April 23, 2024 3:05 pm
Health insurer stocks take a hit as Medicare Advantage rates fall short of expectations

On Monday, the Centers for Medicare and Medicaid Services announced that government payments to Medicare Advantage plans would rise by 3.7% year over year, which is a 0.16% decline after stripping out certain assumptions. This decision has put pressure on health insurers who are already facing high medical costs and challenges following a cyberattack on UnitedHealth Group’s tech unit. The Medicare Advantage business has traditionally been a source of growth and profits for the insurance industry, with more than half of Medicare beneficiaries enrolled in these plans due to lower monthly premiums and added benefits not covered by traditional Medicare.

The rate set by the federal agency determines how much insurers can charge for premiums, plan benefits, and ultimately, their profits. However, the current rate remains unchanged from an earlier proposal in January, which is not typical as the agency usually increases the rate after the initial proposal. As a result, shares of U.S. health insurers such as CVS Health, UnitedHealth Group, Elevance Health, Centene, and Humana saw a decline on Tuesday. Humana was particularly affected as it heavily relies on private Medicare plans also known as Medicare Advantage. The decision by the CMS has added to the challenges faced by these insurers and may impact their future growth prospects.

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