Health Insurer Stocks Off; Medicare Plans Modest Rate Increase

Date : 04/05/2011 @ 1:04PM
Source : Dow Jones News
Stock : Coventry Health Care, Inc. (CVH)
Quote : 49.99  0.0 (0.00%) @ 2:05AM

Health Insurer Stocks Off; Medicare Plans Modest Rate Increase

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Health insurance stocks slipped Tuesday after the government issued final 2012 Medicare Advantage rates that will be a bit above flat on average and slightly lower than the program's preliminary estimate.

The U.S. Centers for Medicare and Medicaid Services on Monday estimated rates for the privately run plans for seniors will increase a net 0.4% on average compared with 2011 levels. The program's preliminary rates announced in February would have meant a 1.6% increase.

Nonetheless, the more-modest increase in government funding to the plans remains in line with or higher than the rates some analysts had expected earlier this year. The increase reflects a slightly lower per capita national rate and the effect of quality bonus payments.

"While not ideal, the reduction yields a final rate still within the 0% to 1% range we feel most were expecting when the preliminary notice was issued," Stifel Nicolaus analyst Thomas Carroll said.

The final rule also places a 10% limit on total beneficiary cost increases, with plans that raise total beneficiary costs higher than that facing a more intense Medicare review and potential denial of the increase, Carroll noted.

"We still believe that a 10% threshold is manageable for well-run plans, but view this policy change as one that could lead plans with higher medical cost trends to falter," he wrote.

The drop from the preliminary rate is largely attributable to a lower estimate of physician costs compared with CMS's previous assumption, Citigroup analyst Carl McDonald said. The lower rate means plans will have to cut a few more incremental benefits, yet won't have a major effect on margins or earnings, he said.

Deutsche Bank analyst Scott Fidel noted that individual Medicare Advantage plan rates vary materially based on geography.

"MA plans will continue to have net positive rates in 2012 on average...although many counties will experience negative rate changes in 2012."

Citi's McDonald said the Miami area will see rates rise much more than average because of quality bonuses tied to a star rating program; this should benefit Humana Inc. (HUM) and HealthSpring Inc. (HS), he said.

A positive point for Medicare Advantage plans is that CMS did not increase its adjustment for hospital "coding intensity," which would have negatively affected final rates, Fidel noted.

Managed-care shares slid as much as 2%, with Health Net Inc. (HNT) off that much, Humana down 0.3%, WellPoint Inc. (WLP) off 1.4%, UnitedHealth Group Inc. (UNH) down 1.7%, Cigna Corp. (CI) down 1.3%, Aetna Inc. (AET) off 0.37% and HealthSpring down 0.2%. Shares of Coventry Health Care Inc. (CVH), in contrast to peers, rose nearly 0.3%.

-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-982-5582; dinah.brin@dowjones.com

 
 



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