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Health-Benefits Providers Soar on Medicare Advantage Reversal

By Sean Williams - Apr 2, 2013 at 1:53PM

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Insurance providers exert their clout to see higher Medicare Advantage reimbursement rates.

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 (HUM 1.99%) 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!

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