February 20, 2015 / 9:35 PM / 2 years ago

U.S. proposes 0.9 percent cut in 2016 Medicare Advantage payments

(Reuters) - The U.S. government on Friday proposed a 0.9 percent cut in payments to health insurers for 2016 Medicare Advantage plans, which provide health benefits to more than 16 million elderly or disabled people.

When combined with other factors such as medical coding adjustments by insurers, the payments could increase insurer revenue by 1.1 percent, according to documents released by a division of the U.S. Department of Health and Human Services.

Insurers such as UnitedHealth Group Inc, Humana Inc and Aetna Inc provide these plans, which cover nearly one-third of all Medicare enrollees.

Shares were mostly unchanged in after-hours trading on Friday as analysts said the proposal seemed in line with expectations.

Investors watch the government payment notice to gauge the operating environment for insurers who sell these plans and politicians examine the cuts to see how they might increase costs for the senior citizens enrolled in the plans.

Last year, insurers said the government cuts resulted in a 3 percent decline in payments or more, depending on where the plans were located and how sick their patients were.

The government is mandated by the Affordable Care Act to cut payments to insurers for Medicare Advantage in order to bring its reimbursements on par with the broader Medicare fee-for-service program.

One positive for insurers, analysts and actuaries said, is that the agency said it would not modify its payments related to home health assessments done by insurers. That issue has come up during the past few years and insurers have said it would be very costly to them.

A negative is that the government will also plan to fully phase in a new risk adjustment model, which determines payments to insurers who have customers who are sicker than average, they said. HHS documents showed this as being a 1.7 percent decrease in payments.

"The fact that the agency provided leniency on the home risk assessments is a good thing. However, fully phasing in the risk adjustment model could be detrimental to some plans," said Ipsita Smolinski, an analyst with Washington D.C. based research firm Capitol Street.

More broadly, she said, the proposal appears to be in line with expectations although it can take days for insurers, actuaries and investors to parse the lengthy document.

The proposal will be followed by a 45-day comment period and a final notice is due out April 6.

Reporting by Caroline Humer; Editing by Bernard Orr and David Gregorio

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