Key insights
- Health insurer stocks surged after CMS announced a larger-than-expected increase in Medicare Advantage payment rates. This positive surprise, representing a $13 billion boost, significantly benefits insurers like UNH, HUM, CVS, and ELV. Despite recent gains, these stocks have faced pressure due to rising expenses and political scrutiny over healthcare costs. The increased payment rates offer a potential catalyst for recovery, positively influencing the US equity market.
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Health insurer stocks are surging after a bigger-than-expected boost to Medicare Advantage payment rates.
The Centers for Medicare and Medicaid Services on Tuesday said the amount it pays private insurers to administer Medicare Advantage plans will increase nearly 2.5%, or about $13 billion, next year. The CMS in January proposed increasing payments by less than 0.1%, or about $700 million.
UnitedHealth Group (UNH) shares were up over 10% in recent trading, leading gains on the S&P 500 and Dow Jones Industrial Average following the news. Humana (HUM) rose about 9%, while Aetna owner CVS Health (CVS) advanced 6%, and Elevance Health (ELV) climbed 3%.
The higher rate represents a major win for health insurance providers, and could mean an additional $13 billion in payments tied to Medicare Advantage plans next year, according to the CMS.
Health insurance stocks have been under pressure for more than a year, in the face of rising expenses and political frustration with high healthcare costs. President Trump entered the White House last year vowing to lower drug prices and rein in pharmacy benefit managers, the middlemen that set those prices. The administration has launched investigations into insurers’ Medicare billing practices, and Congressional Democrats placed the high cost of health insurance at the center of last year’s record-breaking government shutdown.
Even with Tuesday's gains, shares of UnitedHealth Group, America's largest insurer, have slumped more than 40% over the past 12 months. The stock, once the highest-priced equity in the Dow, has lost roughly half of its value from its 2024 highs.
Humana shares have lost about a fifth of their value since the year began. Elevance has dropped about 11%, while CVS Health stock is down 2% over the same period.
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