The healthcare sector experienced a dramatic selloff on Tuesday as major health insurance stocks plummeted following the Trump administration’s proposal for nearly flat Medicare Advantage payment rates in 2027. UnitedHealth Group, Humana, CVS Health, and Elevance Health saw their share prices nosedive by double digits, sending shockwaves through Wall Street.
The Catalyst Behind the Crash
The Centers for Medicare and Medicaid Services (CMS) proposed a minimal 0.09% net average payment increase for Medicare Advantage plans in 2027, a figure that fell drastically short of Wall Street’s expectations. This increase would translate to just over $700 million in additional payments to Medicare Advantage plans next year—a pittance compared to the billions insurers were anticipating.
The market reaction was swift and severe. Humana’s stock dropped more than 20% in early trading, while UnitedHealth Group lost over 19%. CVS Health shed 13%, and Elevance Health tumbled approximately 13%, wiping out tens of billions in market value within hours.
Why This Matters
Medicare Advantage plans represent a critical revenue stream for these insurance giants. UnitedHealth has the largest exposure among insurers to Medicare Advantage changes, accounting for roughly 30% of enrollment nationally, while Humana comes in second with approximately 17% of national enrollment.
The proposed rate increase comes at a particularly challenging time for insurers who are already grappling with razor-thin margins. When UnitedHealth reported earnings Tuesday morning, the company revealed its Medical Care Ratio sat at 89.1%, meaning it spends 89 cents of every premium dollar on actual medical care—leaving little room for profit.
A Perfect Storm of Challenges
The timing couldn’t be worse. UnitedHealth announced that revenue would drop 2% this year to $439 billion as it sheds unprofitable insurance members across its Medicare Advantage and Affordable Care Act plans. The company is also dealing with the aftermath of a major cyberattack on its subsidiary Change Healthcare, which cost nearly $800 million in revenue.
The nearly flat rate increase is particularly painful given the ongoing inflation in healthcare costs. Hospital services, physician fees, and prescription drug expenses continue to rise, yet insurers will receive minimal additional reimbursement to cover these escalating costs.
