Shares of U.S. health insurers fell Tuesday after the Biden administration didn’t boost payments for private Medicare plans as much as the insurance industry and investors had hoped.
Shares of CVS Health fell greater than 8% on Tuesday, while UnitedHealth Group‘s stock slid nearly 7%. Shares of Elevance Health dropped greater than 3% and Centene‘s stock fell 6%.
Meanwhile, Humana‘s stock fell greater than 10%. The health-care giant is much more depending on those private Medicare plans, known as Medicare Advantage, than its rivals.
The announcement puts more pressure on insurers already grappling with high medical costs and uncertainty around claims processing after the cyberattack on UnitedHealth Group’s tech unit. It also deals a blow to Medicare Advantage businesses, which have long driven growth and profits for the insurance industry.
The Centers for Medicare and Medicaid Services said late Monday that government payments to Medicare Advantage plans are expected to rise 3.7% 12 months over 12 months. That’s effectively a 0.16% decline after stripping out certain assumptions baked into that rate, in line with insurers and analysts.
That final rate is unchanged from an earlier proposal in January. Typically, the federal agency raises that rate from its initial proposal.
The closely watched rate determines how much insurers can charge for monthly premiums and plan advantages they provide, and ultimately, their profits.
Medicare Advantage is a privately run medical health insurance plan contracted by Medicare. Greater than half of Medicare beneficiaries are enrolled in such plans, enticed by lower monthly premiums and further advantages not covered by traditional Medicare, in line with health policy research firm KFF.