United, Humana Get Surprise Medicare Revenue Boost From U.S.

Health insurers such as UnitedHealth Group Inc. and Humana Inc. will see revenue for commercial Medicare policies increase 1.25 percent next year, reversing an earlier U.S. government proposal that would have cut payments.

The announcement was a surprise, since the U.S. has been reducing payments to insurers as it seeks to bring the cost of privately managed Medicare coverage in line with the government-run version of the program for the elderly and disabled. Payments are already falling 4 percent this year, and in February the U.S. proposed an 0.9 percent reduction for 2016.

Instead, insurers will get an increase next year, thanks to a higher estimate of traditional Medicare spending, according to a document released Monday by the Centers for Medicare & Medicaid Services. The payment increase doesn’t stem from a change in policy, the agency said.

“Growth rates reflect the actuary’s best estimate of Medicare spending, and don’t reflect any change in our policies,” Sean Cavanaugh, director of the Center for Medicare, said on a conference call with reporters.

UnitedHealth was the top provider of Medicare Advantage plans last year, with about 3 million people on its rolls. Humana had 2.9 million enrollees, and Anthem Inc. served 1.4 million.

UnitedHealth gained less than 1 percent to $118 in trading after the market closed in New York. Humana advanced 1 percent to $180.

Making Cuts

The Obama administration has been pushing to contain costs for Medicare Advantage since the 2010 passage of the Affordable Care Act. At the time, U.S. spending for Advantage beneficiaries was estimated to be as much as 13 percent higher than for people enrolled in traditional Medicare. The government now spends about 2 percent more per person on the private program.

America’s Health Insurance Plans, which represents insurers, has called on the U.S. to avoid cutting payments. The industry group has said cuts increase costs for the elderly.

The actual rate change could vary among plans, since Medicare adjusts payments to insurers by location and based on the health of their customers. The U.S. said it expects average revenue to plans to increase 3.25 percent, when accounting for changes tied to patients’ diagnoses.

While the government is increasing payments to plans, it’s also making changes so that payments more accurately reflect how sick patients are and how much it costs to care for them. In addition, the U.S. is requiring insurers to take steps to make sure their directories of doctors and other health-care providers are up-to-date.

Tough Pills

“There’s good news in the growth rates and then tough pills to swallow with respect to some of the other proposals,” said Anne Hance, a partner at law firm McDermott Will & Emery LLP who advises health firms.

About 15.8 million people, or 30 percent of those on Medicare, enrolled in an Advantage policy last year, according to the Medicare Payment Advisory Commission. The government pays insurers a fixed amount to cover each beneficiary in the program, compared with paying for each procedure for traditional Medicare beneficiaries.

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