US proposes hike in Medicare Advantage payments

The U.S. government on Wednesday proposed an increase of 0.25 percent on average in payments to health insurers who offer Medicare Advantage insurance, which provides health benefits to more than 18 million elderly or disabled people.

Enrollment in these plans grew by about 7 percent last year to account for about one-third of Medicare members, making it an important growth business for private insurers who are facing changes in their business as Republicans seek to repeal and replace Obamacare.

It is not clear if Republicans will make any broad changes to the Medicare Advantage program, or to Medicare. Ipsita Smolinski, managing director at Capitol Street in Washington D.C. said on Wednesday that Medicare Advantage could get a boost amid the Republican push for private programs.

The payment rate increase of 25 basis points was in line with estimates that analysts had released ahead of time and shares of insurers including UnitedHealth Group Inc and Humana Inc, two of the largest providers of these plans, were little changed in after-hours trading.

JPMorgan's Gary Taylor said in a research note last week that he had been expecting a proposal for payments that were flat to slightly up from the rate that the government is now paying insurers who provide plans.

Last year, the government proposed an increase of about 1.35 percent but later trimmed that back about 50 basis points.

But insurers have 30 days to respond to the proposed payment rates and other changes included in the regulatory notice, which this year was 159 pages long, and may ask for a bigger increase.

"The 2018 update is only a smidge better than flat which I suspect may anger some plans," Smolinski said. She said she expected that the payment rate could rise between now and when final rates are set.

Insurers use the payment rate information provided by the government to prepare bids to sell Medicare Advantage plans in specific areas.

The Centers for Medicare & Medicaid Services, the division of the U.S. Department of Health & Human Services that regulates Medicare, will announce the final rate on April 3.

It said that it expected an additional 2.5 percent increase in payments related to coding of medical services.

The payment rate takes into account annual growth in medical costs and statutory requirements to reduce government payments to insurers for Medicare Advantage closer to the level it pays in traditional fee-for-service Medicare.

Marilyn Tavenner, the CEO of America's Health Insurance Plans, the industry's biggest lobbying group, said that it is reviewing the notice to be sure "the program is protected from harmful cuts."

(Reporting by Caroline Humer; editing by Phil Berlowitz, Bernard Orr)