Managed-care stocks tumbled and then recovered a bit Tuesday after the government released 2010 Medicare Advantage rates that should result in payment cuts of at least 4% - a development read as a sign of Obama administration resolve to trim funding for the privately overseen health plans for seniors.

After the market close Monday, the Centers for Medicare and Medicaid Services issued 2010 rates that were seen as only slightly more favorable to Medicare Advantage health insurers than were the amounts initially proposed in February. The initial proposal sparked a managed-care selloff.

Despite the slight improvement in the final rates, some investors apparently surmised the outlook for Medicare Advantage will dim under President Obama.

The Standard & Poor's 500 managed-care subindex was down 4.3% in early trading and then more recently was up 2.2%. Health insurer stocks recently traded in a range from roughly down 2% to up 4%, with Humana Inc. (HUM), the most exposed to Medicare Advantage among the diversified national insurers, recently trading up 83 cents, or 3.2%, to $27.14.

CMS, part of the U.S. Department of Health and Human Services, said it will increase baseline Medicare Advantage rates by 0.81%, compared with the 0.5% initial proposal. With adjustments, reimbursements to Medicare Advantage plans could decline by 4% to 5% in 2010, according to various analyst estimates, which are in line with or slightly more favorable to insurers than the levels they had estimated based on the initial proposal.

"Bottom line, not much new from the final rate view, perhaps just further signs of the less private-sector friendly CMS," JP Morgan analyst John Rex wrote. "Perhaps after eight years of an administration that favored private-sector involvement in Medicare, the bias has changed, a reality we will likely live with for a number of years, and we believe significantly constraining valuations for Medicare business."

Wachovia analyst Matthew Perry said reimbursements should decline 4% in 2010, compared with his estimate of 4% to 5% under the initial proposal. He cited "a very thin silver lining," namely that CMS indicated if congress overrides a planned 20% physician pay cut, the agency will explore options for incorporating that change into Medicare Advantage payments for 2010.

"However, CMS also implied that Congress would need to act before the June 1 deadline for plans to submit 2010 bids. We do not think Congress will act that quickly, thus it seems unlikely CMS will adjust 2010 rates upwards," Perry wrote.

Credit Suisse analyst Gregory Nersessian viewed the final rates as a modest positive for Medicare Advantage plans, even though the rate outlook is negative and will pressure Medicare enrollment or margins, or both. He lowered his 2010 per-share earnings estimates for Humana and WellCare Health Plans Inc. (WCG).

-By Dinah Wisenberg Brin, Dow Jones Newswires;

215-656-8285; dinah.brin@dowjones.com