Member access

4-Traders Homepage  >  News

News

Latest NewsCompaniesMarketsEconomy & ForexCommoditiesHot NewsMost Read NewsRecomm.Business LeadersVideosCalendar 

Health Insurers Tumble on Negative Medicare Advantage Rate Proposal

02/19/2013 | 03:14pm US/Eastern

--Health-insurance stocks slide after government proposes worse-than-expected Medicare Advantage rates

--Humana falls the most among big companies, reflecting heavy Medicare focus

--Language in proposal may leave door open for favorable changes, analysts say

(Adds analyst, government and industry comments.)

 
   By Jon Kamp 
 

Shares of Humana Inc. (>> Humana Inc.) and other major health insurers tumbled 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 presence there means taking on exposure to government payment decisions.

The new 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, some analysts calculated rates declining by a mid-single-digit rate next year, steeper than they expected.

Humana came to a similar conclusion while noting it previously expected that rates would be "flat to slightly down" next year. Humana management recently expressed confidence about growing next year, but that was based on the company's prior rate assumptions.

Following 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 6.4% to $73.01 in recent trading. The Louisville, Ky., insurer gets more than half its profits from Medicare Advantage, outpacing its more diversified, large managed-care peers, according to Raymond James analyst Michael Baker.

But the industry in general has been bulking up in Medicare-based plans, latching onto a growing market as baby boomers age. Elsewhere in the sector, UnitedHealth Group Inc. (>> UnitedHealth Group Inc.) recently traded down 1.7%, Cigna Corp. (>> CIGNA Corporation) declined 1.5%, Aetna Inc. (>> Aetna Inc.) fell 1.3% and WellPoint Inc. (>> WellPoint, Inc.) traded off 0.2%.

Among smaller firms with heavy Medicare links, Universal American Corp. (>> Universal American Corporation) sank 6.3% to $9.21, while WellCare Health Plans Inc. (>> WellCare Health Plans, Inc.) declined 2.1% to $58.99.

Industry group America's Health Insurance Plans blasted the proposal, saying it adds to payment cuts and tax pressure already coming from the health-care overhaul law. These changes together will reduce Medicare Advantage payments next year by more than 8%, or about $11 billion, AHIP estimated.

"Washington cannot tax and cut Medicare Advantage this much and not expect seniors to be harmed," said Karen Ignagni, AHIP's president and chief executive, in a statement.

The industry has time to lobby for less-bruising changes, though, and analysts suggested language in the government's proposal leaves some wiggle room.

"We appreciate that plans are facing several legislatively mandated changes affecting payment for 2014, and this may present challenges for plans," CMS said in a 199-page notice highlighting planned rate changes. "We solicit comment on suggestions to address these challenges within the parameters of current law."

Citigroup analyst Carl McDonald called this a "major takeaway," while saying it's highly probable that rates won't turn out as bad as suggested. As it stands, he called the current proposal "really, really bad."

Other analysts also picked out some morsels that could brighten an initially gloomy picture. J.P. Morgan analyst Justin Lake suggested insurers were bruised early Tuesday by worries they had little room to change benefits to adjust for disappointing rates. But he suggested a more favorable read that gives companies some benefit flexibility.

Stifel Nicolaus analyst Thomas Carroll noted, meantime, that most private-sector Medicare plans did well despite a steep cut in 2010. While the managed-care plans have some work to do, "we do not believe there will be a material impact to margins," Mr. Carroll said.

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

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

Latest news
Date Title
<1m ago RESEARCH AND MARKETS : Global and Chinese Bulletproof Vest Industry Report 2009-2019
1m ago UN UNITED NATIONS : Rwanda accelerates move to cashless economy by joining UN-backed alliance
1m ago FIRSTENERGY : New Transmission Line Constructed in Ohio Edison's Eastern Ohio Area to Help Support Shale Gas Industry
1m ago RESEARCH AND MARKETS : Vietnam Seed Industry Outlook to 2018 - Rice Seed and Hybridization to Drive Future Growth
1m ago NEW RELIC : Founder and CEO Lew Cirne to Address Digital Transformation at Dublin Web Summit Sessions, Where the World's Tech Elite Gather
2m ago DEL FRISCO RESTAURANT : Crescent Announces Del Frisco's Double Eagle Steak House as Flagship Restaurant for New McKinney & Olive in Dallas' Uptown
3m ago BANK OF BARODA : Soon-to-open Bank of Baroda branch on Sultanpur Rd gutted
3m ago UNITED STATES COMMODITY INDEX FUNDS TRUST : Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K)
3m ago KRATON PERFORMANCE POLYMERS : Results of Operations and Financial Condition, Financial Statements and Exhibits (form 8-K)
3m ago GOLDCORP : sees strong fourth-quarter output; puts Chile project on ice
Latest news
Advertisement
Hot News 
CERAGON NETWORKS : Reports Third Quarter 2014 Financial Results
NISKA GAS STORAGE PARTNERS : Announces Second Quarter Results for Fiscal 2015, Declares Quarterly Distribution and Provides Update on Current Business Environment and Outlook
OMEROS : Omidria(TM) Granted Pass-Through Reimbursement Status from CMS
ACCURAY : misses Street 1Q forecasts
ABIOMED : Announces Second Quarter Fiscal 2015 Revenue of $51.9 Million, Up 17% Over Prior Year
Most Read News
6h ago WORLD WRESTLING ENTERTAINMENT : WWE :® Reports 2014 Third Quarter Results
1d ago MEDASSETS : tops Street 3Q forecasts
1d ago GENERAL MOTORS' : Trademark Application for "GOODWRENCH" Filed
1h ago Dollar surges as Fed ends QE on hawkish note
10h ago Volkswagen profit jumps on record Audi, Porsche sales
Most recommended articles
3m ago GOLDCORP : sees strong fourth-quarter output; puts Chile project on ice
8m ago TransCanada seeks approval for Energy East pipeline
10m ago Japan's SoftBank sets sights on America Movil assets - WSJ
10m ago Conoco sees third-quarter profit rise, 2015 capex seen lower
14m agoDJPimco Pulled Futures-Clearing Business From State Street -- Update
Dynamic quotes  
ON
| OFF