Humana to benefit from growing Medicare eligible population
Humana: Health insurance for the masses (Part 5 of 14)
Medicare Advantage
The U.S. Census Bureau projects that the Medicare eligible population will rise from 13.5% of the total population in 2012 to more than 20% by 2030. Given Medicare’s attractive reimbursement rates, the private health insurance industry (XLV) is seeing a rise in MA (Medicare Advantage) enrollments.
MA is a health insurance program provided by managed care organizations to Medicare beneficiaries. It’s a substitute for the Original Medicare and involves insurance for inpatient and outpatient services.
Enrollments and payments
The above graph shows how Humana’s (HUM) MA enrollments are expected to increase at a 14% compounded annual rate from 2013 to 2015. The government pays a set amount each month for every enrolled member, called the capitation rate.
MA reimbursement rates are based on per capita costs for patients. The Center for Medicare and Medicaid Services, or CMS, has hinted at higher MA reimbursement rates for fiscal 2016. A 3.3% decline in per capita cost was used to calculate MA rates for fiscal 2015. In fiscal 2016, CMS proposes to instead use a 2.02% increase in the costs as a benchmark. This will substantially increase the reimbursement rates.
Humana, with its high exposure to MA revenues, will benefit the most from this increase, followed by Aetna (AET), UnitedHealth Group (UNH), and Cigna (CI). For more on the MA payment mechanism, read Why Medicare Advantage drives health insurance stocks.
Star ratings
Since 2012, CMS has paid bonuses to managed care players for health plans receiving a rating of four stars or more based on certain evaluation criteria. As the chart above illustrates, Humana is looking to improve the quality of its healthcare plans and, based on CMS criteria, grow the membership in its “four-star-plus” plans from 40% in 2014 to 92% in 2016.
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