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Humana's Learning to Change With the Times

OKLAHOMA CITY -- Humana (HUM - Get Report) likes to think that Medicare will always be its friend.

The giant health insurer knows that Congress aims to cut payments for private Medicare Advantage plans, particularly the "private fee-for-service" coverage that most seniors now prefer, but the company remains committed to the program nonetheless. Even if Democrats manage to kill its lucrative PFFS business altogether, the company feels confident that everything will work out in the end.

"Now the headlines will probably be ugly," Humana CEO Michael McCallister admitted ahead of this year's big election. But "Medicare has always been good to Humana, even during the '90s, so I think there is a future" in the business.

While many health insurance companies sell private Medicare coverage, including heavyweights such as WellPoint (WLP) and UnitedHealth (UNH - Get Report), Humana has leaned on the business more than most.

Thanks to its booming Medicare unit, Humana has literally doubled in size over the past few years. The company now relies on Medicare Advantage for roughly 60% of its profits, analysts estimate, with most of that coming from PFFS plans.

So far, the government has paid Medicare Advantage providers quite well. On average, experts estimate, the government spends about 13% more on private Medicare coverage than it does on standard Medicare. For PFFS plans, they say, the subsidies climb even higher to almost 17%. As a result, they say, private insurers can promise seniors richer benefits than standard Medicare, especially under PFFS plans, and still deliver hefty profits to their shareholders.

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SYM TRADE IT LAST %CHG
WLP $136.01 1.43%
CI $140.83 0.00%
HUM $214.65 0.00%
WMT $74.27 0.00%
WCG $85.67 0.00%

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