Health Insurers Tumble as Final Medicare Advantage Rates Disappoint


(Bloomberg) — Health insurance stocks fell sharply Monday in late trading after US regulators didn’t boost payments for private Medicare plans like the industry had come to expect.

Most Read from Bloomberg

The decision by the administration of President Joe Biden to hold firm on proposed Medicare Advantage rates for 2025 shows a break with recent practice, taking Wall Street by surprise. Only once in the past 10 years have final rates not improved from regulators’ initial proposals, according to research from JPMorgan Securities analysts. The tougher stance in the face of lobbying signals another hurdle for insurers that already face faster-than-expected increases in medical costs.

Humana Inc., which is the most exposed to Medicare among large insurance companies, fell 9.4% at 5:48 p.m. in extended New York trading. UnitedHealth Group Inc., the largest US health insurer, fell 4.6%, while CVS Health Corp. declined 5.2%. Elevance Health Inc. dropped 4.1% and Centene Corp. fell 2.8%.

US payments to Medicare Advantage plans will climb by 3.7% on average in 2025, the industry regulator announced Monday, the same increase that was proposed in January. This will represent a 0.16% decline after excluding an estimate of how plans code for patient illnesses, which can boost payments. Companies and analysts typically exclude that when analyzing the rates.

Insurance companies make billions selling private versions of the government coverage, and the Monday announcement from the Centers for Medicare and Medicaid Services characterized it as a payment boost. Medicare Advantage plans will be paid $16 billion more in 2025 than last year, the agency said, with the program’s cost expected to top half a trillion dollars. CMS administrator Chiquita Brooks-LaSure said the agency aims “to maintain the stability of the Medicare Advantage” program and keep payments “up-to-date and accurate.”

Medicare Advantage has been driving growth and profits in the health insurance industry for years. But Biden’s administration has tightened some payment policies and moved to claw back billions in past overpayments. The annual rate update is always a contested policy, with insurers vying for more favorable treatment, and sometimes arguing that seniors will suffer benefit cuts without it.

The announcement is closely watched by investors to gauge the industry’s prospects. The lack of a bigger increase “reinforces the challenging environment” for health insurers such as Humana, UnitedHealth and CVS, “and could signal continuing rate pressure in future cycles,” Bloomberg Intelligence analyst Duane Wright wrote in a note Monday. He added that insurers, which have to submit their proposed prices and other plan details for 2025 to Medicare for approval by June, could scale back benefits or raise premiums in response.

America’s Health Insurance Plans, an industry group, said the policy “will put even more pressure” on plans while the US is changing other policies that affect Medicare Advantage. Some companies had already called the proposed rates insufficient to cover rising medical costs that have clouded the outlook for the sector. Care expenses have outpaced expectations at UnitedHealth and Humana and alarmed investors.

Without a bigger increase in payments, Humana wouldn’t meet the high end of its goal to boost earnings by $6 to $10 a share in 2025, Chief Financial Officer Susan Diamond said at a conference in March. The company had already slashed its guidance for the year.

The Medicare Advantage program paid private health insurers $455 billion last year, and the plans now cover 31.6 million people — more than half of people on Medicare. But the plans have faced intensifying scrutiny over costs and patients’ access to care.

(Updates to include additional background and context)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.



Source link

About The Author

Scroll to Top