Insurers focus earnings discussion on the future

Private health plans that have been profiting from growth in Medicare Advantage private fee-for-service business are trying to reassure investors that profits won't drop following changes in the federal program.

As insurers released second-quarter earnings that were not uniformly strong, but did exceed Wall Street's expectations, executives told analysts they have been planning to adjust to changes in Medicare law that some believe might make private fee for service less lucrative to insurers.

The Medicare bill Congress passed in July will force health plans to move many of its private fee-for-service Medicare enrollees into network products by 2011. Currently, any doctor who accepts a Medicare private fee-for-service patient is considered a "deemed" doctor, and to have agreed to the terms of the specific plan's contract. In 2011, health plans must negotiate with individual physicians to set the terms of those contracts.

With the change, some analysts expect Medicare private fee for service might be a less popular option for employers to offer retirees.

One company particularly active in assuaging investors has been Humana. In the last quarter alone, Humana brought in $3.5 billion -- or a little less than half its revenue -- from Medicare Advantage premiums. But Humana President and CEO Mike McCallister said much of its membership easily can be converted to PPO products that Humana already offers.

More than 80% of the company's Medicare private fee-for-service enrollees live in a market where Humana also offers a PPO product, McCallister told investors on Aug. 4.

Another 12% of Medicare Advantage fee-for-service enrollees live in a county exempt from the 2011 network requirement, McCallister said. Any county that has fewer than two Medicare Advantage providers is exempt from the network rule.

But even companies that can be optimistic now about 2011 could be in trouble if Congress takes Medicare Advantage reform a step further, to eliminate the disparity between payments under traditional Medicare and Medicare Advantage, said Robert Berenson, MD, senior fellow at the Urban Institute, a Washington, D.C.-based policy research group.

According to estimates for 2008 by the Medicare Payment Advisory Commission, the federal government pays an average of 20% more for care under Medicare Advantage private fee for service than it does for care provided for enrollees in traditional Medicare.

Private fee-for-service changes represented a political compromise in 2008, a "sacrificial lamb" given up to protect Medicare Advantage as a whole, Dr. Berenson said.

That protection could disappear with a new Congress and new administration in 2009, and threaten to undercut health plan executives' reassurances, he said.