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WASHINGTON (Bloomberg)—UnitedHealth Group Inc. and Humana Inc. are among the insurers who will receive the same payment rates in 2011 as this year for administering health plans for the elderly, according to rules issued by Medicare.
The health care overhaul signed by President Barack Obama last month mandated a freeze in payments in the Medicare Advantage program, the U.S. Centers for Medicare & Medicaid Services said in a statement posted Monday on its Web site. Before the announcement, the program was expected to account for 14% of earnings next year at Minnetonka, Minn.-based UnitedHealth and 42% for Louisville, Ky.-based Humana, Dave Shove, a BMO Capital Markets analyst based in New York, said March 31 in a note to clients.
The health overhaul calls for $130 billion in cuts over the next decade to Medicare Advantage, which covers 11 million people and has been criticized by President Obama as a corporate giveaway. While the 2011 rates won't keep up with rising medical costs, insurers will offset some of the expense by raising premiums on customers, said Brenda Gleason, a health-policy consultant to drug companies and private equity firms.
“I don't think you're going to see any major hit to earnings to these companies in the next 12 months,” Ms. Gleason, president of Washington-based M2 Health Care Consulting, said Monday in a telephone interview. “They're well-prepared to do what they need to do as far as contracting goes.”
Investors may see the rate freeze as good news Tuesday for Healthspring Inc. of Franklin, Tenn., and Coventry Health Care Inc. of Bethesda, Md., said Brian Wright, a Collins Stewart L.L.C. analyst, in a note to clients. Medicare Advantage accounted for 88% of premiums collected by Healthspring last year and 33% of Coventry's, according to data collected by Bloomberg.
“Given the modestly better-than-expected rate change, we would expect those with the most Medicare exposure to show relative strength,” Mr. Wright said.
Medicare proposed a preliminary increase of 1.28% in February. That was reduced in the final rules issued Monday because the health care law required the rates remain unchanged, the agency said in its statement. Because of uncertainty about how the law would be interpreted, some investors feared a rate cut of as much as 4%, Mr. Wright said.
The companies have the two highest Medicare Advantage enrollments.
Advantage plans offer benefits beyond those in the basic Medicare program provided directly by the government, among them lower out-of-pocket costs and vision or dental care. While the program grew out of industry’s argument that it could cover people more efficiently, changes by Congress have raised the government’s costs, according to a November report from the Kaiser Family Foundation, a Menlo Park, Calif., philanthropy that studies health care policy.
President Obama and fellow Democrats criticized the program last year, citing a report from Congress’ Medicare Payment Advisory Commission. The panel of outside experts found the government paid insurers about 14% more than it spends on its own to cover people in traditional Medicare.