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Health Insurers Tumble on Medicare Advantage Rate Proposal

02/19/2013 | 09:04am US/Eastern
   By Jon Kamp 

Shares of Humana Inc. (>> Humana Inc.) and other major health insurers tumbled in premarket trading Tuesday following an unfavorable government proposal for Medicare Advantage rates in 2014 that analysts said came in worse than expected.

The late-Friday proposal is open to outside comments until March 1, ahead of a final announcement due April 1, so there is time for the industry to lobby for less pressure on rates. Insurers see Medicare Advantage--their version of the government health plan for seniors--as a key growth area, but ramping up exposure there means more exposure to pressure on government payments.

The proposal from the Centers for Medicare and Medicaid Services is "sharply unfavorable" and "significantly worse than expected," Goldman Sachs analyst Matthew Borsch said in a note to investors.

There are several moving parts in the complicated proposal, and different companies could be affected in different ways depending on the people they serve and the quality ratings their plans achieve. Nevertheless, Humana indicated that the government proposal would reduce benchmark payment rates by a mid-single-digit percentage next year, compared with earlier company expectations that rates would be "flat to slightly down."

Based on that prior assumption, Humana management recently expressed confidence that the health insurer would grow both Medicare membership and earnings next year.

But after the worse-than-expected proposal, "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," the company said in a Securities and Exchange Commission filing.

Humana shares tumbled 9% to $71 in recent premarket trading. Louisville, Ky.-based Humana has tethered its fortunes to Medicare plans more than other major health insurers, although other companies also see it as an important growth market and have bulked up there.

UnitedHealth Group Inc. (>> UnitedHealth Group Inc.) shares slid 4.9% to $54.50 premarket, while Cigna Corp. (>> CIGNA Corporation) declined 3.4% to $59, Aetna Inc. (>> Aetna Inc.) fell 3.5% to $47.50 and WellPoint Inc. (>> WellPoint, Inc.) fell 3.6% to $60.47.

Among smaller firms with Medicare ties, WellCare Health Plans Inc. (>> WellCare Health Plans, Inc.) declined 5.8% to $56.75, while Universal American Corp. (>> Universal American Corporation) was recently inactive.

Write to Jon Kamp at jon.kamp@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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