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 | 02:14pm US/Eastern
Recommend:
0

--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

Recommend :
0
React to this article
Latest news
Date Title
2m ago Italy says inefficiency delays public sector debt repayments
4m ago FOOTBALL : Barclays Premier League: United have never been rebuffed - Van Gaal
4m ago ASOS : Tech Monthly: FUTURE: FASHION: 'CLIENTS CAN MOVE FROM CONCEPT TO IN-STORE IN 21 DAYS': Ami Sedghi meets the Australian duo behind a data system (inspired by cows) that allows brands to monitor what's hot and what's to drop
4m ago THE NEW REVIEW : Television: Today's television: PICKS OF THE DAY: NATURAL HISTORY: Operation Maneater Channel 4, 8pm
4m ago FOOTBALL : Barclays Premier League: Pellegrini puts most of his chips on Aguero's fitness
4m ago NETFLIX : The New Review: Books: THE NEW READING: Ebooks, Kindles and the web: Biblical martial arts crime thriller romance, anyone?
4m ago THE NEW REVIEW : Television: Friday 26: PICKS OF THE DAY: NATURAL HISTORY: Operation Maneater Channel 4, 8pm
4m ago BARCLAYS : Tech Monthly: Bright: PAY WITH A SIMPLE WAVE OF YOUR WRIST
4m ago ALIBABA : The New Review: DISCOVER: THE NETWORKER: WhatsApp, Alibaba and all the billion-dollar startups: are we in another tech bubble?
4m ago THE FINAL WORD : Fat cats end any notion of equality
Latest news
Advertisement
Hot News 
BANCO ESPIRITO SANTO : Swiss begin bankruptcy proceedings against Espirito Santo private bank
DIXONS CARPHONE : Phones 4U says Vodafone will take 140 of its stores
ALIBABA : CORRECTING and REPLACING Alibaba Group Announces Pricing of Initial Public Offering
EREDENE CAPITAL : Sells Aboyne To Brick Eagle For GBP3 Million
ITT EDUCATIONAL SERVICES : Entry into a Material Definitive Agreement, Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing, Change in Directors or Principal Officers, Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K)
Most Read News
1d ago FORD MOTOR : Engines for Sale Now Include Lower Priced Ford and Chevy Blocks at Parts Retailer Website
1d ago SCHERZER : Shields outpitched by Scherzer, Royals fall to Tigers in AL Central matchup
1d ago ALERE : Law Firm Kirby McInerney LLP Investigating Potential Claims on Behalf of Alere Inc. Stockholders
7h ago ROYAL BANK OF SCOTLAND : Relief over Scotland gives way to 'Great Stagnation' worries
9h ago SOFTBANK : estimates $4.6 billion gain from Alibaba listing
Most recommended articles
2m ago Italy says inefficiency delays public sector debt repayments
17m ago EXCLUSIVE : Siemens near deal to buy Dresser-Rand - sources
18m ago SIEMENS : Exclusive - Siemens near deal to buy Dresser-Rand: sources
1h ago Canada's Oliver says no major shift in mortgage policy for now
1h agoDJU.S. SAYS ALLIES COMMITTED TO JOINING AIRSTRIKES IN SYRIA : Update
Dynamic quotes  
ON
| OFF