Jan 27 (Reuters) – Shares of health insurers tumbled in premarket trading on Tuesday after the Trump administration proposed a smaller-than-expected increase to next year’s Medicare Advantage plans.
UnitedHealth was down 8%, CVS fell about 9%, while Humana slumped nearly 14%.
Medicare Advantage payment rates will rise by just 0.09% in 2027, resulting in more than $700 million in additional payments, the Centers for Medicare and Medicaid Services said late on Monday. Analysts had been expecting an increase of as much as 6%.
Simply put, the potential rates compared to the cost trend will likely be insufficient and require significant benefit reductions or plan exits to offset 2027 margin pressures, said Baird analyst Michael Ha.
The marginal increase is disappointing for the insurers, including UnitedHealth, CVS and Humana, which offer the plans for older adults and have been facing rising medical costs.
“This (rate) is below our and Street expectations and we believe the implementation of the rule will likely result in a delay of the embedded earnings story for companies with meaningful exposure to MA,” said Mizuho analyst Ann Hynes.
The Medicare Advantage rates are typically finalised in early April.
“Generally, the proposed update is better in the final, certainly some politics could be at play, but this update falls well below expectations,” said Leerink analyst Whit Mayo.
It was highly unlikely the release of the Advance Notice before UnitedHealth earnings was a coincidence, he said.
The industry bellwether reports its fourth-quarter results on Tuesday, and Wall Street will be focused on the impact of the proposed rates.
The government said the update reflects underlying cost trends, 2026 quality ratings and changes to the risk adjustment model, in which insurers are paid more when their patients are sicker.
(Reporting by Sriparna Roy in Bengaluru; Editing by Shilpi Majumdar)
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