Shares of U.S. health insurers rallied Tuesday, after the Center for Medicare and Medicaid Services announced plans to increase the amount the government pays to insurance firms for its Medicare Advantage plan.
Investors and health insurance firms were notified late Monday that payments to insurers under Medicare Advantage will increase by 3.3% in 2014. That's a sharp turnaround from the original proposal, which called for cutting rates by 2.2%.
Analysts at Credit Suisse said the government's decision "significantly improved the 2014 outlook" for U.S. health insurers.
Shares of Humana (HUM), UnitedHealth Group (UNH), Aetna (AET), Cigna (CI), and WellPoint (WLP) rose between 4% and 8% Tuesday. Humana, which has the greatest exposure to Medicare Advantage, jumped nearly 10% at one point.
Justin Simon, an analyst at research firm Heights Analytics, said the government's decision was likely done to curry favor with Senate Republicans and clear the way for the confirmation of acting CMS director Marilyn Tavenner.
"Medicare Advantage is a beloved program among the Republican Party," said Simon. "Our view is that this big of a revision has a lot more to do with a political extraction from Republicans and little to do with high quality analysis."
CMS has had six acting administrators since 2006, but none have been confirmed by the Senate. With many provisions of President Obama's Affordable Care Act starting to take effect later this year, it's critical for the administration to have a CMS chief confirmed by the Senate as soon as possible, said Simon.
CMS declined to comment.
The health insurance industry's main lobbying group, America's Health Insurance Plans, had also campaigned for rates to increase. The group cheered Monday's decision: "CMS has taken an important step to help stabilize Medicare Advantage at a time when the program is facing significant challenges," AHIP's president Karen Ignani said in a statement.
Some traders on StockTwits were caught off guard by the news and perhaps even a little bitter.
Many other traders questioned the bounce on the news.
Hedge fund manager Dan Loeb, once a supporter of President Obama, is now a critic. But he appears to think the president's health care plan will be a boon for health insurers. And he's not alone.
Loeb and noted short seller David Einhorn accumulated new positions in multiple health insurance stocks at some point in the second quarter, according to SEC filings released Tuesday.
Both Loeb's Third Point Capital and Einhorn's Greenlight MOREMaureen Farrell - Aug 15, 2012 3:26 PM ET
Not a member yet?Sign up now for a free account
|Chrysler relents, agrees to recall 2.7 million Jeeps|
|Immigration bill could cut deficits by $175 billion - CBO|
|Google files First Amendment court case against NSA surveillance secrecy|
|It's official: Jack Lew's new signature|
|China's fastest-growing cities for millionaires|