NEW YORK: Shares of major US insurers tumbled after the United States proposed holding payments to private Medicare plans flat next year, a huge disappointment for investors.
Shares of UnitedHealth Group Inc fell as much as 10% in after-hours trading in New York on Monday, while CVS Health Corp dropped as much as 12% and Humana Inc sank 15%.
Medicare Advantage payment rates will rise by just 0.09% in 2027, the Centres for Medicare (CMS) and Medicaid Services said in a statement. Analysts had been expecting an increase as high as 6%.
“These proposed payment policies are about making sure Medicare Advantage works better for the people it serves,” administrator Mehmet Oz said.
The rate proposal is a surprise coming from an administration that investors believed would be more favourable for private Medicare plans than the prior one.
Shares of Medicare insurer stocks rallied on Donald Trump’s 2024 victory.
Oz once promoted using Medicare Advantage as a model to replace most private health insurance.
And Wall Street was betting on friendly regulators to reverse years in which the government pulled back on payments.
As Trump increasingly faces criticism for Americans’ affordability challenges, he has begun targeting insurers, blaming them for rising premiums in private Affordable Care Act plans.
In December, he said insurance companies “are making so much money, and they have to make less, a lot less.”
The update will mean barely any increase for Medicare insurers that have seen profits squeezed by rising care expenses and what they call insufficient funding from the government.
The preliminary rates need to be finalised in the months ahead, leaving room for them to improve.
The rates are crucial to big insurers including UnitedHealth, CVS and Humana. Medicare Advantage, the private version of the federal health benefit for seniors, has powered insurers’ growth for more than a decade.
But in recent years, the business has become less profitable for insurers, with several seeing stock-price meltdowns after new payment rules diminished profits.
Higher payments help them cover medical costs, sweeten benefits for seniors and boost profits, while smaller increases can squeeze margins.
Even insurers with businesses that are less dependent on Medicare Advantage fell, with shares of Elevance Health Inc dropping more than 5%. — Bloomberg
