UPDATE 1-U.S. govt sets 3.40 pct hike in 2019 payments to Medicare insurers

(Adds details, background)

April 2 (Reuters) - The U.S. government on Monday said it would increase by 3.40 percent on average 2019 payments to the health insurers that manage Medicare Advantage insurance plans for more than 20 million people aged 65 and older or who are disabled.

The rate, which affects how much insurers charge for monthly healthcare premiums, plan benefits and, ultimately, how much they profit, represents an increase over the 1.84 percent increase proposed by the Centers for Medicare & Medicaid Services (CMS) in February.

UnitedHealth Group Inc, Humana Inc, Aetna Inc and WellCare Health Plans Inc are the largest sellers of Medicare Advantage health insurance. Under the program, they are paid a set rate by the government to cover member healthcare costs.

CMS Administrator Seema Verma also laid out a plan to provide faster access to cheaper generic drugs for Medicare recipients. CMS is a division of the U.S. Department of Health and Human Services.

The government also said it would extend low-income cost sharing on generic drugs for patients with Medicare Part D to biosimilar drugs, which are less expensive versions of high-priced biotech medicines.

Medicare Advantage competes with the traditional Medicare fee-for-service program. Both have grown as the "Baby Boomer" generation ages into Medicare. Together, they cover more than 55 million people.

The government said that the new rate reflected a decline in payments of 2.26 percent related to the Affordable Care Act requirement that Medicare advantage and fee-for-service Medicare have the same payment structure.

It also forecast medical services costs to grow by 5.28 percent, up from a prior projection of 4.35 percent, to reflect changes in spending under the 2019 U.S. budget. (Reporting by Bill Berkrot in New York and Caroline Humer in Wilton, Connecticut Editing by James Dalgleish)