Possible Cuts to Medicare Plans
Threatens Insurer Humana

Associated Press
March 19, 2007 6:56 p.m.

WASHINGTON -- Perhaps no health insurer has more to lose than Humana as Congress considers cutting payments to private companies that run Medicare plans.

While many major insurance companies participate in Medicare Advantage, the privately run component of the government health plan for seniors, Louisville, Ky.-based Humana Inc. makes nearly half its earnings through the program, according to Prudential Equity Group. By comparison, competitors Aetna Inc. and UnitedHealth Inc. make just 3% and 13%, respectively, of their profits through their Medicare Advantage plans.

A House subcommittee meets Wednesday to look at how much the government spends to insure senior citizens in Medicare Advantage compared with those in traditional government-run Medicare. Of the 43 million Americans covered by Medicare, about 8 million, or 19 percent, receive their benefits through private company plans.

Ways and Means Health Subcommittee Chairman Pete Stark (D., Calif.) and other Democrats with oversight of the program have already made it clear they think insurance companies are overpaid.

"Managed care plans originally came into Medicare saying they could do more for less," Mr. Stark said. "Now that they're in the program, they have changed their tune and are demanding we continue to overpay them to provide their services. That makes no sense."

Democrats are struggling to make good on a promise to balance the budget, even as they attempt to expand funding for several federal programs, including one that provides health insurance for poor children.

Medicare Advantage plans became a prime target for savings earlier this month when a nonpartisan group that advises Congress on Medicare reported the government spends 12% more to provide care for beneficiaries in private plans than in traditional Medicare. The advisory group recommended Congress lower payments to companies like Humana and UnitedHealth to make them equal with regular Medicare spending, a measure that would save $65 billion over five years, according to the Congressional Budget Office.

While reforming the Medicare Advantage program is not the top priority for Democrats this year, most policy analysts agree it will be an important issue and that the risk of cuts is significant.

Humana declined to comment for this story, but its lobbying group, America's Health Insurance Plans, is vigorously defending Medicare Advantage plans, saying they offer more benefits, like dental and vision coverage, as well as lower out-of-pocket expenses.

"Within the beltway it's very easy to talk about policy and numbers on a page," said Mohit Ghose, the group's spokesman. "But when you listen to Medicare beneficiaries out in the field, as many congressmen will be doing as we head into the budget process, you will hear from them just how much relief these plans provide for them."

Mr. Ghose's group recently spotlighted a report showing that Medicare Advantage plans are favored by constituencies close to the Democratic party: low income and minority seniors.

Medicare officials could not confirm the report's findings, but acknowledged that 57% of Medicare Advantage enrollees have incomes between $10,000 and $30,000, compared with 46% of those in the government plan.

The controversy over Medicare Advantage is getting attention on Wall Street. Earlier this month Jefferies & Co. analyst Brian Wright downgraded Humana and WellCare Health Plans Inc. to "hold" from "buy," saying negative scrutiny from Congress could hurt growth for both companies. Prudential analyst David Shove recommended that "investors stay away from heavy Medicare Advantage contractors like Humana and stick with heavy commercial players like Cigna."

Shares of Humana rose 63 cents on Monday, or 1.1%, to close at $58.86 on the New York Stock Exchange, where the stock has traded between $41.08 and $68.24 over the past 52 weeks.

Copyright © 2007 Associated Press