Health Insurer Stocks Off; Medicare Plans Modest Rate Increase
April 05 2011 - 1:04PM
Dow Jones News
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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