Stocks of leading U.S. health insurers tumbled on Tuesday as the federal government put forward a much smaller-than-expected increase to payment rates for Medicare Advantage (MA) plans in 2027.
As of 14:36 GMT (09:36 ET), Humana Inc experienced the largest decline, sliding 19.1%. UnitedHealth Group shares fell by as much as 18.6%. Elevance Health registered an opening decline of 10.8%, while CVS Health Corp dropped 8.9%. Centene Corp lost 4.9%, and Molina Healthcare Inc was down 3.8%.
Medicare Advantage plans are offered by private insurers and package services that Original Medicare provides, including hospital insurance, medical insurance, and prescription drug coverage. Payment rates for these plans are reviewed and updated annually.
The Centers for Medicare & Medicaid Services proposed for 2027 an increase to MA payment rates of 0.09% - a change CMS said incorporates factors that affect payments such as the pace of underlying costs, 2026 star ratings that determine 2027 quality bonus payments, and updates to risk adjustment.
In dollar terms, CMS described the proposed change as amounting to just over $700 million in additional payments.
Analysts said the Advance Notice came in well below market expectations and included changes to risk scoring that materially hit MA risk scores. Truist analysts led by David MacDonald noted that what had been anticipated as a positive catalyst turned negative because of the regulatory shifts affecting MA risk scores. They highlighted that the proposed 0.09% increase is well under the Street consensus of roughly 5.0%, reflecting a lower-than-expected effective growth rate and modifications to how MA plans are permitted to risk-code.
Mizuho analysts Ann Hynes and Jack Sheehan observed that while the Advance Notice is preliminary and subject to revision before the Final Announcement in April, it falls short of both their and Street expectations. They added that the implementation of the rule will likely delay the embedded earnings story for firms with significant MA exposure, explicitly naming HUM, UNH, and CVS.
Truist analysts also signaled that the final rate announcement could improve on the Advance Notice and said they remain broadly constructive on managed care operators. The firm reiterated Buy ratings on Centene (CNC), CVS, Elevance (ELV), and UnitedHealth (UNH), while maintaining Hold ratings on Humana (HUM) and Molina Healthcare (MOH).
Context limitations: The CMS release cited above was an Advance Notice and therefore may be changed before the Final Announcement in April. Market reactions reflected the Advance Notice as published.