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Humana, UnitedHealth Gain as Medicare May Raise Payments

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March 27 (Bloomberg) -- Humana Inc. and UnitedHealth Group Inc. rose after congressional researchers said the U.S. Medicare program has the authority to raise payments to insurers.

A proposed 2.2 percent reduction in a rate that determines payment to private Medicare Advantage plans can be rescinded if officials assume Congress will block a 25 percent cut in physicians’ pay scheduled next year under a formula called the Sustainable Growth Rate. Medicare administrators have said they must take into account the annual cut when deciding Advantage plan rates, though Congress hasn’t implemented the proposed doctor pay reductions for a decade.

The nonpartisan Congressional Research Service said in a memorandum yesterday that Kathleen Sebelius, the U.S. health secretary who oversees Medicare, has the authority to assume Congress won’t allow the cut in doctors’ pay. Doing so would improve the insurers’ payment rate by 4 or 5 percentage points, according to America’s Health Insurance Plans, a Washington-based lobbying group for the industry.

“The chances of an assumed SGR fix now are, more than ever, an exercise of political calculus by the administration,” Christine Arnold, an analyst with Cowen & Co. in New York, said today in a note, using an acronym for the doctor-pay formula.

Humana is more exposed to Medicare than any other insurer. The Louisville, Kentucky-based company gets 66 percent of its revenue and 58 percent of its profit from Medicare Advantage plans, leading the industry, according to Cowen & Co.

Plan Revenue

UnitedHealth, the largest U.S. insurer, and Health Net Inc., based in Woodland Hills, California, each get 25 percent of their revenue from Advantage plans, tied for second-most among insurers. UnitedHealth, based in Minnetonka, Minnesota, earns more money from Advantage plans than any other insurer, about $10.3 billion a year before interest, taxes, depreciation and amortization.

Humana gained 3 percent to $68.72 at the close New York, its largest single-day increase since Feb. 4. UnitedHealth rose 1.7 percent to $56.62, the most since Feb. 5.

Insurers have pressured Sebelius to reverse the cut in their rates, warning they will reduce benefits in Medicare Advantage plans if it becomes final. The companies have encouraged Medicare beneficiaries to lobby their congressional representatives against a cut, and more than 130 lawmakers have sent letters to the Medicare agency urging reconsideration, according to the insurance group.

‘Massive Disruption’

The research service report confirms that the Medicare agency “has the authority to set Medicare Advantage payment rates based on what is likely to happen in Congress, which would help prevent massive disruption for seniors in the program,” Karen Ignagni, AHIP’s president and chief executive officer, said in an e-mail sent by the group.

U.S. Senator Max Baucus of Montana, the chairman of the Senate Finance Committee, and Senator Orrin Hatch of Utah, the senior committee Republican, wrote in a March 15 letter to Marilyn Tavenner, acting administrator for the Centers for Medicare and Medicaid Services, that the cut in doctor payment “will never occur.” The committee supervises Medicare.

About 13.1 million elderly and disabled people are enrolled in the private Advantage plans that offer lower out-of-pocket costs and some different benefits than the traditional Medicare program.

Donald Nathan, a spokesman for UnitedHealth, and Alex Kepnes, a Humana spokesman, declined to comment on the memo.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

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