Humana Inc (HUM), UnitedHealth Group Inc. (UNH): What Will Obamacare Do to Medicare?

Medicare Advantage
Predicting the future for MA is harder because the changes will vary according to the plan specifics and the insurer. It’s best for MA beneficiaries to contact the insurer for details.

What about MA from the standpoints of policy and business?

As I mentioned, Obamacare will limit overpayments to health care providers. But MA insurers also have to prove they’re using from 80% to 85% of revenues toward covering medical treatments. Those percentage numbers are called a medical loss ratio; companies failing to meet that requirement have to issue rebates to beneficiaries. But companies can also receive bonuses for outperforming others in their geographic area both in medical loss ratio and quality of care.

Here’s a look at how three of the top health insurers stand in terms of Medicare Part D or Advantage enrollment. I’ve also included their medical loss ratio rates for last year.

Source: Company 10-Ks. *Medical coverage only; excludes dental, Part D standalone, etc.

As you can see, the two Medicare plans don’t account for a huge portion of either Aetna Inc. (NYSE:AET) or UnitedHealth Group Inc. (NYSE:UNH)’s overall businesses. UnitedHealth may have to keep paying out rebates if it doesn’t boost that MLR rate. But Humana’s the most vulnerable of the companies when it comes to Obamacare changes in these areas.

When the Centers for Medicare and Medicaid Services considered slashing the rates paid to insurers for MA plans, Humana Inc (NYSE:HUM)’s shares dropped 10%. And Humana led the rally when the CMS changed its mind and instead proposed a rate increase. Aetna Inc. (NYSE:AET) and UnitedHealth Group Inc. (NYSE:UNH) have both moved at the same times as Humana but not to the same extent.

Foolish final thoughts
The most significant changes will happen in Medicare plans associated with private insurers. Part D savings will help many Americans who’ve struggled in the past with donut hole payments. If you’re in a Medicare Advantage plan, it’s best to investigate what changes your insurer of choice has in store.

The article What Will Obamacare Do to Medicare? originally appeared on Fool.com is written by Brandy Betz.

Fool contributor Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group.

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