In mid-February, the Centers for Medicare & Medicaid Services proposed (PDF link) a cut to reimbursements received by private insurers for Medicare Advantage plans. Industry trade group American’s Health Insurance Plans estimates a resulting pay cut to plans of 7% to 8%, which could equal $11 billion in losses for the Advantage providers. Humana Inc (NYSE:HUM) indicated in a regulatory filing that the company would suffer a “mid-single-digit decline” in rates if the CMS figure held true.
The final rate-cut decision won’t appear until April 1. But if the suggested price sticks, some insurers may try to reduce their reliance on Advantage plans. CRT Capital Group analyst Sheryl Skolnick suggested market leader UnitedHealth as one of the potential deserters.
Lobbying could improve the proposed rates for insurers, but more cuts will still follow. The ACA planned for $68 billion in Medicare Advantage cuts before 2016. UnitedHealthcare might back off on Advantage, but the others won’t have that luxury. Humana Inc (NYSE:HUM) and United American, in particular, rely too much on these revenues and need to make it work.
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The article Can Health Insurance Still Profit From Baby Boomers? originally appeared on Fool.com and is written by Brandy Betz.
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