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Health insurers rally after surprise Medicare decision

(Reuters) - Shares in some of the largest health insurers surged on Tuesday following an announcement late Monday by the government that it would increase payment rates for Medicare Advantage in 2014.

The Centers for Medicare & Medicaid Services announced after the market closed on Monday that it would raise the reimbursement rate by 3.3 percent next year instead of cutting it by 2.3 percent, as it had proposed in February.

Humana Inc said on Tuesday that the government's move is an improvement over earlier proposals, but it still faces challenges in certain parts of the country.

"The news is clearly a victory for the health plans," CRT Capital Group analyst Sheryl Skolnick said in a research note.

Other cuts and coding changes related to the Affordable Care Act will nearly offset the increase in reimbursement, Humana said in a statement, and it is still determining what the negative impact will be on its Medicare insurance program.

Insurers are reimbursed for Medicare Advantage, private insurance for seniors and the disabled by the government. This type of insurance accounts for about two-thirds of Humana's annual revenues. Insurers had lobbied loudly against the proposed cut, saying it would cost the industry $11 billion.

In Tuesday morning trading, Humana shares were up 9.1 percent at $81.79, UnitedHealth was up 7.3 percent at $63.24, Aetna was up 4.4 percent at $54.52, Cigna was up 4.4 percent at $65.66 and WellPoint was up 3.7 percent at $69.94.

(Reporting by Caroline Humer; Editing by Alden Bentley, Chizu Nomiyama and Nick Zieminski)

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