Shares of most insurers rose on Monday, with Humana
leading the pack, up 9.2 percent at $112.29 on the New York Stock
Exchange in early afternoon. Shares of UnitedHealth Group Inc were
up 2.8 percent at $75.91 and Aetna Inc was up 2.6 percent at $72.24.
The U.S. Department of Health and Human Services late on Friday
released its proposal for 2015 Medicare Advantage funding. The
148-page document includes details that the companies use to
calculate the government funding for the program and to set next
Analysts and some companies said on Friday their first look
indicated that the cuts would be worse than the 7 percent expected
by the industry, and would require deeper reductions in benefits for
the program's elderly beneficiaries. Shares of insurers fell in
after-hours trading on Friday.
Republican lawmakers said the proposed funding was too low and would
hurt the elderly and disabled, adding to the party's criticism of
President Barack Obama's healthcare reform law. The Patient
Protection and Affordable Care Act requires some cuts in Medicare
funding and also introduces new taxes and fees.
More than 15 million of nearly 50 million Americans eligible for
Medicare are enrolled in Medicare Advantage plans, which are managed
by private insurers.
Insurer shares were higher on Monday as the view changed to a
"less-worse" outcome, according to CRT Capital's Sheryl Skolnick.
Insurers will likely lobby for less of a cut, but even if they fail
to get it, she said, "it's not the disaster people thought it could
Humana said in a regulatory filing on Monday that its analysis
showed the proposed funding included cuts of about 3.5 percent to 4
percent. It had told investors earlier this month that it was
anticipating a cut of 6 percent to 7 percent.
The company said the funding calculation includes a positive effect
of 3.25 percent from an increasing number of younger, healthier baby
boomers in the mix of Medicare recipients.
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Humana also said that its analysis excluded risk assessments that it
planned to protest and which could potentially result in additional
significant funding declines. The government is expected to release
final Medicare payment rates on April 7.
An executive at another Medicare Advantage provider said on
Monday that his company was also interpreting the proposal as a cut
of about 4 percent. When the document was released on Friday, the
company initially viewed the cut as 8 to 10 percent, but after
further analysis over the weekend it found that the proposal
actually included an unexpected increase in payments related to the
baby boom population. The executive requested anonymity because he
was not authorized to discuss the matter.
A spokeswoman for Aetna said her company was still evaluating the
rate notice, but that it believed any cuts on top of last year's 6
percent would disrupt the Medicare Advantage program and be harmful
One analyst, Ana Gupte of Leerink Research, said she believes the
proposal represents a proposed cut of up to 7 percent but that
industry lobbying will reduce the cut to 3.5 to 4 percent in the
(Reporting by Caroline Humer in New
York; editing by Bernadette Baum and Matthew Lewis)
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