Ahead of the Bell: Med Advantage insurers slip

Medicare Advantage providers slip after government report points to more funding cuts for 2015

Associated Press

The federal government will ease potential funding cuts to Medicare Advantage plans next year, but the reductions still could translate into slimmer benefits and other disruptions for the fast-growing form of retiree health insurance coverage, industry watchers say.

Shares of some big Medicare Advantage plan providers slipped Monday before markets opened on the first trading day after the government released an assessment of cost factors that will affect the plans next year

Wall Street analysts said the Centers for Medicare and Medicaid Services report points to a 2015 funding reduction totaling anywhere from 4 percent to more than 7 percent. Those estimates count other factors like cuts to the program called for in the health care overhaul, the massive law that aims to fund insurance coverage for millions of people.

Final 2015 rates will be released in April, and analysts expect plenty of intense lobbying by insurers and their trade group America's Health Insurance Plans, or AHIP, between now and then to soften the cuts. AHIP has already been pressing for weeks against steep cuts with a multi-media marketing campaign.

Nearly 16 million people are enrolled in Medicare Advantage plans, which are run by private health insurers like UnitedHealth Group Inc. and Humana Inc. That amounts to about 30 percent of Medicare beneficiaries.

Medicare Advantage plans absorbed funding cuts last year. Insurers have said they are forced to pass on higher costs to seniors or cut benefits if their rates are reduced. Some plans may drop out of markets altogether if they can't make a profit. Insurers note that still-rising health care costs amplify the pressure the funding cuts place on their bottom lines.

BMO Capital Markets analyst Jennifer Lynch expects final rate reductions to be softened and noted that painful cuts will put more pressure on a government that is already dealing with a problem-filled overhaul coverage expansion.

"A second year of dramatic cuts to a senior program following the disastrous rollout of Healthcare.gov during an election year would provide endless political fodder," Lynch wrote.

Goldman Sachs analyst Matthew Borsch said in a separate note that even if cuts wind up on the lower end of expectations, or around 4 percent to 4.5 percent, that would be a significant hurdle for Medicare Advantage plans next year.

Despite the prospect of more funding cuts next year, Leerink analyst Ana Gupte expects Medicare Advantage programs to grow in the long term. She noted that aging Baby Boomers will help fuel enrollment gains, as will employers who are cutting their retiree benefits programs.

UnitedHealth and Humana are the two largest Medicare Advantage plan providers. Shares of UnitedHealth fell 29 cents to $72.52 about a half hour before markets opened Monday, while Humana dropped 32 cents to $102.50.

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