The US government has confirmed that the rates for health insurers offering private Medicare Advantage plans will not change from the initial proposal made in January. The move affected the stock prices of health insurance companies, sending them tumbling in after-hours trading Monday.
Shares of UnitedHealth Group (NYSE:UNH) and CVS Health Corp. (NYSE:CVS) fell more than 4% and 5% respectively, while Centene Corporation (NYSE:CNC) slipped 2.2%. Humana (NYSE:HUM) stock dipped 9.5%.
According to regulators, Medicare Advantage plans are set to receive a 3.7% average payment increase in 2025, the same rate increase the U.S. government proposed earlier in the year.
Insurance companies, which make billions of dollars selling private versions of the government coverage, had been hoping for a higher increase.
After adjusting for the estimated growth in patient risk scores, the payment update will effectively result in a 0.16% decrease.
This is a standard practice among companies and analysts who often exclude this factor for a clearer analysis of the annual payment policy. This year’s rate update comes after months of vigorous lobbying efforts in Washington, drawing significant attention from investors keen on assessing the future performance of health insurers.The stocks of several health insurance companies — including Humana, CVS Health, UnitedHealth and Elevance Health— took a hit during morning trading on Tuesday after federal regulators didn’t raise payments for Medicare plans above industry expectations.
The Centers for Medicare and Medicaid Services announced Monday that government payments to Medicare Advantage and Medicare Part D programs — Medicare insurance plans operated by private companies — will increase on average by 3.7%, or $16 billion, year-over-year in 2025. Analysts view the rate increase as an effective decline of 0.16%, according to the Wall Street Journal
“CMS continues to take steps to maintain the stability of the Medicare Advantage and Part D prescription drug programs,” CMS Administrator Chiquita Brooks-LaSure said in a statement. She added that the new rates will “keep Medicare Advantage payments up-to-date and accurate.”
Stock in Humana, which is the nation’s second largest Medicare Advantage health insurer, was down 12% Tuesday morning.
The rate increase is the same as a rate proposal made in January. Over the past 10 years, final rates were not increased from their initial proposal only once, Bloomberg reports.
“If we saw no improvement in the final rate notice, that would be a meaningful difference obviously relative to what we expected,” Humana CFO Susan Diamond said during an investor call in March. She added that without a bigger increase it would be “challenging” for the company to reach its goal of boosting earnings by $6 to $10.
“I would argue definitely take the high end off the table,” she said.