Health insurance is ailing

The White House just delivered a bad prognosis to health insurers: Medicare rates will be flat next year.

Late last night, the Centers for Medicare and Medicaid Services announced that payment rates to Medicare Advantage would only rise by about 0.09% in 2027, far below analysts expectations of between 3% and 6%, and a steep cut from the 5.06% increase for the current year.

Medicare Advantage is an alternative to traditional Medicare, offered by private insurers rather than directly operated by the federal government. The smaller increase in payments for 2027 is meant to help patients better afford the high costs of medical treatment.

Shares of UnitedHealth took the worst fall on the news, plummeting 19.72%. (Revealing its first annual revenue drop in over 30 years in its Q4 earnings report this morning certainly didn’t help).

Other health giants also plummeted on the Medicare Advantage news: CVS Health fell 13.97%, Humana declined 21.09%, and Elevance Health tumbled 14.33%—collectively erasing about $90 billion in market cap. Centene dropped 10.31% and Molina Healthcare fell 8.43%, too.

Looking at the revenue impact on these companies, the freefall makes sense: The rate increase of 5.06% for this year is going to earn them roughly $25 billion in extra revenue, but the proposed increase for 2027 would bring in just $700 million for health insurers.

“This Advance Rate notice further exacerbates these pressures and calls into question the Trump administration's support for the program, which had been notably strong prior to today's announcement,” wrote Morgan Stanely equity analyst Erin Wright in a note today, calling the new rate “woefully below expectations.”

Healthcare is unwell

The new Medicare Advantage rates are coming at an already difficult time for health insurance, as the industry deals with rising costs, mounting pressure on profit margins, and widespread backlash from patients about billing practices and costs.

The irony is that health insurers rallied when President Trump got elected, believing his policies would boost private insurance. Instead, he’s undercut their profits and blamed them for the affordability crisis. Back in December, for example, he said that insurance companies are “making so much money, and they have to make less, a lot less.”

It might be time call Code Blue.—LB