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January 23, 2017
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How Humana will be affected by a Medicare payment increase

Health insurers that provide Medicare Advantage plans will be seeing a slight uptick in payment from the federal government in 2018.

Earlier this week, the Centers for Medicare and Medicaid Services — the federal agency that regulates tax-subsidized health insurance for the poor, elder or disabled — announced in a news release that it would be increasing payment to companies that administer Medicare Advantage plans by an average 0.45 percent in 2018, though individual company’s rates may vary based on the quality of the plan.

Humana could look to get a boost in funding in 2018 from the federal government for… more

William DeShazer

According to the release, CMS also estimated that the increased rate could lead to an additional 2.5 percent in 2018, for a possible total increase of 2.95 percent.

Cathryn Donaldson, director of communications for insurance industry group America’s Health Insurance Plans, said this estimated 2.5 percent increase is based on an insurance company’s possible CMS rating improvements, changes in demographics and company’s ability to accurately gather billing information.

Medicare Advantage is a federally subsidized health insurance product administered by companies that cover the same health care services that Medicare covers. Often, companies will supplement or expand the product with hearing, vision or dental insurance and will charge premiums and other fees like other health insurance plans.

According to a report by Reuters, 18 million people enrolled in Medicare Advantage plans in 2016, making it the fastest-growing form of government health insurance. CMS would also be providing additional incentives to encourage insurers to develop new plans with “innovative” provider network arrangements.

Louisville-based Humana Inc. (NYSE: HUM) is a major national provider of Medicare Advantage plans, providing such plans to about 3.2 million people, according to 2016 year-end filings with the U.S. Securities and Exchange Commission.

Humana announced in February that it would be increasing its focus on growing its Medicare Advantage business in 2017, specifically intensifying its focus on gaining customers that qualify for, or will qualify for Medicare when they turn 65, and have one or more chronic conditions.

However, Donaldson said, “It really doesn’t move the needle that much,” speaking of the 0.45 rate increase.

“It really just doesn’t keep up with anticipated cost increases,” Donaldson said in an interview.

She also said that the additional 2.5 percent is only an estimate that is based on several variable conditions.

Donaldson told me that costs for administering Medicare Advantage plans are increasing by between 2 and 3 percent annually. However, Donaldson was heartened that CMS announced a request for comments from the insurance industry on how to improve the Medicare Advantage program.

In January, CMS originally proposed a rate increase of only 0.25 before settling on the 0.45 figure. In 2016, CMS increased rates by 1.25 percent and by .85 percent increase in 2017.

Humana director of corporate communications Mark Mathis said in an email that Humana was analyzing the rate change. Mathis also said that he couldn’t comment further because Humana is in a “quiet period” before the release of Humana’s first-quarter earnings report May 3.

Humana’s retail Medicare business — which is made up of individual and group Medicare Advantage Plans and Medicare prescription drug plans — grossed revenues of $40.2 billion in 2016, according to SEC filings. Gross revenues for just the Medicare Advantage plans were $36.1 billion in 2016, an increase of about 3 percent over 2015.

Humana projects that it will increase individual Medicare Advantage membership in the range of 30,000 to 40,000 and increase group Medicare Advantage membership between 70,000 and 80,000 members in 2017.

For local providers, not much is expected to change.

Shelley Gast, Norton Healthcare system vice president of managed care, told me in an interview that the rate increase won’t likely change the relationship that Norton Healthcare has with Medicare Advantage insurers.

“It’s not a game-changer for us,” Gast said. “We wouldn’t use that rule to change our contracts.”