By David Wainer

For the past few years, U.S. health insurers and their investors were hit from every direction. Patients flooded back to seek treatments after the pandemic, and Washington tightened the rules on Medicare Advantage. Margins collapsed and stocks followed.

Now the pressure is easing. Medical costs are rising less than feared, the Trump administration has turned more generous, and the once-shunned sector is bouncing back.

Shares of UnitedHealth Group, Humana and CVS Health -- whose stocks got crushed in recent years -- have rebounded meaningfully. The worst appears to be behind the industry.

Investors will find out how much further the recovery has to run when companies start reporting second-quarter earnings next month. But after the recent recovery, the easy money in these stocks has likely already been made.

Strip away the complexity, and the economics of U.S. healthcare resemble a seesaw. Insurers collect premiums and bear risk, so they lose when people consume lots of care. Hospitals, physicians and drugmakers sit on the other end: They win when volumes rise. The lines have blurred as insurers increasingly own clinics and pharmacies, but not enough to change this fundamental dynamic.

In the last three years or so, that seesaw was stuck hard against insurers. Americans who had deferred care during the pandemic returned en masse to doctors' offices, emergency rooms and operating rooms. Insurers, having priced plans for a calmer world, paid the bill. Medicare Advantage -- the privatized version of Medicare that was once the industry's most reliable profit pool -- became its biggest vulnerability just as Washington tightened payments.

From peak to trough over the past couple of years, Humana, CVS and UnitedHealth lost over half of their market value. Hospital operators like HCA Healthcare and Tenet Healthcare, by contrast, rode the volume boom. By early this year, the valuation gap between the two sides of the seesaw looked extreme.

It has since narrowed sharply. After aggressively repricing their plans and exiting unprofitable localities, insurers entered 2026 on far firmer footing. In the first quarter, every major managed-care player -- Elevance Health, Centene and Molina Healthcare included -- reported medical-cost trends that were stable or improving. Humana, one of the few insurers still growing in Medicare Advantage this year, said costs were running better than expected. So far this year, Humana is up 45%, CVS has gained 29% and UnitedHealth is up 25%.

For the millions of seniors enrolled in Medicare Advantage, the turnaround cuts both ways. The wave of plan exits that defined the past two enrollment cycles should ease. But as insurers get more disciplined, the era of ever-richer benefits that included perks like vision and grocery allowances is over.

The repricing of Medicare policies has been the biggest difference maker for insurers. But two external shifts further tipped the seesaw.

The first is costs. Hospital-admissions and emergency-room-visit growth slowed sharply in the first quarter, while growth in major drug categories has cooled. The rotation within healthcare tells the story. HCA is down sharply from its March high, while Tenet has slumped alongside it. Both have their own headwinds, including a hit from the expiration of enhanced Affordable Care Act subsidies. But the common thread is that Americans are using less care.

The second is Washington. After the Biden administration squeezed Medicare Advantage payments to insurers, the Trump administration eased up on the industry, delivering a rate increase of more than 5% for 2026, followed by another favorable update for 2027.

Then there is a third force: fear. As investors have grown anxious about stretched artificial-intelligence valuations and geopolitical flashpoints, money has rotated into a domestically focused sector with years of underperformance to make up.

But at current share prices, investors have already priced in a substantial margin recovery. Humana traded at roughly 14 times forward earnings at its March trough. It now trades at about 31 times, well above the broad market. UnitedHealth is at 21 times versus 14 earlier this year. CVS is at 12.8 times versus 10. The longer-term math is friendlier: Against 2029 earnings, Humana trades at roughly 12 times, a more reasonable bet on what the business will look like once the recovery has played out.

For the rally to keep going, investors need to see not just one quarter, but several in which cost trends stay tame and the government keeps easing the pressure. The administration blinked earlier this year, but an overhaul of risk-coding policies that would have hurt industry profits is widely seen as deferred rather than dead.

The industry has stabilized, and insurers are running leaner than before. That was enough to swing the seesaw back. It won't be enough to hold it there.

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

(END) Dow Jones Newswires

June 17, 2026 05:30 ET (09:30 GMT)

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