Proposed 2014 Medicare Rates Slam Humana and Other Insurers

While shares are being hit hard this morning, investors should know that the Centers for Medicare and Medicaid Services has invited public comment on these preliminary rates before releasing final rates on April 1, 2013. This is the equivalent of an appeal period in a legal case, although that appeal period also can be commented on by noninsurance parties as well.

The SEC filing on Tuesday said:

In the Company’s earnings release call for the fourth quarter of 2012 held on February 4, 2013, management expressed confidence in the Company’s ability to grow both Medicare membership and earnings for 2014, based upon management’s stated expectation that the base Medicare Advantage payment rate would be flat to slightly down. The Company believes the preliminary base rates included in the CMS notice would result in a mid-single-digit decline in its benchmark payment rates (excluding the impact of the industry premium tax, county rebasing and risk factor recalibration – which are anticipated to be discussed in the final rate notice). Therefore, Humana is closely analyzing all operational avenues available to address those preliminary rates and the related impact upon the Company’s ability to grow both its Medicare membership and its earnings for 2014.

At its core, this is one more incidence of where the health care business is going to remain subject to mandated government pricing. Consumers will love this, right up until they realize that the services and reimbursements and a slew of other things they count on from their insurance provider do not get handled the same with lower and lower prices for the insurers to make profits.

Humana shares are lower by 8.8% in premarket trading, at $71.10 against a 52-week range of $59.92 to $93.36. As you will see, what is bad for one health insurer is generally deemed to be bad for the others as well:

• UnitedHealth Group Inc. (NYSE: UNH) is down 5.7%, at $54.00 against a 52-week range of $50.32 to $60.75.
• WellPoint Inc. (NYSE: WLP) is down 4.3%, at $60.00 against a 52-week range of $52.52 to $74.73.
• Aetna Inc. (NYSE: AET) is down 3.5%, at $47.48 against a 52-week range of $34.58 to $51.14.
• Cigna Corp. (NYSE: CI) is down 3.5%, at $58.90 against a 52-week range of $39.01 to $62.22.