Health care stocks rocked by proposed Medicare Advantage rates
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Health care stocks plummeted Tuesday after the Trump administration proposed keeping federal payments to private Medicare plans roughly flat in 2027 — far below what insurers had expected.
Why it matters: The proposal threatens revenue and margins in a core profit engine for major health insurers — and signals tough policy headwinds for the industry ahead.
Driving the news: The average 2027 rate increase of 0.09% for Medicare Advantage plans — equivalent to $700 million industrywide — reflects CMS efforts to tighten payment accuracy and updated estimates of underlying health costs, the Centers for Medicare and Medicaid Services said in a notice.
- For context, insurers received a more than 5% payment bump for 2026.
- CMS also proposed eliminating a practice that allows the insurers to add diagnoses after reviewing patients' medical records — a move that addresses coding practices that have received scrutiny and that the Wall Street Journal found added billions of extra payments from 2018 to 2021.
Market impact: Humana shares fell 19% Tuesday morning; Centene was down 11%; while CVS Health and Elevance were both down 11%.
- UnitedHealth was trading down 19%, compounding losses after the company also reported disappointing fourth-quarter revenue and issued a lackluster 2026 outlook.
"These proposed payment policies are about making sure Medicare Advantage works better for the people it serves," CMS administrator Mehmet Oz said in a statement.
- "By strengthening payment accuracy and modernizing risk adjustment, CMS is helping ensure beneficiaries continue to have affordable plan choices and reliable benefits, while protecting taxpayers."
Flashback: Oz had pledged to go after overpayments to insurers during his confirmation hearing last year.
- The agency Monday said it's proposing updates to the Medicare prescription drug risk adjustment model that account for changes to the Part D benefit stemming from the Inflation Reduction Act.
What they're saying: Insurers warned that the Medicare Advantage rate policy could push them to scale back plan offerings.
- The insurer group AHIP said the proposal could result in benefit cuts and higher costs for 35 million Medicare recipients when they renew their MA coverage.
UnitedHealth said on its earnings call Tuesday morning that it is already shrinking its Medicare business amid rising costs and multiple years of Medicare funding reductions.
- CMS's proposal "simply doesn't reflect the reality of medical utilization and cost trends," said Tim Noel, CEO of UNH's insurance arm, UnitedHealthcare.
- "We will continue to work with CMS to ensure an appropriate final growth rate calculation to avoid a profoundly negative impact on seniors benefits and access to care," Noel said.
The bottom line: The proposal puts CMS on a collision course with insurers who are already signaling they'll respond by pulling back — raising the political stakes ahead of final rate decisions.
What we're watching: "We believed (and still do) that it would be political suicide to give a bad MA update in a midterm election year as this results in decreased benefits for seniors who learn about the changes weeks before the election in mid-October," Raymond James analyst Chris Meekins wrote in a note.
- "By these actions CMS seems to not care about the midterms."
