Stock Decline Impact from CMS's 2027 Medicare Advantage Payment Proposal

U.S. health insurance companies saw a significant decline in stock value after the Centers for Medicare & Medicaid Services (CMS) proposed a smaller-than-anticipated increase for 2027 Medicare Advantage (MA) plan payments. The announcement led to notable declines for key industry players, with Humana Inc. experiencing a 19.1% drop, while UnitedHealth Group and other providers like Elevance Health, CVS Health Corp, Centene Corp, and Molina Healthcare Inc also faced substantial market losses.

Impact of Proposed MA Payment Adjustments

Medicare Advantage plans, managed by private carriers, include services such as hospital and medical insurance along with drug coverage, and are subject to annual payment rate adjustments. For 2027, CMS proposed a nominal 0.09% increase in rates, approximately $700 million, starkly below regulatory and industry expectations of a 5% enhancement. Truist analysts, led by David MacDonald, highlighted this regulatory compliance shift as a surprise, affecting MA risk scores through unexpected changes in risk-coding methodologies.

Regulatory Compliance and Future Projections

The CMS proposal considered various factors, including cost trends, the 2026 star ratings impacting 2027 quality bonuses, and updated risk adjustment protocols. Analysts Ann Hynes and Jack Sheehan from Mizuho suggested that although the proposal remains tentative until April, the lower than expected rates could decelerate earnings growth for companies with significant MA exposure such as Humana, UnitedHealth, and CVS.

Despite the initial market reaction, Truist analysts remain optimistic about potential improvements in the final rate announcement. They reaffirmed Buy ratings for Centene, CVS, Elevance Health, and UnitedHealth, while maintaining Hold ratings for Humana and Molina Healthcare, indicating a positive long-term outlook for the managed care sector amid ongoing underwriting challenges and compliance requirements.