Ahead of the Bell: Insurer stocks continue climb

Insurer stocks continue climbing after CMS softens 2014 Medicare Advantage funding changes

Associated Press

Shares of several health insurers climbed in premarket trading Tuesday, a day after the federal government released final Medicare Advantage rate data for next year that points to less severe funding cuts than investors had originally feared.

Health insurers and analysts who cover the industry had warned that companies offering Medicare Advantage plans would be forced to cut benefits, hike the premiums their customers pay significantly or leave some markets after the Centers for Medicare and Medicaid Services released some preliminary data in February.

CMS said then that the amount it pays per person for the popular coverage could fall more than 2 percent in 2014. Some analysts said the actual payment Medicare Advantage plans receive could fall as much as 8 percent, counting other variables like a premium tax called for as part of the health care overhaul.

CMS allowed for a 45-day waiting period for comments before releasing final 2014 data on Monday. It then said it now expects the cost per person to rise more than 3 percent. Analysts expect that the amount that plans receive will still fall, but by a much lower extent.

The actual change in rates will vary by plan.

Citi analyst Carl McDonald said in a research note, "the rate adjustment sends a pretty clear message that CMS has no interest in seeing major disruption in the Medicare Advantage program right now."

More than 13 million people were enrolled in Medicare Advantage plans last year, or about 27 percent of the Medicare population, according to the Kaiser Family Foundation. That total has nearly doubled since 2006.

Medicare Advantage plans have become a key source of growth for insurers. The companies provide customers with basic Medicare coverage topped with vision or dental coverage, or premiums lower than standard Medicare rates.

BMO Capital Markets analyst Jennifer Lynch said in a separate note the adjustment will allow plans to maintain profitability and avoid pulling out of some markets.

"We believe this final rate notice provides insurers with enough flexibility to produce adequate margins for participation," she said.

Several health insurance stocks climbed Monday after the markets closed and CMS announced the final rates. That run continued Tuesday morning before markets opened.

Shares of Humana Inc. climbed 9.5 percent, or $7.12, to $82.14, and UnitedHealth Group Inc. rose 4.3 percent, or $2.54, to $61.51 in premarket trading Tuesday. Humana and UnitedHealth are the two largest providers of Medicare Advantage plans.

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