CMS released 2010 Medicare Advantage payment rates
24 02 09 - 15:03
Insurer Stocks Tumble After Medicare Announcement
By THE ASSOCIATED PRESS - The New York Times
INDIANAPOLIS (AP) -- Several managed care stocks sank sharply Monday, one trading day after the government surprised analysts with a lower-than-expected increase in Medicare Advantage reimbursements for 2010.
The Centers for Medicare and Medicaid Services released preliminary 2010 Medicare Advantage payment rates after the markets closed on Friday. Those rates showed a reimbursement increase of a half-percent.
Goldman Sachs analyst Matthew Borsch said in a research note he expected an increase of between 3 percent and 5 percent. He predicted that Medicare Advantage plans will need to cut benefits to maintain their profit margins, a tricky task when dealing with increased competition.
But he also noted that the rate plans are preliminary. Final rates will be announced April 6.
Medicare Advantage plans are government plans in which patients receive their benefits through a private health insurer and are not traditional Medicare benefits. The plans also include prescription drug coverage.
The information released Friday means most Medicare Advantage plans will likely see reimbursement fall modestly next year, Oppenheimer analyst Carl McDonald said in a research note.
BMO Capital Markets analyst Dave Shove said in a phone interview that rates for them have increased more than 4 percent this year and last.
Shove downgraded Humana Inc., HealthSpring Inc. and Universal American Corp. to ''Underperform'' in a Monday research note. He noted that all three insurers have greater exposure to Medicare Advantage as a percentage of total earnings.
In contrast, Shove kept an ''Outperform'' rating on shares of Aetna Inc. and Cigna Corp., which have relatively low levels of exposure to Medicare Advantage and the Part D drug benefit.
''Medicare is Humana's growth engine, and we believe it is about to stall out,'' he wrote. ''We feel that while Humana's commercial business is running well, it does not guarantee enough earnings power to support current growth expectations.''
Humana shares sank 23 percent, or $9.32, to $31.22 in Monday afternoon trading.
The Louisville, Ky.-based insurer reaffirmed its 2009 profit outlook Monday. But it also said the preliminary 2010 payment rates may have ''a significant adverse impact'' on Medicare Advantage premiums and benefits.
Humana said in a statement it finds some assumptions behind the preliminary rates ''to be unusual and inconsistent with decades of experience and with past CMS practice.''
The insurer said it will examine assumptions on increases in medical costs and the economy's impact on medical spending.
The preliminary rates also account for a 20 percent Medicare reimbursement cut for doctors. Stifel Nicolaus analyst Thomas Carroll said in an interview that cut likely will be softened, but not before Medicare Advantage rates are set, potentially leaving insurers stuck with the difference.
''I guess I would characterize it as a back door cut to Medicare Advantage plans,'' he said.
HealthSpring Inc. shares fell 32 percent, or $4.74, to $10.07; Universal American shares dropped 17 percent, or $1.73, to $8.41; UnitedHealth Group Inc. shares nearly 16 percent, or $4.43, to $23.55; and Coventry Health Care Inc. shares dropped more than 10 percent, or $1.66, to $14.07.
Shares of Aetna Inc. fell 6 percent, or $1.86, to $27.96, while the shares of both WellPoint Inc. and Cigna Corp. dropped around 5 percent.
The Standard & Poor's 500 index fell 3 percent.