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New Medicare Payment Rate Released. Why UnitedHealth, Humana Are Popping.
Key Points
\- A 0.09% proposed Medicare rate increase in January surprised insurers.
\- Medicare Advantage, serving 35 million beneficiaries, is a key insurer business.
\- Bipartisan calls to curb Medicare Advantage spending have added pressure to the rate dialogue.
The federal government on Monday said it would pay insurers in the Medicare program an average increase of 2.48% next year, a highly anticipated financial data point for some of the country’s largest health insurance companies.
In January, a small proposed rate increase of 0.09% caught the industry by surprise and shares of UnitedHealth Group and Humana fell on the news. Wall Street was watching for any improvement in the final rate notice.
The final rate for 2027 announced Monday after the market closed means the insurance plans will collect $13 billion in additional payments from the government next year.
Shares of UnitedHealth and Aetna parent CVS Health were up 9% after hours, while Humana shares climbed above 12% after the close.
“We do not believe a Medicare rate increase of 2.5% is so awesome in a vacuum, but is certainly better than the government’s initial rate decision,” Jared Holz at Mizuho said in a note. “The set-up for the group is clearly improved, as there is now a chance for margins to expand next year, provided the Companies continue to trim benefits and align costs with revenue.”
It’s not unusual for the Centers for Medicare and Medicaid Services to release a higher final rate compared with the initial proposal. Still, some on Wall Street were braced for the announcement. “We see a more tepid rate” in the range of a 1% to 1.5% bump, wrote TD Cowen’s Ryan Langston in a Monday morning note.
Medicare Advantage is the privately-run option for seniors to access Medicare health benefits—and it’s a big source of business for insurers.
About 35 million beneficiaries are in Medicare Advantage plans this year, according to the health research group KFF. Enrollment in the privately-run plans has steadily grown to surpass enrollment in traditional Medicare plans operated by the government.
Insurers and their trade groups have pushed for a higher rate increase over the last couple of months, saying the proposal doesn’t reflect medical cost trends.
“A near-zero payment update when medical costs are rising 7% to 9% a year does not hold the program steady,” the Better Medicare Alliance said last month. “It functions as a cut.”
At the same time, bipartisan calls to curb Medicare Advantage spending have added pressure to the rate dialogue. Republicans and Democrats have both raised concerns about practices that allow insurers to collect higher payments for beneficiaries with more recorded medical diagnoses.
Under the Biden administration, the Medicare agency began to tighten payments tied to coding, also known as risk scores or risk adjustment. The agency’s January rate proposal, now under the Trump administration, signaled a willingness to continue such scrutiny.
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