UPDATE 2-Higher payments seen for private Medicare plans-CMS

Sat Feb 19, 2011 5:04am IST

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* CMS: Medicare Advantage plans to see net 1.6 pct rise

* Final rates due April 4

* Shares of Humana, UnitedHealth, HealthSpring rise (Adds analysts' comments, share prices, byline)

By Susan Heavey

WASHINGTON, Feb 18 (Reuters) - U.S. health insurers offering private Medicare Advantage plans will see a net 1.6 percent increase in federal government reimbursements on average next year, the Centers for Medicare and Medicaid Services said on Friday.

The agency that runs the nation's health insurance plan for the elderly and disabled said its proposal for 2012 would offer health insurance companies "a health payment update" while also keeping plans affordable for beneficiaries.

Analysts said CMS's resulting increase was better than expected, and shares of several insurers that sell the plans rose after the news. Wall Street had been bracing for rates that were flat to 1 percent higher.

Ipsita Smolinski, a Washington-based analyst for Capitol Street, said the 2012 rate adjustment "was better news than I would have expected ... most people would've assumed that CMS would have have made deeper cuts" given changes called for in last year's healthcare law.

Medicare Advantage plans are run through private health insurers and offered as an alternative to traditional Medicare plans. They aim to be more efficient and offer better services for less money, but critics charge the government pays the plans too much.

Humana Inc (HUM.N) and UnitedHealth Group Inc (UNH.N) are the biggest providers of Medicare Advantage plans and the most exposed, along with HealthSpring HS.N. Other providers include Aetna Inc (AET.N), Cigna Corp (CI.N) Coventry CVH.N, Health Net Inc (HNT.N) and WellPoint Inc (WLP.N).

Last year's health law calls for changes to Medicare Advantage rates to bring them more in line with traditional Medicare and save the government money. Analysts have said those changes, while not likely to kill off the plans, could lead to consolidation in the industry.

Potomac Research Group analyst Paul Heldman said Friday's announcement signaled that the Obama administration was moving away from targeting such private-run plans.

"It seems to me that CMS is bending over backward to make sure that the program remains stable and that plans are paid enough to allow them to continue to offer enough benefits to make them attractive to beneficiaries," he said.

In a call with reporters, CMS Deputy Administrator and Director Jonathan Blum said the average 1.6 percent increase would vary by region and applicable bonus payments.

HealthSpring shares rose 8.5 percent after hours after closing at $37.06. Humana shares were up 1.4 percent from their close of $61.44 and UnitedHealth shares rose nearly 1 percent after closing at $42.84.

CMS is accepting public comment on the proposed rates for 45 days. Its final decision is expected April 4. (Reporting by Susan Heavey; Additional reporting by Deena Beasley in Los Angeles; Editing by Tim Dobbyn)

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