Medicare Advantage customers may not see the drastic benefit cuts or premium increases next year that insurers have been warning about after all.
Health insurers had predicted big, painful changes for many of their Medicare Advantage customers after the federal government said in February that the amount it pays per person for the popular coverage could fall more than 2 percent in 2014.
The Centers for Medicare and Medicaid Services then changed course Monday and said it now expects its cost per person to climb more than 3 percent.
"That's a huge positive" for the industry, said Sheryl Skolnick, an analyst who covers health insurers for CRT Capital Group.
The shares of several health insurers rose sharply in extended trading Monday after the announcement. Medicare Advantage plans have become a key source of growth for insurers, which receive about $10,000 per member to provide customers with basic Medicare coverage topped with vision or dental coverage, or premiums lower than standard Medicare rates.
Insurers offer hundreds of different Medicare Advantage plans around the country, and they flood TV airwaves each fall with commercials during the annual open enrollment period for the popular plans.
More than 13 million people were enrolled in Medicare Advantage plans last year, or about 27 percent of the Medicare population, the Kaiser Family Foundation said. That total has nearly doubled since 2006.
Many Medicare Advantage plans will ultimately get paid less next year due to several other variables, including a premium tax that is called for in the health-care overhaul, the massive federal law that aims to cover millions of uninsured people. Analysts also expect insurer profits from the plans to be strained by the growing cost of care.
But their finances won't be squeezed so tightly that they have to chop benefits, raise rates by large amounts or leave markets entirely, as some on Wall Street initially feared.
"I think what CMS did here was to buy stability for the program," said Dan Mendelson, president of the market analysis firm Avalere Health. "Most beneficiaries will not see dramatic changes going forward into next year."
The trade association America's Health Insurance Plans had launched an intense lobbying and marketing push after the initial CMS announcement. It included television ad campaigns titled "Drastic" and "Too Much."
But the association said Monday that with the final 2014 rate announcement, CMS took an important step.