Health-Benefits Providers Soar on Medicare Advantage Reversal


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health-benefits providers Universal American and Humana shot out of the gate like a rocket this morning, rising as much as 12% and 10%, respectively, after the Centers for Medicare and Medicaid Services, or CMS, reversed its previously announced decision to reduce Medicare Advantage reimbursement rates.

So what: In February, insurers that offer Medicare Advantage -- a supplemental health-benefits plan targeted at seniors that's more encompassing than Medicare and often allows for fewer out-of-pocket costs, but is also more expensive -- were informed by the CMS that their reimbursement rates would drop for 2013. This sent Humana and Universal American, the two companies that derive 63.5% and 75% of their business from Medicare Advantage, respectively, down swiftly. However, yesterday the CMS reversed its decision on the premise that Congress would keep doctor pay consistent, without a major reduction. The move, on top of heavy lobbying by the insurance industry, allowed the CMS to recommend a 3.3% increase in reimbursement rates as opposed to the 2.3% decrease proposed in February.

Now what: As I stated earlier today, this is a big kick in the shin for Obamacare, which was drafted in order to keep private insurance from relying on the government for higher reimbursement rates. In addition, these insurers collectively used their lobbying power and the potential threat of benefit cuts and fewer provider network choices as the impetus to get what they wanted: a reimbursement rate hike. When all is said and done, it appears the insurers still seem to have plenty of clout in the health care industry -- Obamacare or not!

Craving more input? Start by adding Universal American and Humana to your free and personalized watchlist so you can keep up on the latest news with these companies.

While you can certainly make huge gains in insurers like Humana and Universal American, the best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

The article Health-Benefits Providers Soar on Medicare Advantage Reversal originally appeared on

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.