The US Medicare program will now pay private insurance companies 2.48% more in 2027, a significant improvement from the earlier proposed rates in January, which were nearly flat.
Shares of UnitedHealth Group Inc., a key constituent of the Dow Jones, surged up to 10%, while shares of other insurers like Humana and CVS Health saw gains of 13% and 8% respectively.
The final policy from the Centers for Medicare and Medicaid Services determines how more than half trillion dollars flow through private health plans. The changes in payments could add up to over $13 billion in additional payments to Medicare advantage plans next year.
Insurance stocks on Wall Street had dropped in January after the preliminary rates proposed were close to flat for 2027. Insurance companies had called that ‘untenable” and had lobbied for a bigger increase to cover rising medical expenses. The sell-off at the start of the year had wiped out nearly $100 billion in the market capitalization of these insurance companies.
Analysts from JPMorgan to TD Cowen had highlighted last month that any increase ranging between 1% to 1.5% from the original rate would be “good enough”.
The agency is trying to balance the program’s near-term stability with long-term financial sustainability, Medicare officials said on a call with reporters.
Raymond James analyst Chris Meekins called the improvement better than expected, and said it could pave the way for two years of earnings growth for an industry that has struggled. The net benefit for insurers could be even greater, Meekins wrote, because some changes to how payments are calculated likely won’t have as big an effect as the agency estimates.
(With Inputs From Agencies)
