Health officials on Friday proposed an increase in Government payments to private insurers by 1.28% next year that offer Medicare health coverage to seniors, a major area of growth for the industry.

In a statement released after U. S. markets closed, the government insurance program for the elderly announced payments for so-called Medicare Advantage policies in 2011. Final rates will be published in April, which will affect how much insurers will receive to provide benefits to about 11 million people.

Carl McDonald, an analyst with Oppenheimer & Co. in New York, said in a Feb. 16 note to clients, “Advantage has been ‘a huge driver’ of industry earnings growth over the last three years”.

According to Dave Shove, a BMO Capital Markets analyst, “Insurers fell today as investors anticipated the rate cuts”.

“The surprise increase came partly because the government didn’t expand an adjustment for differences between Advantage enrollees and traditional Medicare patients”, he said in a telephonic interview.

Shove, who had predicted rates would be unchanged or fall as much as a 4 percent, was now of a different view. “The stocks will probably go up because people were expecting a cut. While the fees still won’t cover rising costs, insurers will be ‘a little less unhappy’ with the increase”, he said.