UPDATE 2-Insurers to see small hike in US Medicare payment

* Medicare Advantage rates to rise 0.8 pct in 2010

* Final amount similar to February proposal (Adds analyst, insurer comments)

WASHINGTON, April 6 (Reuters) - Insurers that offer Medicare coverage will see a smaller increase in U.S. government payments in 2010 than in recent years, health officials said on Monday.

The government will boost baseline payments to insurers that offer so-called Medicare Advantage insurance plans by 0.81 percent, the Centers for Medicare & Medicaid Services said.

The announcement finalizes a similar proposal from February that sent insurance stocks tumbling because analysts had expected a much larger hike.

Insurers affected by the decision include Humana HUM.N and UnitedHealth UNH.N, the two biggest Medicare plan providers.

Analysts say the new rates will force insurers to cut benefits for elderly and disabled patients enrolled in Medicare Advantage plans or increase premiums in order to maintain profit margins.

About 10 million people are enrolled in the private Medicare Advantage plans, which offer an alternative to traditional government-run coverage.

The announcement included other payment changes for 2010.

Insurers, for example, face a 3.4 percent cut in certain payments to adjust for differences in coding patterns between Medicare Advantage and other providers that contract directly with the government.

Wachovia analyst Matt Perry said the overall impact of the announcement likely amounted to a 4 percent to 5 percent decline in Medicare Advantage reimbursement for 2010.

President Barack Obama has said the Medicare Advantage plans are overpaid compared to traditional Medicare coverage that pays providers directly.

In February, CMS proposed raising baseline payments by a slightly smaller 0.5 percent. The plans had received a 4 percent increase in 2009.

The final 2010 rate “will be detrimental to many plans. Some plans will be able to participate by scaling back benefits significantly,” said Ipsita Smolinski, analyst for Capitol Street Research.

Insurers argue the plans offer patients a choice of Medicare coverage with additional benefits and that cuts could be harmful to millions of seniors enrolled in the plans.

One assumption in payment changes is a 20 percent cut to reimbursement for doctors. Analysts said Congress is virtually certain to erase those cuts, but perhaps not in time to be reflected in the 2010 rates.

Insurers are lobbying Congress to adjust payments to avoid plans having to cut benefits or raise premiums.

“Because they are based in part on scheduled cuts to physician payments that Congress will never let go into effect, these rates could impact seniors in ways Congress never intended,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, an industry group.

Other companies that provide Medicare Advantage plans include HealthSpring Inc HS.N, Coventry Health Care CVH.N and Universal American UAM.N. (Reporting by Lisa Richwine)