CMS shrug on Medicare rates sends health insurance stocks tumbling

Shares in US health insurers declined sharply this week after the Centers for Medicare and Medicaid Services (CMS) released a preliminary payment proposal for Medicare Advantage that fell well short of expectations.

CMS, after the close of the stock market on Jan. 26, published a proposed 0.09% rate increase in 2027 for private insurers that provide Medicare Advantage services, while insurers and analysts had been anticipating a 4% to 6% rate hike. CMS' preliminary rates, which help insurers determine the rates they will charge, are usually revised higher.

Medicare is a federal program providing health insurance to seniors and people with certain disabilities that can then be supplemented through Medicare Advantage programs offered by private health insurers.

The news triggered steep price drops for managed care insurers. As of market close on Jan. 29, the companies with the biggest declines from market close on Jan. 23 included Humana Inc., down 26.2%; UnitedHealth Group Inc., down 18.0%; Molina Healthcare, Inc., down 8.4%; Elevance Health Inc., down 6.6%; and Centene Corp., down 5.8%.

The S&P 500 was up 0.27%, and the S&P 500 Insurance Index rose 0.49% over the same period.

Morgan Stanley analyst Erin Wright said in a research note that the price drops stemmed from the lower-than-expected rate increase, "as well as the now perceived lack of Trump administration support for MA ... which had been notably strong" before the rate announcement.

The CMS, a part of the US Department of Health and Human Services, is a federal agency providing health cover to about 160 million people through programs such as Medicare, Medicaid and the Health Insurance Marketplace, also known as Obamacare.

In its advance notice, CMS said it expects its proposals for Medicare Advantage, which is coverage offered by private companies that serves as an alternative to Medicare, will lead to improved payment accuracy, stability in beneficiary choice and ensure "affordable coverage" for Medicare beneficiaries.

"These proposed payment policies are about making sure Medicare Advantage works better for the people it serves," said CMS Administrator Mehmet Oz. "By strengthening payment accuracy and modernizing risk adjustment, CMS is helping ensure beneficiaries continue to have affordable plan choices and reliable benefits, while protecting taxpayers from unnecessary spending that is not oriented towards addressing real health needs."

The same outlook was not evident on the first two fourth-quarter 2025 earnings calls for health insurance companies.

Elevance CEO Gail Boudreaux said during an earnings call that the flat rate change does not keep pace with current medical cost and utilization trends, which creates "real pressure on benefit stability and affordability for seniors."

"The program needs to be stable and sustainable, and stability gets undermined when payment rates don't keep pace with the utilization and cost trends, especially as the members' needs grow more and more complex," Boudreaux said.

Boudreaux added that "if funding consistently lags the reality on the ground, the levers that we have are benefits, networks, premiums and exiting geographies."

UnitedHealthcare CEO Tim Noel echoed Boudreaux's sentiments during an earnings call and pledged to work with CMS "to ensure an appropriate final growth rate calculation to avoid a profoundly negative impact on seniors' benefits and access to care."

America's Health Insurance Plans, the national trade association that represents health insurers, said in a news release that the flat rate change "at a time of sharply rising medical costs and high utilization of care" will negatively impact coverage for senior citizens.

"If finalized, this proposal could result in benefit cuts and higher costs for 35 million seniors and people with disabilities when they renew their Medicare Advantage coverage in October 2026," AHIP spokesman Chris Bond said in the statement.

Insurers and other interested parties can submit their comments and recommendations to CMS until Feb. 25, before publishing the final rate announcement on or before April 6.