Health insurance stocks decline due to underwhelming Medicare Advantage rates

Humana Inc. released signage at its office building in Louisville, Kentucky on Saturday, February 2, 2019 indicating that the company would be releasing its earnings figures on February 6. Despite this announcement, Humana’s stock experienced a decline of over 10%. The company heavily relies on private Medicare plans, particularly Medicare Advantage, compared to its competitors.

This news has put additional pressure on insurers who are already facing high medical costs and challenges resulting from the recent cyberattack on UnitedHealth Group’s tech unit. The situation has negatively impacted Medicare Advantage businesses which have historically been sources of growth and profits for the insurance industry.

On Monday evening, the Centers for Medicare and Medicaid Services announced that government payments to Medicare Advantage plans are expected to increase by 3.7% compared to the previous year. However, after factoring in certain assumptions, this translates to a 0.16% decline in the final rate according to insurers and analysts. Despite the agency usually increasing the rate from the initial proposal, this final rate remains unchanged from a proposal made in January.

The rate set by the Centers for Medicare and Medicaid Services determines how much insurers can charge for monthly premiums and plan benefits offered to customers, ultimately affecting their profitability. Medicare Advantage is a privately run health insurance plan contracted by Medicare with over half of Medicare beneficiaries enrolled in such plans due to lower premiums and additional benefits not covered by traditional Medicare as reported by KFF health policy research firm.

By Sophia Gonzalez

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