The BareStory
Shares of major U.S. health insurance companies fell sharply on Tuesday following a federal proposal for lower-than-expected Medicare Advantage payment rates and a weak revenue forecast from UnitedHealth Group. In early trading, Humana stock plunged approximately 20%, while UnitedHealth dropped more than 19%. Other industry players, including CVS Health, Elevance Health, and Centene, also recorded double-digit declines.
The sell-off was triggered by a proposal released Monday by the Centers for Medicare & Medicaid Services (CMS), which outlined a net average payment increase of just 0.09% for Medicare Advantage plans in 2027. This figure fell significantly short of the 4% to 6% increase anticipated by analysts. CMS Administrator Dr. Mehmet Oz stated that the proposed policies are designed to update risk adjustments and enhance payment accuracy, ensuring that taxpayer funds target actual health needs.
Compounding the sector's decline, UnitedHealth Group reported fourth-quarter revenue of $113.2 billion, missing analyst expectations. The company also issued guidance projecting a 2% year-over-year revenue decline for 2026, forecasting a total exceeding $439 billion. UnitedHealth CFO Wayne DeVeydt noted this is the first time in a decade the company has guided for a revenue drop. DeVeydt attributed the outlook to international divestitures, a projected loss of over 3 million U.S. members, and a $6 billion impact from transitioning to Medicare's new coding system.
UnitedHealth is currently executing a turnaround plan aimed at restoring profitability through measures such as raising prices, cutting benefits, and shrinking membership. Meanwhile, the CMS is expected to finalize the Medicare Advantage rates in early April. If the current proposal is adopted, the agency estimates it would result in over $700 million in additional payments to plans in 2027.
How it may affect me
As a U.S. reader:
You may need to switch insurance providers if you are among the more than 3 million U.S. members UnitedHealth projects losing as it attempts to stabilize its finances.
Policyholders could face higher prices and reduced benefits as insurers execute turnaround plans to restore profitability in response to tighter federal payment proposals.
Investors holding stocks in major health insurers like Humana and UnitedHealth may see immediate portfolio declines following the sharp double-digit sell-off triggered by the news.
Taxpayers may see federal funds directed more specifically toward actual health needs if the CMS finalizes its proposal to update risk adjustments and enhance payment accuracy.
