Humana Falls in Early Trading on Medicare Advantage Rates

Humana Inc., the second-biggest private Medicare insurer, declined the most in three months after saying the U.S. government’s preliminary Medicare Advantage payment rates were less than the company expected.

Humana dropped 6.4 percent to $73.01 at the close in New York, the biggest single-day drop since Nov. 7. The Louisville, Kentucky-based company said it is “closely analyzing all operational avenues” under the new rate proposal after earlier this month predicting it could boost revenue from Medicare membership next year.

The Centers for Medicare and Medicaid Services said Feb. 15 that proposed Medicare Advantage rates will fall by more than 2 percent in 2014. Humana said in a corporate filing today that it may see a “mid-single-digit” decline after expecting a “flat to slightly down” drop. The rate cuts won’t be made final until April 1, leaving room for insurers to push for changes, said Jennifer Lynch, an analyst with BMO Capital Markets.

“There is some language in the advanced notice that leaves the door open for improvements to the final rate,” Lynch said in a note to clients. “Many changes are scheduled to take place in 2014, and we believe it is in the best interest of the CMS to limit program disruption in such a transformative year.”

Medicare Advantage is a program sold by commercial insurers that covers and helps coordinate medical services, physician fees and hospitalizations. UnitedHealth Group Inc. is the largest Medicare Advantage provider.

The proposed rates also sent other insurers’ shares down. UnitedHealth Group Inc., the largest U.S. health insurance provider, fell 1.2 percent to $56.66 and Cigna Corp. declined 1.1 percent to $60.43.

To contact the reporter on this story: Shannon Pettypiece in New York at spettypiece@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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