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HEALTH PLANS: Matthew Holt, stock trading pussy

Sector Wrap: Health Insurers Fall. UNH is down $5 or close to 10% from its high on Tuesday with Allen’s conecession in VA giving the Dems the Senate being probably the clincher today.

Insurers

And was I short, like I said I would be on Monday? Back then the 45 Nov puts were trading at 20 cents, today they’re 55. So how many did I load up with? (no need to add the next sentence!)

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Barry CarolMatthew HoltJohn Fembup Recent comment authors
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Barry Carol
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Barry Carol

John, I’m not sure exactly when the Medicare Advantage payment formula was changed from the original 95% of average Medicare FFS payment rates to the current system. I was surprised to learn that CMS has developed a risk scoring system based primarily on historical use of the Medicare program. An average risk score is 1.0. If Humana, or other providers, wind up with a pool that scores less than 1.0, they will be paid proportionately less than the 11% premium over the average FFS spending rate. If it scores higher, they will be paid more. Conceptually, as a taxpayer, I… Read more »

John Fembup
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John Fembup

Barry, thanks for the info. I’m pretty sure that when Medicare Advantage originated in the 1990’s that the reimbursement for HMO’s was set at 95% of the average per capita cost for Medicare FFS. I was not aware that this basic formula had changed – do you know about when the change took place? You and I certainly agree that if current reimbursement were “slashed” the present program could not be sustained – because the HMO’s (and now PPO’s too) would be likely to withdraw. However, I don’t think it’s clear whether ending Medicare Advantage would benefit either the present… Read more »

Matthew Holt
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Which, Barry, of course begs the question as to why should it be if it’s just costing the taxpayer more?

Barry Carol
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Barry Carol

John,
Actually, insurers are paid about 11% more than standard Medicare on average for each Medicare Advantage member. They receive significantly more than that for sicker members. The insurers also claim that they provide additional benefits beyond paying claims including disease management, catastrophic case management, health prevention programs, etc. Humana estimates the long term sustainable profit margin on this business based on current payment rates at about 5% pretax. It appears that if the current payment premium vs standard FFS Medicare were eliminated or even sharply reduced, the MA program could not be sustained.

John Fembup
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John Fembup

Oops I didn’t notice the timing of your original post. My bad. “Threrefore if the plans want to quit, then their members can return to mainstream FFS Medicare, and the government will save money overall” But how does Medicare decide what to pay the Medicare Advantage plans? I think Medicare pays a percentage of its FFS cost. The percentage is less than 100%. Even if the HMO’s are profiting, the cost to Medicare should still be less than if their membership had remained in FFS Medicare. So if a large number of people return to FFS, odds are high it… Read more »

Matthew Holt
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errr….John. Well you’re right about the bigger news but that hit the market Wednesday (as I reported on Weds…scroll down a few posts), Thursday’s reaction was as much about the Senate as anything because Congress can now pass a budget which can include big changes without needing any Republican votes, and is Bush really going to veto it to save UNH’s behind? Secondly, being a contractor to Medicare has been fantastically profitable in the past 2 years. Most Democrats (especially Stark) believe that Medicare is overpaying hte plans. Threrefore if the plans want to quit, then their members can return… Read more »

John Fembup
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John Fembup

Matt there was more important news for UNH yesterday, than the elections. Their senior managers forfeited almost $400 million in options, and UNH may need to restate its earnings for the past ten years or so. That news is more meaningful to the price of UNH stock than the elections, despite what the news media are blabbering. What’s more, the stocks of the other major players in health insurance are reacting to UNH’s bad news. Or more accurately, Wall Street is reacting. Wall Street believes there is no future in the health insurance business. They may be right. So any… Read more »