By Cyril Tuohy
Cutbacks in the government’s Medicare Advantage program could slow the growth in health insurers’ earnings later this year and into 2014, according to several executives at the nation’s largest health insurance companies.
Spending on Medicare Advantage plans, a type of Medicare health plan offered by private companies that contract with Medicare to provide hospitalization, surgery and doctor visits, will be trimmed as part of government spending cuts.
“In aggregate, we anticipate our Medicare Advantage premiums from CMS will decline by 2.8 percent,” Bruce D. Broussard, chief executive officer, president and director of Humana, said during a first quarter earnings call with analysts. “Adding in the impact of the nondeductible industry fee, our government funding reductions for 2014 become well over 4 percent.”
“Given this level of challenge, together with the out-performance we are seeing thus far in 2013, at this point, we remain uncertain if 2014 will be a year of earnings growth,” he said.
First-quarter net income nearly doubled to $473 million, or $2.95 per share, from $248 million, or $1.49 per share, a year earlier, the company reported. The strong performance this year was due to delays in cuts and contract claims settlements with the U.S. Department of Defense, the company also said.
Medicare Advantage, which is more market-oriented than other Medicare programs, serves about 14 million people, or about 30 percent of the entire Medicare population. It differs from traditional fee-for-service Medicare models in that participants can choose from various plans run by private insurers.
With the government’s spending crackdown, insurance carriers as a group had generally expected lower funding levels for Medicare plans. First quarter earnings reports provided a glimpse at how deeply the cuts would affect the industry.
Mark T. Bertolini, chairman, chief executive officer and president of Aetna, saw his company’s Medicare Advantage membership grow by 180,000 in the first quarter over the year-ago period, said the challenges facing the popular program would be “difficult to solve through efficiencies alone.”
“As we reexamine the challenge in front of us, the acceleration of these changes versus our previous expectations may force us to impact beneficiaries more than we would like in 2014,” Bertolini said in a conference call with analysts.
Aetna’s Medicare Advantage program has grown quickly and, with the addition of 150,000 members in group products in the first quarter, the company is now the leading national group Medicare Advantage player by membership.
Aetna reported first quarter net income of $490.1 million, or $1.48 per share, from $511 million, or $1.34 per share, a year earlier.
UnitedHealthcare reported adding 300,000 seniors to its Medicare Advantage program.
Cuts related to the federal sequester are expected to trim revenues by between $250 million and $300 million in the rest of 2013, the company also said.
“By far, the most impactful headwind is the Medicare Advantage rate picture for 2014,” Stephen J. Hemsley, president and chief executive officer of UnitedHealth Group, said in a conference call with analysts.
He said the cuts would force UnitedHealth to reduce benefits and access in some markets, and that the cuts “will affect the growth prospects and earnings potential for our overall Medicare Advantage offerings across all our markets for 2014.”
Despite the warnings, Medicare Advantage membership grew to 2.86 million at the end of the first quarter, an increase of 18 percent from the year-ago period, the company also reported.
First quarter net income of $1.24 billion, or $1.16 per share, decreased from $1.38 billion, or $1.31 per share in the year-ago period, the company also said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He has also written about food, restaurants and travel. He can be reached at [email protected].
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