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United States News Title: UnitedHealth, Humana Profit Threatened as Medicare Cuts Loom [Be Careful What You Lobby Against] Feb. 19 (Bloomberg) -- Medicare may announce cuts of as much as 4 percent in government payments to U.S. health insurers for policies serving the elderly, threatening profit growth at UnitedHealth Group Inc., Humana Inc. and HealthSpring Inc. The agency in charge of Medicare is due to announce preliminary rates today for insurers offering so-called Medicare Advantage plans in 2011. With President Barack Obama criticizing the $132 billion program as wasteful, the fees are unlikely to keep pace with companies’ costs, said Carl McDonald, an analyst with Oppenheimer & Co. in New York. Advantage has been “a huge driver” of industry earnings growth over the last three years, McDonald said in a Feb. 16 note. The program, which covers 11 million Americans, supplied 25 percent of sales last year for Minnetonka, Minnesota-based UnitedHealth, the biggest U.S. health insurer by revenue, and 56 percent of sales at Louisville, Kentucky-based Humana. “We cannot see an outcome, even with flat rates, that leads to earnings growth,” said Dave Shove, a BMO Capital Markets analyst in New York, who predicted a “reasonable chance” of a 3 percent to 4 percent cut. “This business is in a downward spiral aided by the negative political tenor from Washington.” In his Feb. 16 note to clients, Shove recommended selling Humana, HealthSpring, of Franklin, Tennessee, and Rye Brook, New York-based Universal American Corp. before the announcement. Costs, Fees The preliminary rates, to be made final in April, are based on Medicare’s projections of where costs will go in the coming year, adjustments for how doctors’ fees are expected to change, and the relative sickness of beneficiaries. MacDonald, who predicted a 1 percent to 2 percent cut, and Shove said their estimates are based on research into those components. While the politics in Washington suggest rates will drop, analysts can only guess at the final result, Shove said. The U.S. Centers for Medicare & Medicaid Services will announce the rates after U.S. markets close. Lambert van der Walde, a Medicare spokesman, declined to comment yesterday in a telephone interview. Whatever the agency decides, Humana is comfortable with Medicare Advantage as part of its strategy, said Chief Financial Officer James H. Bloem in a Feb. 8 interview. The company has 1.73 million enrollees in the program and a goal of overtaking UnitedHealth as the largest provider, he said. UnitedHealth has 1.99 million, McDonald said. “The way we deal with any cuts is we go last,” Bloem said. “The government says here is the price and we design the terms of the benefits. What you need to do is assess our ability to continue designing terms that appeal to seniors, and we think we’ve shown we can do that.” Humana Customers Humana added Medicare Advantage customers this year even as it raised premiums and curbed benefits to deal with last year’s cut, Bloem said. The company has long expected the government to bring rates closer to basic Medicare and is working to cut costs and help beneficiaries stay healthy, he said. For UnitedHealth, “ensuring our members have continued access to affordable Medicare Advantage plans, with benefits that matter most to them, will remain our top priority,” said Matthew Burns, a company spokesman, in an e-mail. “As this process moves forward, we will analyze the proposed rate structure and its potential impact on our members.” Jolene Sharp, a spokeswoman for HealthSpring, didn’t immediately return calls seeking comment. Advantage plans offer benefits beyond those in the basic Medicare plans provided directly by the government, including lower out-of-pocket costs and vision or dental care. While the program grew out of industry’s argument that it could offer coverage more efficiently, changes by Congress raised the government’s costs, according to a fact sheet from the Kaiser Family Foundation, a Menlo Park, California, philanthropy that studies health-care policy. Cuts in 2010 The Medicare agency announced a 4.5 percent cut in 2010 rates last Feb. 20. The 13-member Standard & Poor’s 500 Managed- Care index fell 11 percent on the next trading day, three times the loss of the broader S&P 500. Medicare Advantage accounted for 83 percent of HealthSpring revenue last year and 56 percent of Universal American’s, McDonald said. A Universal American spokeswoman, Martina Alisuag, declined to comment because the company was preparing to release its fourth-quarter earnings. Obama and fellow Democrats criticized the program last year, citing a report from Congress’ Medicare Payment Advisory Commission. The panel of outside experts found the government typically pays insurers about 14 percent more than it spends on its own to cover people in traditional Medicare. Treatment Costs Oppenheimer’s McDonald said a cut in reimbursement may be combined with a rise of as much as 4 percent in the cost of treating patients. Thomas A. Carroll, a Stifel Nicolaus & Co. analyst in Baltimore, said he expected anywhere from a 1 percent cut to a 1 percent rise, depending on how the government estimates future medical expenses and other data that go into the formula. A flat rate “wouldn’t be the end of the world” for insurers, who would cope by raising premiums, reducing benefits and cutting administrative costs, Carroll said. “It certainly wouldn’t be supportive for the stocks, either.” UnitedHealth rose 14 cents to $32.69 in New York Stock Exchange trading yesterday. Humana fell 44 cents to $46.20, HealthSpring lost 6 cents to $18.19 and Universal American rose 36 cents, or 2.5 percent, to $14.52. After today’s announcement, the agency will take comments on its proposal and announce final rates April 5. Insurers who participate can begin enrolling beneficiaries on Nov. 15. Physician Fees The rate will be lower partly because of a 26 percent cut in payments to physicians scheduled for next year. Such annual reductions are required by a 1997 law intended to balance the federal budget. While Congress has postponed them every year since, it hasn’t done so yet for 2010 or 2011. So the lower costs will be baked into the Medicare Advantage formula, said BMO’s Shove. “In spite of the actuarial and mathematical basis for the rate calculation, the rates have been better under MA-friendly presidents and worse under MA-unfriendly presidents,” he said. “President Obama is clearly in the second camp.”
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#2. To: war, badeye (#0)
So will the GOP oppose this spending cut too?
#3. To: go65 (#2)
When are the Democrats going to cut spending?
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