A Goldman Sachs analyst says forecasts for some health insurer earnings per share next year could slide as much as 10 percent if steep Medicare Advantage funding cuts materialize.
Analyst Matthew Borsch said in a Wednesday morning research note that insurers like Humana Inc. and Universal American Corp. face the most exposure to potential cuts. Medicare Advantage makes up a higher proportion of total enrollment for those insurers compared to other companies in the sector.
Borsch said forecasts for other insurers like UnitedHealth Group Inc., Health Net Inc. and WellCare Health Plans Inc. could drop 5 percent.
The analyst said earnings from just the Medicare Advantage portion of public companies could sink as much as 25 percent, even after insurers try to balance funding cuts by chopping member benefits or operating costs.
Medicare Advantage plans are privately run versions of the federally funded Medicare program for the elderly and disabled people, and the coverage represents a fast-growing market segment for insurers. Borsch noted that total enrollment in the plans has more than doubled over the past decade to about 14 million covered lives.
UnitedHealth Group and Humana are the two largest providers of Medicare Advantage coverage.
Health insurance investors and analysts have worried about funding problems since the federal government released data last month that points to possible steep Medicare Advantage payment cuts in 2014.
The Centers for Medicare and Medicaid Services said Feb. 15 that it expects costs per person for Medicare Advantage plans to fall more than 2 percent in 2014, a bigger drop than many analysts who cover the industry anticipated. The government uses that figure as a benchmark to determine payment.
Medicare Advantage plans also face cuts from the health care overhaul and from the steep federal budget cuts that started in March. Insurer profits from the plans also are expected to be squeezed by the growing cost of care and a premium tax imposed to help fund the overhaul, which aims to cover millions of uninsured people.
CMS will announce final rates in April, and insurers have been lobbying hard for the government to find ways to soften any cuts. The industry trade group America's Health Insurance Plans said Wednesday it is launching a television and ad campaign entitled "Too Much" to highlight the possible impact of the cuts.
Shares of Humana fell 59 cents to $66.85 in Wednesday morning trading, while Universal American climbed 9 cents to $8.67. UnitedHealth dropped 10 cents to $53.40, Health Net climbed 20 cents to $26.02 and WellCare rose 98 cents to $57.02.