By David Wainer

Wall Street is discovering that the Republican party's longstanding romance with Medicare Advantage has entered a more complicated chapter.

For decades, investors in the privatized version of Medicare grew accustomed to a familiar political rhythm. Since its inception, Medicare Advantage has been favored by Republicans, leading markets to expect more generous treatment under Republican administrations than Democratic ones.

That pattern largely held in recent years. The first Trump administration delivered favorable policies, while the Biden administration moved to rein in aggressive Medicare Advantage coding practices. Even at the start of Trump's second term, his administration initially boosted payments to insurers for this year by more than anticipated.

Which is why it came as a near-unanimous surprise on Wall Street when the Centers for Medicare and Medicaid Services, now led by Dr. Mehmet Oz, abruptly shifted course. The agency proposed roughly flat payment rates -- far below industry expectations for a second-straight increase of about 5%. In a statement, Oz said the policy would help protect "taxpayers from unnecessary spending that is not oriented towards addressing real health needs."

The rate tightening partly reflects an effort to curb payments for diagnoses that are identified on paper but not actively treated. The Wall Street Journal has reported extensively on such practices in Medicare Advantage, which have cost taxpayers billions of dollars. Under the proposal, CMS would no longer count conditions found in chart reviews unless there was an actual doctor visit or medical encounter to support them.

For the industry -- especially the largest insurers -- the reaction was swift. Shares of UnitedHealth Group, the biggest player, fell 20%, even as the company's 2026 earnings outlook, released Tuesday, came roughly in-line with analysts' expectations. Humana, a Medicare Advantage pure play, fell 21%. Shares of CVS Health slid 14%.

The shock wasn't just the math. It was also the timing. While initial rate proposals are often revised higher before being finalized in early April, the willingness of a Republican administration to squeeze the industry just ahead of the midterm elections marked a clear departure from precedent. Tighter payments could prompt insurers to cut back on benefits during the fall enrollment season, a politically sensitive move given Medicare Advantage's popularity with seniors.

"We expected the Trump CMS to try to leave its mark on Medicare Advantage, but...not before the midterms," wrote Chris Meekins, an analyst at Raymond James. Sarah Bianchi, an analyst at Evercore, said the decision "underscores the frustration in both parties around the role of insurance companies," adding that "this development suggests that Medicare Advantage is losing favor among Republicans."

The tougher stance reflects a broader reorientation among conservative policy experts who say that keeping Medicare Advantage sustainable requires ensuring the program is both fair and competitive. One key argument, recently articulated by Chris Klomp, deputy administrator of CMS, is that the current risk-adjustment system, in which insurers get paid based on how sick patients are coded, gives larger insurers an advantage because they are better equipped to capture and document diagnoses. Simplifying the system, he said at a recent conference, would create a more level playing field.

CMS echoed that view in its proposal on Monday, writing that the new risk-adjustment policies are intended to foster competition "equally for all varieties of plans irrespective of size or resources."

In other words, said Ipsita Smolinski of Washington-based advisory firm Capitol Street, the goal isn't to undermine Medicare Advantage but to narrow the gap between large, for-profit insurers and smaller, nonprofit and regional Blue Cross plans.

Expect large insurers to fight back. The industry's largest player signaled as much almost immediately. Addressing the proposed 2027 rates, Tim Noel, who leads UnitedHealth's insurance business, said the company would work with the government to avoid negative consequences for patient care. "That would be a deeply unfortunate result for a program that already is under funding pressure from the previous administration, " he said.

The company, already retrenching this year, disclosed that it expects to lose between 1.3 million and 1.4 million Medicare Advantage members. The figure exceeded its prior guidance and underscored how selective insurers have become about participating in the program.

Medicare Advantage has been adjusting to tighter government purse strings for some time. What is new is that the shift appears to be solidly bipartisan.

Write to David Wainer at david.wainer@wsj.com

(END) Dow Jones Newswires

January 28, 2026 05:30 ET (10:30 GMT)

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