for 2014 on the expectation that the
base Medicare Advantage payment rate would be flat to slightly
"Humana is closely analyzing all operational avenues
available to address those preliminary rates and the related
impact upon the company'™s ability to grow both its Medicare
membership and its earnings for 2014," Humana said in a
Humana has said it expects 2013 earnings of $7.60 to $7.80
per share. Analysts expect 2014 earnings of $8.46 per share,
according to Thomson Reuters I/B/E/S.
Changes in Medicare Advantage rates are part of President
Barack Obama's healthcare overhaul. The government said in its
announcement that Medicare Advantage rates have fallen 10
percent since the Affordable Care Act was passed in 2010.
The rate cuts and rule changes represent an 8 percent
reduction in total for 2014 payments from 2013, or potentially
worse, CRT Capital Group analyst Sheryl Skolnick said in a
Should the rules become final, Skolnick said she would
expect UnitedHealth to exit many Medicare Advantage markets and
experience a significant or severe contraction in that business.
But she said that as with past rule changes, expected lobbying
over the next few weeks by insurers may affect the final rule.
Humana shares fell 6.4 percent to $72.98 in New York Stock
Exchange trading. Shares in UnitedHealth Group Inc, another
large provider of Medicare Advantage plans, were down about 1.8
percent at $56.28. Aetna fell 1.2 percent to $48.59 and Cigna
dropped 1.6 percent to $60.10.
Cigna declined to comment. UnitedHealth and Aetna were not
immediately available for comment.
(Reporting By Caroline Humer; Editing by Maureen Bavdek and