Insurer stocks rise after gov’t releases 2017 rate update

Medicare Advantage health plans will face less pressure to cut benefits or leave some markets next year after the government released a favourable early assessment of factors affecting rates.

The Centers for Medicare and Medicaid Services laid out a payment and policy update for 2017 on Friday after markets closed. The announcement includes an assessment of several variables that can affect the price of coverage. Analysts say it boils down to a rate increase of around 3.5 per cent when including adjustments made to account for the health of patients covered by a plan.

Rates for 2017 will be finalized in April, and the actual change will vary depending on factors like where the plan is located. Nevertheless, the announcement was viewed favourably.

“Expectations were pretty positive going into this announcement, and we view this preliminary rate information as supportive of the group’s 2017 earnings trajectory,” BMO Capital Markets analyst Jennifer Lynch wrote Monday.

Medicare Advantage plans cover more than 17 million people. They are privately run versions of the government’s Medicare program for people who are over 65 or disabled. They offer basic Medicare coverage topped with extras like vision or dental coverage or premiums lower than standard Medicare rates.

There are hundreds of different plans around the country, each with its own set of variables like different deductibles, premiums and co-insurance.

These plans have become a key source of growth for insurers who sell and administer the subsidized coverage. But they’ve also faced pressure in recent years, due in part to reimbursement cuts called for by the Affordable Care Act as the growth in health care costs has slowed.

UnitedHealth Group Inc. and Humana Inc. are the two largest Medicare Advantage providers, and their shares jumped out ahead of the broader market at the start of trading Monday. UnitedHealth rose $2.49 or 2.1 per cent, while Humana’s stock increased 2.4 per cent, or $3.97 to $169.31, as broader trading indexes climbed around 1 per cent.