UnitedHealth leads $80 billion insurer rout on bleak Medicare Advantage proposal

By Sriparna Roy and Mrinalika Roy

Jan 27 (Reuters) – U.S. health insurer shares slumped on Tuesday, on track to erase about $80 billion in combined market value, after the Trump administration proposed a much smaller-than-expected increase to 2027 Medicare Advantage rates.

UnitedHealth tumbled nearly 20%, in the biggest one-day drop since April last year, also weighed down by a disappointing revenue forecast for 2026.

CVS fell about 11%, while Humana dropped nearly 19%.

All three have meaningful exposure to Medicare Advantage, where payment rates will rise by just 0.09% in 2027, the Centers for Medicare and Medicaid Services said late on Monday. Analysts were expecting an increase of as much as 6%.

Other insurers such as Molina, Centene and Elevance were down between 5% and 11%.

The near-flat update offers little relief for insurers already strained by steep medical costs, analysts warned.

Simply put, the potential rates compared to the cost trend will likely be insufficient and require significant benefit reductions or plan exits to offset 2027 margin pressures, said Baird analyst Michael Ha.

The government said the proposal reflects underlying cost trends, 2026 quality ratings and changes to the risk-adjustment model, which pays more for sicker patients.

BENEFIT CUTS LOOM

Some analysts said the proposal reinforces downside risk to Medicare Advantage profitability and highlights regulatory uncertainty as a near-term headwind for insurers’ shares.

“If rates are in this range, membership growth will remain low as MA plans need to cut benefits and tighten networks to enable continued margin improvement in this low-rate environment,” said Bernstein analyst Lance Wilkes.

The Medicare Advantage rates are typically finalised in early April.

“Generally, the proposed update is better in the final, certainly some politics could be at play, but this update falls well below expectations,” said Leerink analyst Whit Mayo.

It was highly unlikely the release of the Advance Notice before UnitedHealth earnings was a coincidence, he said.

The industry bellwether reported fourth-quarter profit that came in marginally above Wall Street estimates on Tuesday. However, the company said its 2026 revenue would contract.

(Reporting by Sriparna Roy and Mrinalika Roy in Bengaluru; Editing by Shilpi Majumdar and Sriraj Kalluvila)