New York, NY – Health insurance stocks experienced a significant drop in late trading on Monday following the unexpected decision by US regulators to keep payments for private Medicare plans steady for 2025. This move by President Joe Biden’s administration marks a departure from recent practices, catching Wall Street off guard. According to research from JPMorgan Securities analysts, final rates have typically improved from regulators’ initial proposals over the past decade, making this decision a notable shift.
The decision not to increase Medicare Advantage rates for 2025 has had a notable impact on key players in the industry. Humana Inc., a company heavily exposed to Medicare, saw its stock drop by 9.4% in extended trading. Other major insurers, such as UnitedHealth Group Inc., CVS Health Corp., Elevance Health Inc., and Centene Corp., also saw declines in their stock value.
The announcement from the industry regulator revealed that US payments to Medicare Advantage plans would increase by 3.7% on average in 2025, aligning with the proposed increase from January. While the CMS characterized this as a payment boost, excluding the estimate on how plans code for patient illnesses resulted in a slight 0.16% decline. Insurers typically exclude this when analyzing rates.
Medicare Advantage has been a significant driver of growth and profitability in the health insurance sector for years. However, Biden’s administration has implemented tighter payment policies and efforts to recoup past overpayments, adding pressure on insurers. The annual rate update is a contentious policy, with insurers advocating for more favorable treatment to avoid potential benefit cuts for seniors.
Investors closely monitor these announcements to assess the industry’s future prospects. The lack of a substantial increase in payments signals a challenging environment for health insurers like Humana, UnitedHealth, and CVS, potentially indicating continued rate pressures in upcoming cycles. Insurers may need to adjust benefits or premiums in response as they prepare to submit proposed prices and plan details for 2025 to Medicare for approval.
The announcement has drawn concern from America’s Health Insurance Plans, noting that the policy will place additional pressure on plans amidst other policy changes affecting Medicare Advantage. Some companies have already expressed that the proposed rates are inadequate to cover escalating medical costs, impacting their financial outlook. Expenses exceeding expectations at companies like UnitedHealth and Humana have caused apprehension among investors.
Without a significant payment increase, Humana may struggle to achieve its earnings goals for 2025, as highlighted by Chief Financial Officer Susan Diamond earlier in the year. The Medicare Advantage program’s significance is evident in the $455 billion paid to private health insurers last year, covering over half of Medicare recipients. However, the program faces increasing scrutiny over costs and patient access to care, emphasizing the challenges ahead for insurers in the industry.