New York City, NY – Health insurance stocks took a tumble in premarket trading today following the unexpected decision by the Biden administration to maintain proposed Medicare Advantage rates for 2025. This move marks a departure from the usual practice of increasing final rates from initial proposals over the past decade, catching Wall Street off guard. The stricter stance adopted by regulators poses challenges for insurers already grappling with higher-than-anticipated medical costs.
Leading the decline in premarket trading was Humana Inc., with a 9.2% drop, followed by UnitedHealth Group Inc. at 4.3%, and CVS Health Corp. at 5.2%. In postmarket trading, Elevance Health Inc. and Centene Corp. also experienced retreats after the announcement.
The decision by regulators to increase payments to Medicare Advantage plans by an average of 3.7% in 2025, mirroring the proposed increase in January, may pose challenges for insurance companies that rely heavily on selling private versions of government coverage. The Centers for Medicare and Medicaid Services emphasized that the $16 billion increase in payments for 2025 is aimed at supporting the stability of the Medicare Advantage program and ensuring that payments remain accurate.
Medicare Advantage has long been a key driver of growth and profits for the health insurance industry. However, the Biden administration’s tightening of payment policies and efforts to recoup past overpayments have created uncertainties for insurers. The annual rate update, a hotly contested policy, has insurers advocating for more favorable treatment to avoid potential benefit cuts for seniors.
Investors closely monitor these announcements to gauge the industry’s prospects. The lack of a significant payment increase could signal ongoing rate pressure for insurers like Humana, UnitedHealth, and CVS, leading to potential adjustments in benefits and premiums in response.
The policy decision has raised concerns among industry groups like America’s Health Insurance Plans, who fear added pressure on plans amid changing Medicare Advantage policies. Some companies have already expressed concerns about the proposed rates being insufficient to cover rising medical costs, which have impacted sector outlooks. UnitedHealth and Humana, in particular, have faced escalating care expenses that have unsettled investors.
Humana Chief Financial Officer Susan Diamond previously stated that without a larger payment increase, the company may not meet its earnings goals for 2025. The Medicare Advantage program, which paid private health insurers $455 billion in 2023, now covers over half of Medicare beneficiaries and faces scrutiny over costs and patient access to care.