Enrollment in the U.S.-funded Medicare plans run by UnitedHealth Group Inc. (UNH), Humana Inc. and other insurers may rise 50 percent in the next decade rather than declining as predicted earlier, U.S. budget analysts said.
Medicare Advantage plans for the elderly and disabled will swell to 21 million participants by fiscal 2023 from 14 million this year, the Congressional Budget Office said yesterday in its annual review of the federal budget. The CBO didn’t explain the revision from its previous estimate that enrollment would fall to 11 million and a spokeswoman didn’t respond to an e-mail.
The reversal shows that a recent slowdown in health-care cost growth may be permanent, said Joseph Antos, a health economist at the American Enterprise Institute in Washington who has advised the CBO in the past. Medicare Advantage plans, which offer added benefits over traditional Medicare such as lower out-of-pocket spending, may be able to increase those benefits as costs slow.
“CBO really seems to have accepted hook, line and sinker that we’ve seen a shift down in that spending curve in general,” Antos said in a phone interview. Advantage plans will be better at “managing unnecessary costs out of the system.”
The CBO estimates Medicare will pay Advantage plans $250 billion in 2023 compared with $145 billion projected for this year.
While Minnetonka, Minnesota-based UnitedHealth is the largest Medicare Advantage provider by enrollment, Humana (HUM) is among the most dependent on the program. Louisville, Kentucky-based Humana gets 66 percent of its revenue and 58 percent of profit from Medicare Advantage, according to estimates by Cowen & Co. analysts.
“Membership growth has been an integral draw of the Medicare Advantage program,” helping insurers even as growth among private-sector plans has stalled, Jennifer Lynch, a BMO Capital Markets analyst in New York, said yesterday in a note to clients.
The Standard & Poor’s 500 Managed Care Index has jumped 19 percent this year, edging out gains of the broader S&P 500, as government policies on Medicare and on implementation of the 2010 health-care system overhaul turn out to be more favorable to insurers than some investors had anticipated.
UnitedHealth fell less than 1 percent today to $61.53 at 3:29 p.m. New York time. Humana fell less than 1 percent to $79.28. UnitedHealth shares rose 14 percent this year through yesterday, while Humana gained 16 percent.
U.S. health-care costs grew at an average annual rate of about 3 percent from 2009 to 2011, measured on a per capita basis, according to the Centers for Medicare and Medicaid Services. That’s less than half the rate in 2007, and a third of the rate in 1990. Economists are debating whether the slowdown in spending is mostly an outgrowth of the recession of 2008-2009 or if more permanent changes, including efficiency and care improvements at hospitals, have played a large role.
A policy change in April by the Obama administration may also have influenced the CBO’s projections, Antos said. The administration backtracked on a proposed 2.2 percent cut in payments to Advantage plans that was based on an assumed reduction in doctor compensation. The rate will now rise 3.3 percent next fiscal year.
The Advantage program “has proven too important to undermine and we expect the Center for Medicare and Medicaid Services, along with stakeholders, to eventually identify an appropriate level of funding to support sustainable” membership growth,’’ Lynch wrote in her note.
To contact the editor responsible for this story: Reg Gale at email@example.com