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Title : Medicare Payoff Hmo Stocks Downwardly Big This Week

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Medicare Payoff Hmo Stocks Downwardly Big This Week

Matthew Holt, publisher of the Health Care Blog, in addition to I receive got been inwards a patch of incredulity over Wall Street’s caput inwards the sand see of the Medicare Advantage business for to a greater extent than than a year. See his post today, "I Don't Really Understand Wall Street, Part 98."

Why was it that inwards the wake of a Democratic take-over of Congress inwards 2006 in addition to Obama’s victory lastly Nov that HMO stocks heavily invested inwards the Medicare Advantage business had non paid a bigger cost for betting the Republicans would nonetheless live inwards mightiness inwards 2009?

This week, HMOs disproportionately invested inwards Medicare Advantage, similar Humana in addition to Universal American, were downwardly 30% on pinnacle of their already huge plunges from their 52-week highs. Two things drove the loss of confidence this week. First, CMS said that the Obama direction would get the cutting inwards 2010 past times announcing a much lower 0.5% increment inwards the National Per Capita Medicare Advantage Growth Percentage. The marketplace was expecting the Obama direction to live every bit generous every bit the Bush folks in addition to denote a 3% to 5% increase.

Then the starting fourth dimension Obama budget was announced and, estimate what, the direction spot $177 billion inwards Medicare Advantage cuts into it. Not similar the novel President hadn’t told us he would create this, mayhap 2 or 3 hundred times, during the campaign.

In Jan 2008, inwards a post, Medicare Advantage Cuts? I said, “From the looks of Medicare Advantage-heavy HMOs' part prices, there's patently lots of sand on Wall Street in addition to a neat many people receive got their heads buried inwards it.”

On the really starting fourth dimension solar daytime this weblog went online inwards a Dec 2006 post called, The Democrats Will Change MedicareAdvantage I said, “What many of these fiscal analysts on Wall Street don’t empathise (Humana is trading at the highest price/earnings multiple inwards the HMO industry) is that, to the Democrats, this is non only almost a fair funding grade for mortal Medicare plans in addition to whether they desire to adventure messing alongside them. It is almost deep-seated ideological objections.”

I every bit good said inwards that 2006 post, “In fact, Goldman Sachs analyst Mat Borsch came out alongside a positive written report on Humana, a companionship that has been peculiarly aggressive inwards the Medicare market. Borsch said that patch it is possible Democrats would modify the Part D program, 'the odds of substantial modify to the Medicare Advantage innovation programme (which is what actually matters to Humana) are remote.”

But hither is what Barron’s is reporting the analysts are maxim this week,

In a notation today [February 23, 2009] downgrading both HealthSpring in addition to Humana, along alongside $575 i one k thousand Universal American Corp. (UAM) to “Underperform” from “Market Perform,” BMO Capital analyst Dave Shove writes today that Medicare’s profitability growth “will all but disappear” every bit a result.

Medicare programs volition run across “significant” reductions inwards enrollment inwards 2010 in addition to a 1.5 percentage-point drib inwards turn a profit margins, writes Shove, in addition to the motility of many of the insured to populace programs away from mortal Medicare coverage. The lastly fourth dimension HHS “dealt a crushing blow to Medicare Advantage capitation rates,” inwards 2000, writes Shove, “the programme lost to a greater extent than or less 10% of enrollees inwards the starting fourth dimension year, in addition to bottomed out alongside 22% participation loss over a 3 twelvemonth span.” (Bear inwards mind, the capitation rates disceptation is preliminary: end rates volition live decided on Apr vi in addition to could potentially live higher, meaning, to a greater extent than profitable.)

All 3 companies receive got the greatest exposure to Medicare amid managed help every bit a per centum of earnings. “We believe that budgetary strain in addition to stance shift on Capitol Hill volition stimulate 2010 [Medicare Advantage] innovation changes to drain the profitability from the program,” writes Shove.

Wall Street straight off seems to cry back the Obama wellness innovation budget is a threat to the Medicare Advantage business.

It is not.

But since Wall Street hasn't listened to me for 2 years, I am non going to order them why!

Here's a hint: Medicare Advantage Payments to Insurers--Baucus Zeroing In!

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