Insurers to Get Higher Medicare Payments
Posted on: Tuesday, 3 April 2007, 12:00 CDT
By MATTHEW PERRONE
WASHINGTON - Shares of some of the largest health insurers rose in morning trading Tuesday after the government announced higher-than-expected payment increases for companies that operate private Medicare plans.
The Centers for Medicare and Medicaid Services said late Monday they will raise preliminary payments to companies that run Medicare Advantage programs by 3.5 percent for 2008. Market analysts had predicted the reimbursement rate to insurers for each Medicare participant they cover would be limited to increases of between 2 percent and 3 percent.
Of the 43 million Americans 65 years or older who receive health care through Medicare, about 8 million are enrolled in Medicare Advantage plans run by private companies. The program was designed to expand Medicare and better manage costs, though recent statistics show the government spends more on patients in Medicare Advantage plans than those in traditional Medicare.
The government's announcement should particularly benefit Louisville, Ky.-based Humana Inc., which makes nearly half its earnings through the Medicare Advantage program. Wachovia Securities analyst Matt Perry reaffirmed an "outperform" rating for the stock, saying the payment update "bodes well for Humana shares."
The company's stock rose $2.47, or 4.2 percent, to $61.52 in late morning trading on the New York Stock Exchange. Competitor Wellcare Health Plans Inc., which makes a quarter of its revenue from Medicare Advantage, rose $2.40, or 2.8 percent, to $89.24.
Prudential Analyst David Shove retained an "underperform" rating on Humana but raised its price target to $50 from $45, writing in a research note that the "rate increase should produce stronger earnings than previously anticipated."
Shove said the Medicare Advantage plans remain "a high risk business with a large congressional target on its back," as Democrats in the House of Representatives look at cutting payments to the program to fund other priorities.
Congressman Pete Stark, D-Calif., held a hearing last month looking at whether Medicare Advantage providers are overpaid after a nonpartisan advisory group reported that the government spends 12 percent more to insure beneficiaries in Medicare Advantage plans compared with traditional Medicare.
The 2008 payment update will likely be seen as too generous by Democratic lawmakers "setting stage for continued rancorous legislative debate on the issue," according to Deutsche Bank analyst Scott Fidel.
Shares of UnitedHealth Group Inc. rose 85 cents, or 1.6 percent, to $54.58, while shares of Aetna Inc. rose 89 cents, or 2 percent, to $45.08, both in late morning trading on the New York Stock Exchange. Shares of Coventry Health Care Inc. rose $1.20, or 2.1 percent, to $58.14, also on the NYSE.
Source: Associated Press/AP Online
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