Shares of UnitedHealth Group, which has major operations in Hartford, and health insurers skidded today after President Barack Obama unveiled a proposed budget that includes smaller Medicare Advantage payments to private insurers.
UnitedHealth and Humana Inc. suffered the steepest declines.
At 3:55 p.m., UnitedHealth traded at $20.32, down $2.71, or 11.8 percent. Humana traded at $23.81, down $5.54, or 18.9 percent.
Obama’s plan includes reducing government subsidies to Medicare Advantage. Under that program, elderly and disabled patients can enroll in private health insurance plans that offer more benefits than Medicare does. Total Medicare spending would be reduced, in part, by a plan that would require the insurers to bid on contracts.
Analysts suggested investors were overreacting because the final budget is likely to undergo many changes, and because other parts of Medicare already involve competitive bidding.
In a note to clients, Charles Boorady of Citi Investment Research said stocks are selling off because of an overload of news in the last few days. He said competitive bidding could reduce profit margins for insurers, but increase their revenue. Humana, HealthSpring Inc. and Health Net Inc. are the most exposed to changes in Medicare Advantage, he said.
Oppenheimer and Co. analyst Carl MacDonald said health plans are still able to create reasonable profit margins in bidding for employer contracts, Medicaid contracts and Medicare prescription drug contracts despite competition. However, he questioned the savings the government will get from the proposal saying that the estimated savings of $175 billion is, “to put it nicely … unrealistic.” (AP)
