April 8 The Obama administration's announcement
on Monday that it would roll back proposed cuts to privately
managed Medicare plans is a positive for insurers because the
final plan is "less worse" than the one proposed, Wall Street
analysts said on Tuesday.
The government agency that oversees Medicare said after the
stock market closed on Monday that on average, reimbursements to
insurers for private Medicare plans would rise 0.4 percent,
reversing what it said was a proposed cut of 1.9 percent.
Analysts who looked closely at the government's numbers saw
an improvement of about 2 percent to 3 percentage points.
They also described an apples-and-oranges comparison between
the government's and their calculations of the total impact.
They said they saw a decrease in final payments of about 3
percent in 2015, versus their initial calculations of a cut of 5
percent or 6 percent.
Analyst Sheryl Skolnick of CRT Capital said the "less worse"
results could lead to a bit of a relief rally in insurers'
stocks on Tuesday morning.
"The market was assuming that the final rate would be better
than the proposal, and that's what it got," Skolnick wrote in a
The move came after the Centers for Medicare and Medicaid
Services came under pressure from the industry and a broad
swatch of Republicans and Democrats in Congress to lessen the
cuts after they were proposed on Feb. 21, saying they would hurt
the older people who receive the benefits.
Each year, the government releases its formulas for
determining how it will reimburse the insurers for plan members'
procedures and doctor visits. Insurers use this information to
decide on the markets where they will offer plans and what
benefits they can provide.
Analysts said one reason for the gap between industry
calculations and the government's figures was that analysts
factored in a 1 percent insurance industry tax, while the
government did not. Other reasons were not clear, they said.
Goldman Sachs analyst Matthew Borsch said in a research note
that he was at a loss to explain this difference between the CMS
rate announcement and industry estimates.
"That said, the key factor to bank for now is the amount of
improvement in the rate, even if it turns out that CMS has
overestimated the 'all in' rate impact," Borsch said in a
research note. That improvement was about 2 to 3 percentage
As a result, he said, he raised price targets and increased
earnings estimates for 2015 for Humana, UnitedHealth and
WellCare Health Plans Inc.
Industry trade group America's Health Insurance Plans said
late on Monday that the combined effects of a 6 percent cut in
this year's benefits and the proposal for 2015 would affect the
15 million people who receive these privately managed benefits.
The balance of the more than 50 million older and disabled
people who use Medicare are in a different program run directly
by the government.
"We remain concerned about the impact year-over-year cuts to
Medicare Advantage would have on the high-quality, affordable
coverage millions of seniors like and rely on today," AHIP
President Karen Ignagni said in a statement.
(Reporting by Caroline Humer; Editing by Lisa Von Ahn)