HUM Drops More Than 20%

Shares of Humana Inc. (HUM), along with other managed care companies, are down sharply today due to the government's proposal for a much lower-than-expected payment rate increase for Medicare Advantage plans in 2010.

On Friday, the Centers for Medicare and Medicaid Services (CMS) announced a preliminary 2010 Medicare Advantage payment rate increase of only 0.5%, while many analysts were expecting an advance up to 5%.

HUM stated that the preliminary rates are "unusual and inconsistent with decades of experience and with past CMS practice".

With such a low increase for year, companies like HUM would have difficulty maintaining profit margins, which could lead to a reduction in benefits or higher premiums for customers.

If these rates become final, HUM expects a "significant adverse impact on 2010 premiums and benefits for Medicare Advantage members".

Shares of HUM have plunged by about 23% this afteroon. Other managed care companies are also having a bad day, as UnitedHealth Group (UNH) is down 14% and Coventry Health Care (CVH) has slipped more than 11%.

Also on Monday, HUM reiterated its 2009 EPS guidance of between $5.90 and $6.10, while analysts expect $5.94.

HUM is a Zacks #3 Rank ("hold") company.

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