WASHINGTON (Reuters) - Health officials on Friday proposed an increase in government payments to private insurers that offer Medicare health coverage to seniors, a major area of growth for the industry.
The Centers for Medicare & Medicaid Services (CMS) announced a preliminary 1.38 percent hike for 2011 to a baseline rate for so-called Medicare Advantage plans.
The net increase would be 1.28 percent because they do not include an add-on payment that companies got this year.
Shares of two of the largest Medicare Advantage providers rose on the announcement, which two analysts said was positive for insurers that have been under attack in Washington as Democrats try to salvage stalled healthcare reform legislation.
Humana shares rose 3.2 percent to $46.79 in after-hours trade from their $45.35 close. UnitedHealth Group's stock was up 1.1 percent in extended trading.
Final rates are set to be announced in 45 days. The rates could increase modestly when Medicare factors in county-level spending data.
Investors had been expecting anywhere from a decline of 2 percent to a 2 percent increase in Medicare Advantage payments, Capitol Street analyst Ipsita Smolinski said.
"This appears to be a positive update," she said.
"Anything above negative 1 percent is good news. I think that should be reflected in the stocks on Monday," she added.
Ana Gupte, an analyst with Sanford Bernstein, said the rates "were much better than consensus expectations."
Shares of insurers involved in the program "should see some lift, particularly Humana should seem some lift," she said.
Humana and UnitedHealth said they were reviewing the preliminary rates.
"We will study them for the next few days and weeks. We are going analyze the potential impact on the company with the understanding that they might change," Humana spokesman Tom Noland said.
UnitedHealth spokesman Matt Burns said "we will analyze the proposed rate structure and its potential impact on our members and their benefits."
Medicare Advantage has been one of the main growth areas for the health insurance industry, at a time high unemployment has led to lower membership in its main business of providing employer-based health plans.
The 10.2 million beneficiaries enrolled in Medicare Advantage last year is nearly twice as many as in 2003, and make up 23 percent of the 45 million enrolled in Medicare, according to the Kaiser Family Foundation.
But many analysts believe the program could become less desirable to the companies as the government looks to reduce or eliminate subsidies for the plans.
The preliminary rates were announced as insurers are under fire in Washington while President Barack Obama tries to resurrect healthcare legislation that could force future cuts to insurer payments.
Analyst Gupte said Friday's announcement showed the Obama administration wanted to preserve Medicare Advantage as an option for seniors.
"It does not appear there is a political motivation to make the rate increases so onerous that the program disappears altogether," she said.
Details on the preliminary rates were posted on the CMS website at http://www.cms.hhs.gov/apps/media/press/factsheet.asp?Counter=3588&intNumPerPage=10&checkDate=&checkKey=&srchType=1&numDays=3500&srchOpt=0&srchData=&keywordType=All&chkNewsType=6&intPage=&showAll=&pYear=&year=&desc=&cboOrder=date.
(Reporting by Lisa Richwine and Bill Berkrot, Editing by Tim Dobbyn and Richard Chang)
