U.S. proposes hike in Medicare Advantage payments; insurer shares rise

NEW YORK The U.S. government on Friday proposed raising payments by 1.35 percent on average next year to the health insurers who offer Medicare Advantage health benefits to elderly and disabled Americans.

Payments to insurers will vary under the 2017 Medicare Advantage proposal, based on the region the plans are sold and on the size of bonus payments insurers can receive based on quality ratings, the government said.

Shares of health insurers rose in after-hours trade. Analysts said the proposal looked positive for insurers at first glance, but cautioned that they needed to parse it fully.

“Looks like the best case scenario has played itself out,” said Ipsita Smolinski of Capitol Street, a Washington D.C. research firm, who had anticipated about 1 percent increase in payments.

Insurers and lawmakers have pressured the government not to cut payments, saying any decrease would hurt older Americans by forcing insurers to cut benefits.

Insurer lobbyist America’s Health Insurance Plans President Marilyn Tavenner said it was important that the final policy ensure the long-term stability of Medicare Advantage. She said in a statement that the group was looking closely at the proposal.

About 17 million Americans have healthcare coverage through Medicare Advantage, offered by insurers including UnitedHealth Group Inc, Aetna Inc, and Anthem Inc among others. Another more than 30 million people receive benefits through the government Medicare fee-for-service program.

Shares of Anthem Inc rose 1.4 percent in after-hours trading, while UnitedHealth Group gained 1.6 percent.

Some insurers may benefit more than others from the proposal to pay more to insurers who are managing plans for people who qualify for both Medicare and Medicaid for the poor, said Kim Monk, managing director of Capital Alpha Partners.

The 1.35 percent increase is based mostly on anticipated medical cost increases next year. The government expects a 3 percent payment growth rate, which is in line with estimates the government provided to insurers in December.

That 3 percent increase is then reduced to 1.35 percent due to lower payments to insurers for sicker-than-average customers and some medical coding changes, the U.S. Department of Health and Human Services Medicare agency said on Friday.

The 1.35 percent also takes into account an increase in how it pays insurers based on quality measures, called star ratings, it said.

The final rate for 2017 Medicare Advantage payments is based on this proposed figure and will be released in April.

(Reporting by Caroline Humer, additional reporting by Lewis Krauskopf; Editing by Cynthia Osterman and David Gregorio)

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