Change in Medicare Rates Lifts PacifiCare
PacifiCare Health Systems Inc. stock rose 8.2% on Tuesday after the federal government announced an unexpectedly big increase in 2004 payment rates for Medicare HMOs.
PacifiCare derives nearly half of its premium revenue from Medicare HMOs and is among the nation’s largest operators of these health plans.
Shares in the Cypress-based health insurer hit $69.63, a 52-week high, before closing Tuesday at $68.82, up $5.24, on the New York Stock Exchange.
The government had announced an average Medicare payment increase of 10.6% for 2004 -- up from the 2% to 3% increases of previous years -- on Friday. Federal officials hope the health plans will be encouraged to remain in Medicare, the federal health plan for millions of elderly and disabled patients, and improve benefits.
Health plans in recent years have shed 2 million Medicare beneficiaries because payment increases haven’t kept pace with 10% annual jumps in health-care costs. In California, PacifiCare has since 2001 dropped coverage for 26% of enrollees in its Medicare HMOs and has reduced benefits for thousands of others who remain in the programs.
There are 349,000 California seniors in its Medicare HMOs, or 51% of all seniors enrolled in its Medicare HMOs in eight states and Puerto Rico.
The overhauled Medicare law that took effect Jan. 1 is intended to encourage seniors to enroll in private Medicare programs. The higher Medicare reimbursements will begin March 1.
A spokesman for PacifiCare said Tuesday that company officials were poring over the Medicare proposal but that it was too soon to say precisely what it would mean for the company and its Medicare enrollees.
“The increases we will receive will be used to enhance coverage, strengthen the health-care delivery system, curtail future premium hikes and reduce premiums and/or co-pays,” spokesman Tyler Mason said. “We are carefully evaluating how to improve benefits based on the [Medicare] guidance given last Friday for each county based on our data.”
Health plans must file their 2004 coverage plans with Medicare by Feb. 2.
Analyst Christine Arnold of Morgan Stanley said in a research note that PacifiCare’s Medicare increase probably would average 11% and that the company was “well-positioned to enhance earnings through enrollment growth.” She estimated that Medicare payments would rise 6% to 8% in Los Angeles, Orange and San Diego counties and skyrocket 17% to 19% in Riverside, Ventura and San Bernardino counties.
Arnold added that Woodland Hills-based Health Net Inc., which derives 12% of its premium revenue from Medicare HMOs, should also benefit from the payment increases. Health Net rose 91 cents to $32.92 on the New York Stock Exchange.
But Goldman Sachs analyst Matthew Borsch said in a research note that the increases weren’t adjusted for health risks and suggested investors’ reaction might be too enthusiastic.
When PacifiCare and other insurers announce the earnings effect of the Medicare payment increases next month, Borsch wrote, “investors may find the guidance to be less than robust that the expectations built into the stock.”
