UnitedHealth Group Inc., Humana Inc. and other medical insurers won an increase rather than a reduction in U.S. payments for Medicare Advantage plans starting next year. Humana jumped 8.6 percent.
The February proposal for a 2.2 percent cut in a rate that determines the payments is being revised to a 3.3 percent increase, according to a final rule posted today by the Centers for Medicare and Medicaid Services. The decision was made after insurers and more than 130 lawmakers complained that the Obama administration relied on faulty accounting assumptions.
Insurers had threatened to reduce benefits in Medicare Advantage plans if the rate cut was maintained. About 13.1 million elderly and disabled Americans are enrolled in Advantage plans instead of the traditional Medicare program, enticed by added benefits such as lower out-of-pocket spending and discounts for gym memberships and eyeglasses.
Humana, based in Louisville, Kentucky, gets 66 percent of its revenue and 58 percent of profit from Medicare Advantage, leading the industry, according to estimates by Cowen & Co. analysts. Minnetonka, Minnesota-based UnitedHealth, the largest U.S. insurer, and Health Net Inc., based in Woodland Hills, California, each get 25 percent of revenue from Advantage plans.
The Standard & Poor’s 500 Managed Health Care Index rose 2.8 percent. Humana shares led insurers and closed at $75.02. WellCare Health Plans Inc. gained 3.9 percent, while UnitedHealth increased 3.1 percent.
The government estimates that it spent about $136 billion on the plans in 2012.
Initial Calculation
Medicare’s initial calculation for the Advantage rate assumed Congress would let stand a 25 percent decrease in doctors’ pay, which is a component of the overall reimbursement to the insurance companies. That trimming of rates to physicians is required by a provision in a 15-year-old balanced budget deal that has been overridden by Congress every year since 2002 in a maneuver nicknamed “The Doc Fix.”
More than 130 lawmakers wrote the Obama administration asking for the Advantage cut to be reconsidered, according to America’s Health Insurance Plans, the industry’s Washington- based lobby group.
The Medicare agency said at the beginning of March that it only assumes current law in all proposed rates. The Congressional Research Service said in a report about three weeks later that Medicare had the authority to set Advantage rates based on the assumption that Congress would pass a “Doc Fix.”