Health plans' earning gains tied to Medicare

The biggest insurers are finding government revenue is growing faster than private-payer revenue.

By Emily Berry, AMNews staff. Nov. 26, 2007.

As physician organizations fight a threatened Medicare reimbursement rate cut, health plans are awash in higher earnings fueled by their own Medicare collections.

Health plans such as WellPoint, UnitedHealth Group and Coventry reported that government-related earnings are more than making up for stagnant or slowing enrollment growth in the commercial sector.

For example, Humana's pretax, third-quarter 2007 earnings for its government unit -- which includes Medicare Advantage, Medicare Part D and Tricare -- were about eight times greater than the Louisville, Ky.-based company's pretax earnings from its commercial unit.

According to its quarterly filing with the Securities and Exchange Commission, Humana's Medicare Advantage revenues grew from $2.3 billion in the third quarter of 2006 to $2.8 billion in the third quarter of 2007. The company brought in another $890 million from its stand-alone Part D plan, up from $851 million a year earlier. Revenue from Medicare Advantage increased 19% to $2.8 billion, while commercial revenue was up only 2%, to $1.6 billion.

Overall, Humana reported net earnings of $1.78 per share, an 87.3% increase over the like period of 2006, on an 11.9% increase in revenue, the highest percentage increases of any large plan.

The American Medical Association and other physician organizations, as well as AARP, have fought to reduce Medicare Advantage payments -- which, as of 2006, were 112% of Medicare -- to pay for State Children's Health Insurance Program expansion and the reversal of physician reimbursement cuts.