Health-Benefits Providers Soar on Medicare Advantage Reversal

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health-benefits providers Universal American (NYSE: UAM  ) and Humana (NYSE: HUM  ) shot out of the gate like a rocket this morning, rising as much as 12% and 10%, respectively, after the Centers for Medicare and Medicaid Services, or CMS, reversed its previously announced decision to reduce Medicare Advantage reimbursement rates.

So what: In February, insurers that offer Medicare Advantage -- a supplemental health-benefits plan targeted at seniors that's more encompassing than Medicare and often allows for fewer out-of-pocket costs, but is also more expensive -- were informed by the CMS that their reimbursement rates would drop for 2013. This sent Humana and Universal American, the two companies that derive 63.5% and 75% of their business from Medicare Advantage, respectively, down swiftly. However, yesterday the CMS reversed its decision on the premise that Congress would keep doctor pay consistent, without a major reduction. The move, on top of heavy lobbying by the insurance industry, allowed the CMS to recommend a 3.3% increase in reimbursement rates as opposed to the 2.3% decrease proposed in February.

Now what: As I stated earlier today, this is a big kick in the shin for Obamacare, which was drafted in order to keep private insurance from relying on the government for higher reimbursement rates. In addition, these insurers collectively used their lobbying power and the potential threat of benefit cuts and fewer provider network choices as the impetus to get what they wanted: a reimbursement rate hike. When all is said and done, it appears the insurers still seem to have plenty of clout in the health care industry -- Obamacare or not!

Craving more input? Start by adding Universal American and Humana to your free and personalized watchlist so you can keep up on the latest news with these companies.

While you can certainly make huge gains in insurers like Humana and Universal American, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 02, 2013, at 5:29 PM, wcurr01 wrote:

    All the costs, none of the benefits. And the Democrats keep building a bigger giverment.

Add your comment.

DocumentId: 2342212, ~/Articles/ArticleHandler.aspx, 4/21/2014 12:37:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement