Government Payments for Medicare Advantage Plans to Rise in 2016

By Caroline Humer

(Reuters) - Payments to health insurers operating Medicare Advantage plans for the elderly and disabled will increase by 1.25 percent in 2016, the U.S. government said on Monday, in response to expected growth in health spending.

The announcement, by a division of the U.S. Department of Health and Human Services, comes after the U.S. government proposed a 0.95 percent cut in payments to insurers in February.

More than 16 million people are enrolled in these plans, in which healthcare benefits are managed by private insurers, including UnitedHealth Group Inc, Humana Inc and Aetna Inc.

Each April the government announces reimbursement rates for insurers. The information helps insurers determine how profitable it will be to sell these plans, which optional benefits to provide and in which regions and markets to compete.

Shares of Humana, which receives about two-thirds of its revenue from Medicare Advantage plans, rose about 1 percent to $180 in after hours trading. UnitedHealth, Aetna and Anthem Inc were mostly unchanged.

The increase comes after many years of cuts to Medicare Advantage payments, because of an overall decline in healthcare spending and changes under the Affordable Care Act that seek to align payments more closely with the government-run Medicare fee-for-service program.

The increase is larger than expected, Leerink Partners analyst Ana Gupte said, and bodes well for insurers that sell these plans next year.

"2016 enrollment growth should be accelerated compared to previous years," Gupte said.

Some insurers as well as the nation's largest insurer lobbyist group, America's Health Insurance Plans, had warned the government that any cuts would hurt the elderly.

“The final rate notice took a notable step to provide stable funding for the Medicare Advantage program," AHIP President Karen Ignagni said, adding, however, that the policy did not do enough to protect chronically ill and vulnerable populations.

The increase for 2016 versus the decline announced in February results from expectations of Medicare Advantage spending growth of 4.2 percent, compared with the 1.7 percent the government forecast in February.

The 4.2 percent growth reflects additional spending in 2014 and 2015, as well as higher expected outlays in 2016. The Centers for Medicare & Medicaid Services said higher spending was due to hospitalizations, rural health clinics and federally qualified health centers.

It also includes a 0.1 percent increase based on the assumption that Congress will enact legislation raising Medicare payments to doctors.

The government also said that it would move forward with changes to how it pays insurers for patients who are sicker than average. It will additionally leave the star ratings systems, which rewards high-performing plans, as planned, and it will tighten oversight of each plan's pharmacy network and provider networks and directories.

The government policies affect each insurer differently, said Ipsita Smolinski, an analyst with Washington, D.C.-based research firm Capitol Street.

"All of these numbers are averages and the bottom line 2016 impact is going to vary by plan, by location, by star rating and by coding practices," Smolinski said.

(Reporting by Caroline Humer; Editing by Steve Orlofsky)