(Update share prices in ninth paragraph.)
April 8 (Bloomberg) -- UnitedHealth Group Inc. and Humana Inc. are among the health insurers that will see their base U.S. government payment rate reduced 4 percent next year for Medicare Advantage programs for elderly Americans.
While the base payment rate cut is more than the government’s proposed 3.55 percent reduction in February, the Centers for Medicare and Medicaid Services said yesterday in a letter to insurers that it’s delaying a proposal that would have lowered payments further. The agency put off a limitation on home assessments that industry analysts said would have meant an additional 2 percent cut for insurers.
About 15.9 million people, or 30 percent of Medicare beneficiaries, chose Advantage plans this year over the regular government-run program for the elderly and disabled, according to data from the government. Insurers have mounted a lobbying campaign to deter the cuts, enlisting letters from Republican and Democratic lawmakers and generating 56,000 phone calls from seniors, according to the industry’s Washington lobbying group America’s Health Insurance Plans, which called it their “largest-ever mobilization.”
“This is a tough series of cuts,” John Gorman, executive chairman of Gorman Health Group, a consulting firm in Washington, said before the announcement. “2014 and 2015 from a rate standpoint are likely to be the two worst years in Medicare Advantage in well over a decade.”
The total effect of the government’s payment rates will vary by plan and location. CMS said the combined net effect of the changes to the Advantage program will be a 0.4 percent increase next year. Insurance analysts from Susquehanna Financial Group, Citigroup Global Markets Inc. and JPMorgan Research estimated in notes today that the effect would be a drop of 3 to 4 percent.
The cuts will have the greatest impact on Louisville, Kentucky-based Humana and Minnetonka, Minnesota-based UnitedHealth, the biggest U.S. health insurer, said Ana Gupte, an New York-based analyst at Leerink Swann & Co. UnitedHealth has about 3 million Advantage enrollees in 2013 while Humana had almost 2.5 million, according to data compiled by Bloomberg.
Humana said it now anticipates a 3 percent reduction based on a preliminary analysis of the CMS letter. The insurer had expected a cut of 3.5 to 4 percent, according to a company filing today.
UnitedHealth spokesman Matt Stearns declined to comment yesterday after CMS released its decision, saying the company needed time to evaluate the notice.
Humana fell less than 1 percent to $111.27 at the close in New York. UnitedHealth declined less than 1 percent to $80.66.
The payment reductions will cause enrollment to decline in the Advantage program next year for the first time since 2004 as insurers drop out or trim benefits in response, Medicare’s actuaries have said.
“In 2015 the availability of additional benefits and reduced out-of-pocket costs is going to be reduced pretty dramatically in many markets,” Gorman said. “The products themselves are going to be a lot less attractive in 2015 to beneficiaries.”
Still, the Congressional Budget Office predicted the program will remain popular and participation may rise as much as 50 percent in the next decade to 21 million by fiscal 2023.
Consumers who choose Advantage plans opt for managed care with benefits that can include lower out-of-pocket costs, compared with the traditional Medicare program. Government payments have been under pressure since 2010, when the U.S. health expansion was financed in part by reducing spending on Advantage plans by an estimated $206 billion over a decade.
At the time, U.S. spending for Advantage beneficiaries was estimated to be as much as 13 percent higher than for people enrolled in traditional Medicare, leading to criticism the private plans were overpaid.
The administration raised 2014 base payments for Advantage insurers by 3.3 percent last year, after initially proposing a 2.2 percent reduction. Insurers said other government decisions -- including a new tax on the industry under the Affordable Care Act and budget sequestration ordered by Congress -- reduced their Advantage payments about 6.7 percent in total this year.
Insurers had predicted total cuts of as much as 6.5 percent for next year.
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