Shares of major US health insurers jumped in premarket trading on Tuesday following the government’s announcement of a larger-than-expected increase in 2027 payment rates for Medicare Advantage plans.
Insurance giant UnitedHealth led the rally, climbing 6.9%, while CVS Health, Elevance Health, Centene , and Molina Healthcare rose between 3.6% and 6%.
Notably, Humana surged 10.7%, making it the top-performing stock in the early S&P 500 session.
CMS announces significant payment hike
The Centers for Medicare & Medicaid Services (CMS) stated late Monday that it will increase payments to private insurers offering Medicare Advantage plans in 2027 by an average of 2.48%.
This revision is far above the 0.09% rise initially proposed in January. Analysts at RBC Capital Markets had expected a more modest increase of 1% to 1.5%.
Jefferies analysts noted in a report, “We view the revision more as righting an actuarial wrong, not CMS backing off its disciplinarian stance toward MA plans.”
In addition, a CMS official said insurers would receive a 2.5% benefit from changes to risk assessment payments based on beneficiaries’ health status, resulting in a total increase of roughly 5%.
Financial implications for insurers and beneficiaries
CMS indicated that the adjustment will generate over $13 billion in extra payments to Medicare Advantage plans in 2027.
The increase in government payment rates affects insurers’ monthly premiums, plan benefits, and ultimately their potential profits.
Insurers use these rates to prepare bids for contracts for the 2027 MA offerings.
The finalized CMS rule includes several components, such as adjustments to cost trends, 2026 Star Ratings for quality bonuses, and updated risk-scoring methods.
A key policy goal is to reduce discrepancies in diagnosis coding between Medicare Advantage and Original Medicare.
Policy goals and risk adjustment changes
CMS highlighted three objectives for its risk-adjustment strategy: simplifying processes for plans and providers, fostering competition regardless of plan size, and aligning payments more accurately with beneficiaries’ health risks while ensuring program integrity.
Starting in 2027, CMS plans to exclude diagnosis entries from “unlinked” chart review records not tied to specific patient encounters from risk score calculations.
The only exception will be for cases where a beneficiary moves from one Medicare Advantage organisation to another, ensuring continuity in risk assessment during such transitions.
This change is expected to significantly impact organisations that rely heavily on unlinked chart review submissions.
Earlier this year, US President Donald Trump proposed the “Great Healthcare Plan” to Congress, aiming to reduce prescription drug costs and insurance premiums.
The plan includes strategies to adopt international drug pricing methods and maximise price transparency, according to a White House fact sheet.
With these regulatory changes, Medicare Advantage insurers are poised to benefit from a stronger financial outlook in 2027, while patients may see modest improvements in coverage options and plan offerings.
The post UnitedHealth, US insurer stocks surge on Tuesday: here’s why appeared first on Invezz
