Recent News from PULSE, May 2010

Update: Final Medicare Advantage Capitation Rates for 2011 are released.

CMS announced final capitation rates for Calendar Year 2011. As mandated by Section 1102 of the Health Care and Education Reconciliation Act of 2010, capitation rates for Calendar Year 2011 will be the same as capitation rates for Calendar Year 2010.

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CMS Suspends Aetna’s Marketing and Enrollment of New Medicare Advantage Members.

CMS announced it has imposed sanctions against Aetna from marketing and enrolling new Medicare Advantage members for non-compliance of regulations, effective April 21st.

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CIGNA and Humana to Jointly Offer Group Medicare Advantage Products.

CIGNA and Humana will form a partnership to offer employers coverage to its employees and retirees. The two companies are expected to begin offering its Group Medicare Advantage Products on July 1, 2010.

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Minimum Health Benefit Ratios Cause Shift in Expenses.

As a result of the recent health care reform law that mandates minimum health benefit ratios, one insurer has responded by shifting its medical management expenses to health care costs.

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Capital Cost Comments.

On average, health plan stock prices fell 3.6% during the month of April, while valuation indicators followed a similar trend. Commercial plans experienced the largest declines, followed by Medicare plans. Stock prices for Medicaid plans increased during the month.

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Earnings Analyses.

Aetna, Inc. reported net earnings growth driven by a 93.4%, year-overyear, increase to non-operating income and an improved health benefit ratio. AMERIGROUP Corporation’s operating earnings improved on increased membership. Centene Corporation experienced higher net earnings on increased non-operating earnings. Coventry Health Care, Inc. reported increased net margins driven by lower health benefit costs. HealthSpring, Inc.’s net income increased, year-over-year, on membership growth and improved health benefit and administrative to premium ratios. Humana, Inc. reported higher operating earnings on improved health benefit ratio and administrative expense ratio. UnitedHealth Group’s net earnings improved as nonoperating income increased significantly by 77.8%, year-over-year. Universal American Corporation experienced operating earnings growth, year-over-year, driven by membership growth. WellPoint, Inc.’s earnings per share grew sharply by 85.6%, year-over-year, on improved non-operating earnings and improved cost ratios.

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Mergers and Acquisitions.

Universal American Corporation announced it has divested its wholly-owned subsidiary, CHCS Services, Inc., to Patni Computers Systems Ltd. The two companies have also entered into a five-year services contract.

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Personnel Changes.

Blue Cross Blue Shield of Arizona appointed Karen Abraham as Senior Vice President and Chief Financial Officer. Regence BlueCross BlueSheild of Utah named Robert Hatch as its President. SCAN Health Plan promoted Gerald Coley to Regional Vice President of Northern California.

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Insert. The Cost of Stock Compensation.

The Cost of Stock Compensation is our analysis of the cost to shareholders of stock-based incentives granted to company management. We estimate the impact of the exercise of options and vesting of Restricted Stock Units on historical net earnings and shareholder dilution.

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