At a time when they can least afford a setback, Cigna and Humana have been hit hard by the new ratings for Medicare Advantage plans issued this week by the Center for Medicaid and Medicare Services.
Cigna and Humana are both in the middle of a legal battle with the federal government over two proposed mergers. The Department of Justice is trying to block the acquisition of Cigna by Anthem as well as the acquisition of Humana by Aetna.
CMS announced that only 37 percent of Humana's MA plans earned four stars or more in 2016. The previous year, 78 percent of its plans got at least four stars.
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Cigna, which was barred from advertising its plans to new customers earlier this year because of its high number of low-rated plans, has made a lot of noise about improving its performance but is still not impressing the feds. CMS rated only 20 percent of its plans at four stars or higher.
Stocks for both companies fell in apparent response to the new ratings, by 5 percent for Humana and by 2.4 percent for Cigna.
However, there are signs that it was not just the bad ratings that led to the stock price tumble: Stocks for Aetna, which actually improved its standing according to CMS, also declined in value. More than 90 percent of its MA members are enrolled in plans rated four stars or better.
In contrast to past years, the newly-released star ratings take into account the socioeconomic profile of each health plan's customers. Insurers in the past have complained that plans that serve more low-income people are more likely to underperform in certain areas and be punished. Those concerns echo similar complaints made by hospitals that operate in poor areas about outcome-based ratings.
The 208 Medicare Advantage plans (including prescription drug coverage) that earned a four star rating or higher account for just less than half of all MA plans. However, the high-scoring plans cover over two-thirds of all MA beneficiaries.
Currently, less than 1 percent of all MA enrollees are members of a plan that received less than three stars. Less than 10 percent are enrolled in a plan rated three stars or lower.
Plans that score four stars or above are rewarded with a 5 percent incentive payment, while those that score lower than three stars are at risk of sanctions or an outright ban from the program.
The number of seniors opting for Medicare Advantage over traditional Medicare has steadily increased in recent years, and will hit a record high of 18 million in 2017, or one-third of all Medicare beneficiaries.
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