US health insurer stocks slump as 2027 Medicare Advantage payments proposal disappoints
Shares of health insurers tumbled on Tuesday after the Trump administration proposed a smaller-than-expected increase to next year's Medicare Advantage plans.
By Reuters |
Shares of health insurers tumbled on Tuesday after the Trump administration proposed a smaller-than-expected increase to next year's Medicare Advantage plans.
UnitedHealth was down nearly 20%, CVS fell about 11%, while Humana slumped nearly 22%.
Medicare Advantage (MA) payment rates will rise by just 0.09% in 2027, the Centers for Medicare and Medicaid Services said late on Monday. Analysts were expecting an increase of as much as 6%.
The marginal increase is disappointing for the insurers that offer the plans for older adults and have been facing rising medical costs.
Simply put, the potential rates compared to the cost trend will likely be insufficient and require significant benefit reductions or plan exits to offset 2027 margin pressures, said Baird analyst Michael Ha.
Some analysts said the proposal reinforces downside risk to MA profitability and highlights regulatory uncertainty as a near-term headwind for insurers' shares.
"If rates are in this range, membership growth will remain low as MA plans need to cut benefits and tighten networks to enable continued margin improvement in this low-rate environment," said Bernstein analyst Lance Wilkes.
The Medicare Advantage rates are typically finalised in early April.
"Generally, the proposed update is better in the final, certainly some politics could be at play, but this update falls well below expectations," said Leerink analyst Whit Mayo.
It was highly unlikely the release of the Advance Notice before UnitedHealth earnings was a coincidence, he said.
The industry bellwether reported fourth-quarter profit that came in marginally above Wall Street estimates on Tuesday. However, the company said its 2026 revenue would contract, further pressuring shares.
The government said the update reflects underlying cost trends, 2026 quality ratings and changes to the risk adjustment model, in which insurers are paid more when their patients are sicker. (Reporting by Sriparna Roy and Mrinalika Roy in Bengaluru; Editing by Shilpi Majumdar)
UnitedHealth was down nearly 20%, CVS fell about 11%, while Humana slumped nearly 22%.
Medicare Advantage (MA) payment rates will rise by just 0.09% in 2027, the Centers for Medicare and Medicaid Services said late on Monday. Analysts were expecting an increase of as much as 6%.
The marginal increase is disappointing for the insurers that offer the plans for older adults and have been facing rising medical costs.
Simply put, the potential rates compared to the cost trend will likely be insufficient and require significant benefit reductions or plan exits to offset 2027 margin pressures, said Baird analyst Michael Ha.
Some analysts said the proposal reinforces downside risk to MA profitability and highlights regulatory uncertainty as a near-term headwind for insurers' shares.
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"If rates are in this range, membership growth will remain low as MA plans need to cut benefits and tighten networks to enable continued margin improvement in this low-rate environment," said Bernstein analyst Lance Wilkes.
The Medicare Advantage rates are typically finalised in early April.
"Generally, the proposed update is better in the final, certainly some politics could be at play, but this update falls well below expectations," said Leerink analyst Whit Mayo.
It was highly unlikely the release of the Advance Notice before UnitedHealth earnings was a coincidence, he said.
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The industry bellwether reported fourth-quarter profit that came in marginally above Wall Street estimates on Tuesday. However, the company said its 2026 revenue would contract, further pressuring shares.
The government said the update reflects underlying cost trends, 2026 quality ratings and changes to the risk adjustment model, in which insurers are paid more when their patients are sicker. (Reporting by Sriparna Roy and Mrinalika Roy in Bengaluru; Editing by Shilpi Majumdar)
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