Federal Regulators Propose Increase to Medicare Advantage Rates

February 23, 2016

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Source: The Wall Street Journal

Federal regulators proposed what they said was a slight rise in payments for insurers that offer private Medicare plans, a closely watched figure as this coverage becomes increasingly central to the companies’ business.

The Centers for Medicare and Medicaid Services estimated that the Medicare Advantage rate proposal represented a 1.35% increase on average for 2017, though the agency said the insurers would likely see overall revenue increase about 3.55% as they deliver—and bill for—more intensive services.

Sean Cavanaugh, CMS deputy administrator, said the rates represented “modest but stable growth.”

The CMS figure is roughly in line with what analysts expected, said Sarah James, an analyst with Wedbush Securities.

The stakes are high for many health insurers, which count on Medicare dollars for a significant share of their earnings.

Medicare beneficiaries can choose to go with private alternatives to government-run Medicare, known as Medicare Advantage. These plans are provided by insurers that are paid by the federal government.

The biggest participants in the Advantage program include Humana Inc. andUnitedHealth Group Inc. In a sign of the value the industry attaches to the Medicare business, Aetna Inc. is seeking to acquire Humana for $34 billion; the deal awaits approval by regulators.

Medicare is considered as a major growth engine for the industry as more baby boomers reach 65, qualifying for the program. About 18.2 million people are now enrolled in Medicare Advantage plans, according to Wells Fargo, an increase of more than 5% over the year-ago figure.

The Medicare Advantage rates include a lot of regulatory tweaks that can push payments up or down for particular companies, depending on their mix of business. For instance, the agency is proposing a change that could benefit companies with many enrollees who are very low-income and qualify for both Medicare and Medicaid, known as “full-benefit duals,” analysts said.

However, companies with few or none of these enrollees might be hurt by the methodology shift, said Chris Rigg, an analyst with Susquehanna Financial Group. “There will be winners and there will be losers,” he said.

The Friday proposal pegged one key measure of Medicare cost growth at 3.06%, almost the same as the 3.1% that agency actuaries projected in December. “It’s very consistent with the preview,” which was generally seen as positive by insurers, said Tim Courtney,an actuary at Wakely Consulting LLC.

In past years, regulators have sometimes made significant changes between their proposal and the final policy. The final 2017 rates will come out in early April.

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