Insurers' stocks in the U.S. collapsed over plans to keep Medicare payment rates unchanged
The market was expecting a 4-6% increase in rates
Shares of Medicare insurers rose after Donald Trump won the presidential election in 2024 / Photo: Shutterstock.com
Quotes of the largest U.S. insurance companies collapsed by 10% and more after the authorities announced their intention to keep payments for Medicare programs in 2027 at the same level. This disappointed investors who had expected a significant increase.
Details
UnitedHealth shares collapsed at the postmarket in New York on January 26, reaching 10%, CVS Health - 12%, Humana - 15%. Quotes of Elevance Health, Centene and Molina Healthcare, whose business is less dependent on Medicare, fell by 3-5%.
Payment rates to private insurers for managing Medicare Advantage plans are expected to increase by only 0.09% in 2027, the Centers for Medicare & Medicaid Services (CMS) of the U.S. Department of Health and Human Services announced. The announcement came as a complete surprise to the market: investors considered the current White House administration to be more loyal to private Medicare plans than the previous one, Bloomberg states.
What the analysts are saying
Analysts at TD Cowen had forecast a 5-6% rate hike in 2027 and warned that any rate below 4% would put pressure on stocks, Bloomberg writes.
"People have been sizing this up closer to 4-5%, given rising costs and frequency of claims in senior care insurance," said Kevin Gade, chief operating officer of Bahl and Gaynor, which owns shares of UnitedHealth. That will affect insurers' margins in 2027 and earnings-per-share forecasts, he added.
What's next
CMS will release its final decision on Medicare rates on April 6, so there is time to improve them. The industry will be watching to see if CMS adjusts its intentions in the coming months, Reuters wrote, citing Morningstar analyst Julie Utterback. "We'll see where the agency comes down to in a few months when they publish the final notice," she said.
Gade of Bahl and Gaynor expects to hear more details about the impact of the proposed rates from UnitedHealth CEO Stephen Hemsley as early as today - during the company's management conference call with investors and analysts after announcing fourth-quarter results, Reuters notes.
This article was AI-translated and verified by a human editor
