Stocks of health insurers took a hit on Tuesday as the Biden administration failed to provide the expected boost in payments for private Medicare plans. This news disappointed both the insurance industry and investors, leading to a decline in share prices for companies such as CVS Health, UnitedHealth Group, Elevance Health, Centene, and Humana.
CVS Health saw its stock fall by over 8%, while UnitedHealth Group experienced a nearly 7% slide. Elevance Health and Centene also suffered losses of more than 3% and 6%, respectively. However, the most significant drop was witnessed by Humana, whose stock plummeted by more than 10%. This decline can be attributed to Humana’s heavy reliance on private Medicare plans, also known as Medicare Advantage.
The announcement by the Centers for Medicare and Medicaid Services (CMS) has put additional pressure on health insurers who are already grappling with high medical costs and uncertainty surrounding claims processing due to the recent cyberattack on UnitedHealth Group’s tech unit. It has also dealt a blow to Medicare Advantage businesses, which have historically driven growth and profits for the insurance industry.
The CMS stated on Monday that government payments to Medicare Advantage plans are expected to rise by 3.7% year over year. However, after accounting for certain assumptions baked into that rate, insurers and analysts believe this effectively translates to a 0.16% decline. It is noteworthy that this final rate remains unchanged from the agency’s earlier proposal in January. Typically, the federal agency raises the rate from its initial proposal.
The closely watched rate determines the premiums and plan benefits that insurers can charge, ultimately impacting their profits. Medicare Advantage plans, which are privately run health insurance plans contracted by Medicare, are chosen by more than half of Medicare beneficiaries. These plans offer lower monthly premiums and additional benefits not covered by traditional Medicare, making them an attractive option for many individuals.
The decline in stocks of health insurers highlights the challenges faced by the industry. Rising medical costs and the aftermath of the cyberattack on UnitedHealth Group’s tech unit have already strained insurers, and the lower-than-expected Medicare Advantage rates further exacerbate these difficulties. However, it remains to be seen how insurers will adapt to this setback and whether they can find alternative avenues for growth and profitability.
Overall, the decline in health insurer stocks emphasizes the impact of government decisions and policy changes on the industry. Investors will be closely monitoring future developments and assessing the resilience and adaptability of these companies in the face of challenges.
