U.S. government proposes lower than expected Medicare rates. Humana downgraded by S&P, shares tumble.

HUM shares fell 25% on Monday after Medicare rate increases for 2010 were lower than analyst expected. As mentioned in the February 5th “Humana 4Q Earnings” post, Humana is particularly vulnerable to changes in government policy. Projections for Medicare Advantage, the company’s catalyst for long-term growth, will have to be altered to account for the lower rates. Should the preliminary payment rates become final, the company will be forced to either increase premiums or cut benefits to maintain projected profitability, which may cause customers to abandon the programs. Most analyst agree that the actual rates may be slightly more favorable, however it is important to consider Obama’s call for health-care reform.

"The cost of health care has weighed down our economy and our conscience long enough. So let there be no doubt, health-care reform cannot wait, it must not wait and it will not wait another year,"