February 12, 2013

Coventry's (CVH) Kentucky Medicaid Program Gets Rate Increase

Kentucky awarded Coventry Health Care Inc. (CVH) a requested rate increase for its Medicaid program in the state, as costs for serving the state's poor have been higher than expected when Coventry, along with WellCare Health Plans Inc. (WCG) and Centene Corp. (CNC), began covering Kentucky Medicaid patients in 2011.

Terms of the agreement are Coventry will get a rate increase of 7 percent for each year of the contract through the latter part of 2014 when it ends. The increase is effective as of January 1, 2013.

In a filing with the Securities and Exchange Commission, Coventry said a rate increase already in place for the last year of the contract will be put in effect three months earlier than the original contract specified.

Aetna Inc. (AET), a planned carrier, should benefit from the deal, as shares of the insurer jumped over 1 percent on the news. That's because Aetna is in the process of acquiring Conventry for $5.7 in cash and stock.

While there has been no reports on WellCare, the assumption is the company is in negotiations with the state of Kentucky for a deal similar to that reached with Conventry. Shares of the company jumped to $54.57 in early Tuesday trading, a gain of 3.2 percent.

It is more murky concerning Centene, which plans to leave Kentucky in July 2014, as Centene CEO Michael Neidorff said in the latest earnings call of the company that the Kentucky Medicaid program was "not sustainable in its current form."

Kentucky continues to be hampered by poor leadership, as has refused to take the necessary steps to get its fiscal house in order, including making government employees pay more for the outrageous benefits they receive at the expense of the taxpayers of the state.

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