Sector Snap: Health insurers lose ground

In order to reverse a cut in reimbursement for doctors, Congress has proposed spending less on the government-sponsored Medicare Advantage plans, which are run by health insurers and serve about 9.5 million seniors. Several health insurers are poised to lose revenue from the programs through the cut.

BMO Capital Markets analyst Dave Shove said Monday that Medicare Advantage plans will likely continue to be a target for legislators, though they could still be somewhat profitable. Furthermore, he said, U.S. senator and presidential candidate Barack Obama highlighted worries over lower reimbursement when comments during a debate Thursday suggested he would accelerate cuts to the program if elected.

Still, rates are already set for 2009, and the rate-setting process makes further cuts unlikely until 2011.

"We believe that the physician fee fix poses the greatest near-term threat to Medicare Advantage rates, but suspect that it will be difficult to accomplish devastating changes to Medicare Advantage compensation without an overhaul of the system as a whole," Shove said in a note to investors.

Louisville, Ky.-based Humana Inc. is highly exposed to shifts in Medicare Advantage reimbursement, he said, reaffirming a "Market Perform" rating on the stock.

During the second-quarter, the company's Medicare Advantage premiums rose 25 percent to $3.49 billion. Total revenue was $7.3 billion.

Humana shares fell 88 cents, or 2.1 percent, to $41.79.

Meanwhile, he reaffirmed "Outperform" ratings on Indianapolis-based WellPoint Inc. and Hartford, Conn.-based Aetna Inc., saying Medicare Advantage accounts for 13 percent and 6 percent of their earnings, respectively.

WellPoint shares fell 96 cents, or 2.1 percent, to $45.73 while Aetna shares fell $1.29, or 3.4 percent, to $37.20 in afternoon trading.