UnitedHealth Group Inc., Humana Inc. and other medical insurers won an increase in government payments for Medicare Advantage plans starting next year.
The February proposal for a 2.2 percent cut in a rate that determines the payments is being revised to a 3.3 percent increase, according to a decision Monday by the Centers for Medicare and Medicaid Services. The change came after insurers and more than 130 lawmakers complained the Obama administration relied on faulty accounting assumptions.
Insurers had threatened to reduce benefits in Medicare Advantage plans if the rate cut was maintained. While the initial reduction for insurers was calculated on the basis that doctors' pay would also be cut, Health and Human Services Secretary Kathleen Sebelius is now directing Medicare's actuaries to assume Congress will keep physician fees the same.
"That's a clear victory" for health insurers, said Sheryl Skolnick, an analyst at CRT Capital Group in Stamford, Conn.
Humana gets 66 percent of its revenue and 58 percent of profit from Medicare Advantage, leading the industry, according to estimates by Cowen & Co. analysts. Minnetonka-based UnitedHealth, the largest U.S. insurer, and Health Net Inc., based in Woodland Hills, Calif., each get 25 percent of revenue from Advantage plans.
About 13.1 million elderly and disabled Americans are enrolled in Advantage plans instead of the traditional Medicare program, enticed by added benefits such as lower out-of-pocket spending and discounts for gym memberships.
Combined with other changes to insurers' Advantage rates, Skolnick said insurers should see about a 2.5 percent reduction in their total payments from the government, 5.5 percentage points better than the initial proposed cut.