Shares of some Medicare Advantage insurance providers rose Tuesday while broader indexes fell one trading day after the federal government announced a better-than-expected preliminary rate increase for those plans.
The Centers for Medicare and Medicaid Services said Friday said it will raise 2012 Medicare Advantage payment rates by an average of 1.6 percent. Final rates will come out in April, but the preliminary percentage surprised some analysts covering the sector.
Goldman Sachs analyst Matthew Borsch said in a research note he expected anywhere from flat rates to a 3 percent drop. He said the outcome makes him conclude that the impact from funding cuts imposed as part of the health care overhaul was further down the road than he anticipated.
"Moreover, it is possible that some of the scheduled funding cuts will be mitigated by Congress as part of the potential changes to health reform," he said.
Medicare Advantage plans are privately run versions of the government's Medicare program, which provides health coverage for the elderly and disabled. The plans are subsidized by the government and offer basic Medicare coverage topped with extras like vision or dental coverage or premiums lower than standard Medicare rates.
Insurers offer hundreds of different plans around the country, all with their own sets of variables like different deductibles, premiums and co-insurance. About 11.8 million beneficiaries, or nearly a quarter of the total Medicare population, were enrolled in a Medicare Advantage plan as of last September.
Citi analyst Carl McDonald said in a separate note benefit adjustments made by insurers should be minimal next year, so plans will be able to continue offering a product that is more attractive than straight Medicare.
"Considering the increase in the number of people turning 65 in 2012, we'd be surprised if membership didn't grow by more than the 600,000 new seniors we expect to enroll in Medicare Advantage this year," he said.
Investor sentiment toward health insurers remains negative over concern for how the overhaul will ultimately impact the sector, said Les Funtleyder, health care portfolio manager for Miller Tabak. But he added that stocks could continue to rise as the overhaul unfolds and each development turns out to be better than "absolute worst case" for insurers.
Companies that draw big portions of their revenue from Medicare Advantage include HealthSpring Inc., Humana Inc., UnitedHealth Group Inc. and WellCare Health Plans Inc., all of which saw their shares climb in afternoon trading.
— Shares of HealthSpring rose 2.7 percent, or $1.02, to $38.08.
— Humana advanced 3.3 percent, or $2.05, to $63.49.
— UnitedHealth picked up 6 cents to $42.90.
— WellCare added 11 cents to $38.56.