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Proposed 2014 Medicare Advantage rates cut insurer payments

A customer leans against the pharmacy counter in Arkansas May 31, 2007. REUTERS/Jessica Rinaldi
A customer leans against the pharmacy counter in Arkansas May 31, 2007. REUTERS/Jessica Rinaldi

By Caroline Humer

(Reuters) - Proposed reductions in government payments for Medicare Advantage insurance plans - estimated at $11 billion by an insurance industry trade group - sent health insurer shares lower on Tuesday.

Humana Inc said that the planned cuts would affect its growth in 2014, and its shares fell as much as 10 percent. Insurers UnitedHealth Group Inc, Aetna Inc and Cigna Corp also were slightly down.

Medicare Advantage is the Medicare program in which private insurers provide health insurance to seniors and are reimbursed by the government.

"These changes will disrupt coverage for Medicare Advantage beneficiaries at a time when evidence clearly demonstrates that Medicare Advantage provides higher-quality care than the fee-for-service part of Medicare," Karen Ignagni, president of America's Health Insurance Plans, said in a statement.

On Friday, the government's Centers for Medicare and Medicaid Services announced several proposed rules for Medicare programs, including lower payment rates for Medicare Advantage. Changes are now subject to a comment period and the final rules will be published on April 1, CMS said.

The government also proposed the level of profits that insurers can earn on their businesses, known as Medical Loss Ratios, for Medicare Advantage and Medicare prescription plans.

Insurers receive a set fee per person for Medicare Advantage's members from the government to pay doctors. In other Medicare health insurance plans, doctors are reimbursed by the government based on each service they provide. About 14 million people have Medicare Advantage plans, AHIP said.

Humana, which has about 2 million customers in Medicare Advantage, said in a regulatory filing that the government's proposed 2014 payment rates were too low.

The preliminary base payments rates for Medicare Advantage implied a mid-single-digit decline in rates for the company, Humana said. The company said it based its membership and earnings growth outlook for 2014 on the expectation that the base Medicare Advantage payment rate would be flat to slightly down.

"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," Humana said in a regulatory filing.

Humana has said it expects 2013 earnings of $7.60 to $7.80 per share. Analysts expect 2014 earnings of $8.46 per share, according to Thomson Reuters I/B/E/S.

HEALTHCARE REFORM

Changes in Medicare Advantage rates are part of President Barack Obama's healthcare overhaul. The government said in its announcement that Medicare Advantage rates have fallen 10 percent since the Affordable Care Act was passed in 2010.

The rate cuts and rule changes represent an 8 percent reduction in total for 2014 payments from 2013, or potentially worse, CRT Capital Group analyst Sheryl Skolnick said in a research note.

Should the rules become final, Skolnick said she would expect UnitedHealth to exit many Medicare Advantage markets and experience a significant or severe contraction in that business. But she said that as with past rule changes, expected lobbying over the next few weeks by insurers may affect the final rule.

Humana shares fell 6.4 percent to $72.98 in New York Stock Exchange trading. Shares in UnitedHealth Group Inc, another large provider of Medicare Advantage plans, were down about 1.8 percent at $56.28. Aetna fell 1.2 percent to $48.59 and Cigna dropped 1.6 percent to $60.10.

Cigna declined to comment. UnitedHealth and Aetna were not immediately available for comment.

(Reporting By Caroline Humer; Editing by Maureen Bavdek and Nick Zieminski)

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