Shares of major US insurers tumbled in morning trading on Tuesday after the US proposed holding payments to private Medicare plans flat next year, a huge disappointment for investors.
Humana fell 20%; UnitedHealth fell 18%; Elevance Health fell 10%; CVS Health fell 9%; Oscar Health, Centene, and Molina Healthcare fell 4%; Cigna fell 2%.
Medicare Advantage payment rates will rise by just 0.09% in 2027, the Centers for Medicare and Medicaid Services said in a release. Analysts had been expecting an increase as high as 6%.
“These proposed payment policies are about making sure Medicare Advantage works better for the people it serves,” CMS Administrator Mehmet Oz said in the release.
The rate proposal is a surprise coming from an administration that investors believed would be more favorable for private Medicare plans than the prior one. Shares of Medicare insurer stocks rallied on Donald Trump’s 2024 victory. Oz once promoted using Medicare Advantage as a model to replace most private health insurance. And Wall Street was betting on friendly regulators to reverse years in which the federal government pulled back on payments.
As Trump increasingly faces criticism for Americans’ affordability challenges, he has begun targeting insurers, blaming them for rising premiums in private Affordable Care Act plans. In December, he said insurance companies “are making so much money, and they have to make less, a lot less.”
The update will mean barely any increase for Medicare insurers that have seen profits squeezed by rising care expenses and what they call insufficient funding from the government. The preliminary rates need to be finalized in the months ahead, leaving room for them to improve.
The rates are crucial to big insurers including UnitedHealth, CVS and Humana. Medicare Advantage, the private version of the federal health benefit for seniors, has powered insurers’ growth for more than a decade. But in recent years, the business has become less profitable for insurers, with several seeing stock-price meltdowns after new payment rules diminished profits.
Higher payments help them cover medical costs, sweeten benefits for seniors and boost profits, while smaller increases can squeeze margins.