Medicare Advantage is the privatization of Medicare. Medicare Advantage will be killed by Obamacare, which reduces payments to these private Medicare plans.  Or will it?

In actuality, insurance companies that are highly involved in Medicare Advantage did very well in 2011, as CNN recently reported.

Among the top-performing Fortune 500 stocks of 2011, three – WellCare Health Plans (WCG, Fortune 500), Humana (HUM, Fortune 500), and Centene (CNC, Fortune 500) — were health insurers with a high proportion of Medicare Advantage enrollees. WellCare’s share price has nearly doubled while Humana and Centene are up about 50%.

UnitedHealth Group (UHC) and Aetna (AET, Fortune 500), each with significant shares of Medicare Advantage patients, also inked gains of more than 35% in 2011.

WellCare’s enrollments jumped 10% in the third quarter, mostly due to an increase in Medicare Advantage members. The increase helped the firm nearly double its third-quarter profits and raise its 2012 outlook.

Humana also reported an 11% jump in third quarter revenue and boosted its 2012 earnings-per-share outlook by roughly 56% after enrollment outpaced the company’s earlier forecasts.

So what do these insurance companies and their investors know that we, the general public, don’t know?  Who would think health insurance companies would be such a good investment with Obamacare already in place in some areas (no co-pays for preventive screenings; children up to age 26 allowed to stay on their parents’ employer health insurance plans; reduced payments to Medicare Advantage) and Obamacare lurking on the horizon in others (the mandate; a limit on companies administrative costs, including profit)?

From the Associated Press on Nov. 1, 2010:

Humana Inc.’s third-quarter net income climbed 30 percent partly on a jump in Medicare Advantage enrollment and because the health insurer’s claims leftover from previous quarters came in lower than expected.

Humana said it earned $393.2 million, or $2.32 per share, for the three months ended Sept. 30. That’s up from $301.5 million, or $1.78 per share, a year earlier.

Revenue rose 9 percent to $8.42 billion.

Humana also said its Medicare Advantage enrollment climbed 17 percent in the third quarter to more than 1.7 million people. Humana is the second largest provider of Medicare Advantage plans, trailing only UnitedHealth Group Inc.

Medicare Advantage plans are privately run versions of the government’s Medicare program. They provide health coverage for the elderly and disabled. Subsidized by the government, the plans offer basic Medicare coverage topped with extras or premiums lower than standard Medicare rates.

Aside from Medicare Advantage, Humana also offers Medicaid and commercial coverage and insurance for military members and their families.

From Medical News website, on October 19, 2010

UnitedHealthcare Medicare & Retirement (formerly Ovations)

Third quarter Medicare & Retirement revenues of $8.8 billion grew $886 million or 11 percent year-over-year. This strong growth included revenue advances in the Medicare Advantage, Medicare Supplement and Part D prescription drug businesses. The Medicare & Retirement business has increased its customer base in primary offerings by 615,000 people in the past 12 months.

In Medicare Advantage, the Company brought its services to 290,000 more seniors in the past year, a 16 percent year-over-year increase, including net growth of 20,000 seniors served in the third quarter.

Growth in active Medicare Supplement products continued, with the number of seniors served increasing by 90,000 or 3 percent in the past 12 months, including 25,000 people in the third quarter of 2010.

As of September 30, 2010, 4.5 million people participated in the Company’s stand-alone Part D prescription drug plans, an increase of 235,000 people over the past 12 months.

Many people (myself included) have predicted the demise of Medicare Advantage.  The Health Care Reform law created a number of new rules for insurance companies that run these plans and profit from the billions of dollars they receive from the Medicare Trust Fund.

Starting in 2011, every Medicare Advantage plan must cap enrollees’ out-of-pocket expenses. This means a person treated for cancer won’t run up bills that can total $10,000 or more.

Beginning in 2014, profit margins for Medicare Advantage plans will be capped as they will be required to spend 85% of their revenue on their enrollees.  Most Advantage plans already meet this requirement, but some plans have spent as little as 70% of revenue on their enrollees.

If you think these tough rules (and increased oversight) signal the end of Medicare Advantage, you would be wrong.  In both Tucson and Phoenix new Medicare Advantage plans are coming to these markets.

SCAN (Senior Care Action Network) has nearly 8,000 enrollees in Maricopa county after just two years there.  SCAN will begin marketing its plan in Tucson later this year.

Caremore was new to the Tucson market in 2010 and will be expanding to Phoenix for 2011. Both SCAN and Caremore are $0 premium Medicare Advantage plans which include Part D.

With millions of baby boomers turning 65 each year, insurance companies have determined that the growing Medicare market is good for their bottom line.

The Associated Press, reporting on Humana’s strong business performance in 2010, said “its lucrative Medicare Advantage business posted double-digit enrollment growth”.

Reuters reported that UnitedHealth Group posted a higher-than-expected second-quarter profit, “helped by growth in its Medicare Advantage plans for elderly and low-income Americans”.

Reuters reported that WellPoint (which owns many Blue Cross Blue Shield companies across the country) “wants to expand its Medicare business to take advantage of the post-war baby boom generation”.

Humana’s CEO recently told industry analysts that Medicare Advantage remains a “tremendous opportunity” and acknowledged that he’s been surprised that more competitors haven’t ventured into the market.

It looks like there will be more competitors getting into the Medicare Advantage market and that means more options for seniors in Tucson and Phoenix.