Will This Medicare Twist Cause You Pain? Humana Inc. (HUM), WellPoint, Inc. (WLP)

A twisting pain?
Do investors in insurers who run Medicare Advantage programs have reason to be concerned if either of these “fix it” approaches are taken? Probably so. Undermining the managed care principles behind Medicare Advantage would cause insurers’ costs to go up. More federal reductions of payments would hurt revenue.

One insurer that would probably be hit particularly hard is Humana Inc. (NYSE:HUM) . The company received 71% of its total premiums and service revenue from Medicare products in the first nine months of 2012.

UnitedHealth Group Inc. (NYSE:UNH) obtained around 29% of its premium revenue from CMS last year, most of which was for Medicare plans. WellPoint, Inc. (NYSE:WLP)‘s  consumer segment, which includes its Medicare Advantage programs, accounted for nearly 32% of premium revenue in the first nine months of 2012. CIGNA Corporation (NYSE:CI) is a little less exposed, with 25% of premium revenue during the first nine months of last year stemming from Medicare.All four insurers are growing their Medicare Advantage businesses.

These companies and their investors probably won’t be the only ones experiencing pain, though. If profit margins for Medicare Advantage diminish, the most likely source for mitigating the damage will be to increase premiums for commercial insurance. That could mean that this new twist could have many employers and employees squirming.

Here to help
Maybe Congress will consider a third approach, though. The studies appear to indicate that Medicare Advantage plans are controlling costs, but some members who get sick are switching to fee-for-service. Another alternative is to develop incentives (either carrot or stick variety) to keep these patients in managed care programs. That could help lower overall costs in the long run.

Solving our nation’s health-care cost problems won’t be easy, regardless of which route is taken. However, in times like this, I can’t help but remember the words from former President Ronald Reagan: “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.'”

The article Will This Medicare Twist Cause You Pain? originally appeared on Fool.com and is written by Keith Speights.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group (NYSE:UNH) and WellPoint. The Motley Fool owns shares of WellPoint.

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