UnitedHealth Group (UNH) and other health insurer stocks surged on Tuesday after the US government said it would boost payments for Medicare Advantage plans next year.
The US Centers for Medicare & Medicaid Services (CMS) said it would increase payments to insurers for older Americans by an average of 2.48% in 2027, amounting to a $13 billion annual increase in payments to plans.
UnitedHealth stock jumped 8%, while Humana (HUM) popped 5%, and Aetna’s parent company, CVS Health (CVS), rose more than 4%.
The payment bump was much higher than the 0.09% payment increase CMS initially proposed in January.
“Final rates typically rise from initial rate notices, and we think investors appreciated that pattern remaining intact, despite the ongoing regulatory pressure on this end market,” Morningstar senior analyst Julie Utterback wrote in a note.
The government said the increase reflects growth in underlying costs, changes in 2027 quality bonus payments for high-performing plans, and risk adjustment updates.
CMS also said it was working to reduce coding differences between original Medicare and Medicare Advantage plans, though the risk adjustments won’t take effect in 2027. The agency said it is looking to simplify processes for administrators, create value for patients through greater competition, and aligning payments with patients’ health risks.
“Working towards a risk adjustment system guided by these principles will promote a more stable and sustainable MA program in the long run by giving beneficiaries and taxpayers confidence that CMS is mitigating unnecessary cost growth from coding practices that do not lead to better quality coverage,” the agency said.
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