Shares of U.S. health insurers took a hit on Tuesday after the Biden administration failed to increase payments for private Medicare plans as much as the insurance industry and investors had hoped. This disappointing news caused CVS Health’s stock to drop more than 8% and UnitedHealth Group’s stock to slide nearly 7%. Elevance Health experienced a drop of over 3%, while Centene’s stock fell 6%. The largest impact was felt by Humana, whose stock fell more than 10%. Humana relies heavily on private Medicare plans, known as Medicare Advantage, so this news hit them particularly hard.
This announcement puts additional pressure on insurers who are already dealing with high medical costs and uncertainty surrounding claims processing following the recent cyberattack on UnitedHealth Group’s tech unit. Furthermore, it deals a significant blow to Medicare Advantage businesses, which have historically been a driving force behind growth and profits for the insurance industry.
The Centers for Medicare and Medicaid Services revealed late Monday that government payments to Medicare Advantage plans are expected to rise 3.7% compared to the previous year. However, after factoring in certain assumptions, insurers and analysts estimate that the actual increase is only 0.16%, effectively resulting in a decline. This final rate remains unchanged from an earlier proposal in January, defying the usual trend of the federal agency raising the rate from its initial proposal.
The rate set by the Centers for Medicare and Medicaid Services determines how much insurers can charge for monthly premiums and plan benefits, impacting their overall profitability. Medicare Advantage plans are privately run health insurance plans contracted by Medicare and are chosen by more than half of Medicare beneficiaries due to their lower monthly premiums and additional benefits not covered by traditional Medicare, according to health policy research firm KFF.
Overall, this news of limited payment increases for private Medicare plans has generated significant concern and has had a negative impact on the stock market for health insurers. It remains to be seen how insurers will navigate the challenges of rising medical costs and declining profitability in the coming months.
