Health insurers stumble as final Medicare Advantage rates disappoint

(Bloomberg) — Health insurance stocks fell sharply in premarket trading Tuesday after U.S. regulators did not boost payments for private Medicare plans as the industry had expected.

Most read from Bloomberg

The decision by President Joe Biden's administration to stick with proposed Medicare Advantage rates for 2025 shows a departure from recent practice, surprising Wall Street. Only once in the past 10 years did final rates improve compared to regulators' initial proposals, according to research by JPMorgan Securities analysts. The tougher stance on lobbyists signals another hurdle for insurers already facing faster-than-expected increases in medical costs.

Humana Inc., the company with the most exposure to Medicare among major insurers, fell 9.2% in premarket trading. UnitedHealth Group Inc., the largest health insurer in the United States, fell 4.3%, while CVS Health Corp. fell. By 5.2%. Stocks including Elevance Health Inc. fell. and Centene Corp. In aftermarket trading after the announcement.

U.S. payments for Medicare Advantage plans will rise by 3.7% on average in 2025, the same increase that was proposed in January, the industry regulator announced Monday. This would represent a 0.16% decrease after excluding an estimate for how plans code for patients' illnesses, which could boost payments. Companies and analysts usually exclude this when analyzing prices.

Insurers make billions selling private versions of government coverage, and Monday's announcement from the Centers for Medicare and Medicaid Services described that as an increase in payment. The agency said $16 billion more will be paid to Medicare Advantage plans in 2025 than last year, and the cost of the program is expected to reach half a trillion dollars. CMS Director Chiquita Brooks-LaSure said the agency aims to “maintain the stability of the Medicare Advantage program” and keep payments “current and accurate.”

See also  Stocks making the biggest moves after hours: Lennar, Williams-Sonoma, and more

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

Investors are closely watching this announcement to gauge the industry's prospects. The lack of a larger increase “reinforces the challenging environment” for health insurers such as Humana, UnitedHealth and CVS, “and could signal continued pricing pressure in future cycles,” Bloomberg Intelligence analyst Duane Wright wrote in a note on Monday. Insurers, which must submit their proposed rates and other plan details for 2025 to Medicare for approval by June, could cut benefits or increase premiums in response, he added.

The Health Insurance Plans of America, an industry group, said the policy “will put more pressure” on plans as the U.S. changes other policies affecting Medicare Advantage. Some companies have already described the proposed rates as insufficient to cover rising medical costs that have clouded the outlook for the sector. Care expenses beat expectations at UnitedHealth and Humana and spooked investors.

Without a larger increase in payouts, Humana won't be able to meet its maximum target of increasing earnings by $6 to $10 a share in 2025, Susan Diamond, its chief financial officer, said at a conference in March. The company had already lowered its guidance for the year.

Medicare Advantage paid private health insurers $455 billion last year, and the plans now cover 31.6 million people — more than half of the people who benefit from Medicare. But the plans have faced intense scrutiny over costs and patients' access to care.

See also  Revenues barely grew despite the growth in phone and car sales

– With the help of Subrat Patnaik.

(Update stock movements.)

Most read from Bloomberg Businessweek

©2024 Bloomberg L.P

Leave a Reply

Your email address will not be published. Required fields are marked *