By Josh Nathan-Kazis

The Trump administration just rescued the big health insurers with a $25 billion payout.

For more than a year, the story for these companies has been that the business of privately managing Medicare plans had become a major disappointment.

U.S. seniors were seeking lots of medical care, eating away at insurers' profits. It's been a disaster for stocks like Humana, CVS Health, and UnitedHealth Group, demolishing share prices and flattening growth expectations.

On Monday night, the Trump administration changed the script, with a promise to pay an extra $25 billion to the Medicare Advantage plans those companies run next year.

Investors had been expecting the Trump administration to take a friendlier approach to Medicare Advantage, which uses federal funds to pay private companies to insure U.S. seniors. The news that came late Monday, though, was far better than expected.

The explosion in the share prices of the big insurers on Tuesday morning shows how dramatically the decision shifts the narrative for the insurers.

UnitedHealth Group stock jumped 7.3%, while Humana, effectively a Medicare Advantage pureplay, surged 12%, and CVS Health was up 9.8%. All three stocks were on pace for their best day since 2020.

Monday's announcement brushed away any worries that the White House's focus on cost-cutting would bring pressure on Medicare Advantage spending.

"This leads one to believe DOGE [the Department of Government Efficiency] does not care about [Medicare Advantage]," Raymond James healthcare policy analyst Chris Meekins wrote late Monday.

The details of Monday's announcement were technical, and related to how much the government pays insurers per Medicare Advantage member.

The government pays Medicare Advantage plans a lump sum per member, rather than paying for each medical service the patient needs. Centers for Medicare and Medicaid Services said it would increase its payment rates to Medicare Advantage plans by 5.1%, much higher than the 2.2% increase it had proposed just months ago.

"The final rate and final policy and technical changes affirm our conviction that the Trump Administration will be more favorable to MA than the Biden Administration," Meekins wrote.

Health insurer stocks have been battered by what has seemed, at times, like the collapse of the Medicare Advantage business since the fall of 2023.

After a pandemic-era lull, seniors began seeking medical care at high rates. Companies were taken by surprise, and didn't have time to make adjustments. The result was pressured margins, and vastly diminished growth expectations.

Humana shares were down roughly 50% from October of 2023 through the close of trading Monday, and analysts have slashed their earnings estimates. The consensus estimate for Humana's 2026 earnings fell from $42.77 per share as of 2023 to just $13.82 currently.

At CVS Health, the Medicare Advantage crisis cost the CEO, Karen Lynch, her job. CVS earnings expectations have fallen sharply, too: Analysts anticipate earnings of $6.87 per share in 2026, according to FactSet. In the fall of 2023, they had expected 2026 earnings of $10.89 per share.

Over and over again since then, health insurers have said in their quarterly financial reports that seniors used more medical care than anticipated, leading to lower-than-expected earnings.

It was a dramatic shift from earlier in the decade, when Wall Street saw Medicare Advantage as the future of the industry. Humana, the Medicare Advantage poster child, was a particular Wall Street darling. Humana shares returned nearly 290% from the start of 2015 through the fall of 2023, and in late 2022, 19 of the 25 analysts tracked by FactSet who covered the stock still called it a Buy.

Medicare Advantage was created and boosted by Republicans, and the Biden administration was seen as broadly skeptical of the program. Last year, when the Biden administration announced its 2025 Medicare Advantage rate increase, the numbers came in lower than expected, and shares fell across the sector. At the time, analysts said they considered the 2025 increase a de facto cut, and executives cried foul.

The Trump administration seems to have been listening.

Still, the clouds for Medicare Advantage have not all blown away. There have been growing questions about billing by the insurers, and The Wall Street Journal reported in February that the Department of Justice has launched a civil fraud investigation into UnitedHealth's practices. There is a separate Senate investigation as well. UnitedHealth has defended its practices.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 08, 2025 11:26 ET (15:26 GMT)

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