U.S. dollar banknotes and medicines are seen in this illustration taken, June 27, 2024. REUTERS
April 7 (Reuters) – Shares of U.S. health insurers climbed in premarket trading on Tuesday after the government said it plans a larger-than-expected increase in 2027 payment rates for Medicare Advantage plans.
Insurance giant UnitedHealth jumped 6.9%, while CVS Health, Elevance Health, Centene and Molina Healthcare climbed between 3.6% and 6%.
Medicare-focused insurer Humana surged 10.7% and was the best-performing stock among the S&P 500 early on.
The Centers for Medicare & Medicaid Services said late on Monday it would raise payments to private insurers offering Medicare Advantage plans to older adults in 2027 by 2.48% on average, higher than the 0.09% increase it proposed in January.
RBC Capital Markets analysts said the rise is meaningfully above their expectations of 1% to 1.5%.
“We view the revision more as righting an actuarial wrong, not CMS backing off its disciplinarian attitude towards MA,” Jefferies analysts said in a note.
A Medicare agency official said on a call with reporters that insurers would also get a 2.5% benefit from a change to risk assessment payments related to health status, for a total increase of about 5%.
CMS said the increase would result in more than $13 billion in additional payments to Medicare Advantage plans in 2027.
The government payment rate affects how much insurers charge for monthly premiums, which plan benefits they offer and, ultimately, how much they can profit and is used by insurers to prepare bids for contracts for Medicare Advantage plans they will sell in 2027.
Reporting by Shashwat Chauhan in Bengaluru; Editing by Sahal Muhsmmed
