Humana & New CMS Policy

We highlight Humana Inc. (HUM - Analyst Report).

The Centers for Medicare and Medicaid (CMS) announced on Monday that it has set new policies for Medicare Advantage providers that will require it to eliminate or reduce out-of-pocket fees charged to enrollees by 2010 if they want to bid on Medicare insurance business this year.

Furthermore, enrollees' annual out-of-pocket costs are not to exceed $3,400. Medicare Advantage providers will not be able to charge more than Medicare charges for dialysis, home health care and other services. In addition, enrollees will not be discriminated against on the basis of their health status or income, or charged more than Medicare would charge for care.

Providers will also have to clearly and publicly state what they are doing to lower drug costs, such as offering generic versions of medications. In addition, insurers won't be allowed to charge sick, low-income patients more than what they would pay under traditional Medicare.

While the new rules should increase transparency and  encourage streamlining of operations for the insurers, the key issue remains potential cuts to payments.  We expect Medicare’s payment changes for 2010 to be announced on April 6.

Our Buy on Humana (HUM - Analyst Report) remains intact at current levels.