Trump’s Fixed Rate Medicare Advantage Plan Is A ‘Surprise’ That Could Result In A 20% Earnings Drop, Postponing Healthcare Improvement

Healthcare Stocks React to Medicare Proposal

Recently, healthcare stocks took a significant hit after the administration suggested almost no increase in Medicare Advantage payments for 2027. Wall Street was caught off guard, leading to a loss of around $90 billion in market value within the sector.

The Centers for Medicare and Medicaid Services (CMS) hinted at a meager average payment rise of only 0.09%. Analysts found this to be “basically nothing,” especially when a 4% to 6% increase was anticipated.

As Mizuho Healthcare Equity Strategist Jared Holtz shared, this proposal was quite a shock. He mentioned that it felt like the “dream” of economic recovery in 2026 was now delayed.

Big insurance firms experienced significant drops in their stock prices. For instance, United Health Group and Humana saw declines of 12.60% and 26.64% year-to-date, respectively, marking their worst performances in over a decade.

This mismatch between escalating medical expenses and stagnant funding has raised worries about the sector’s profitability.

In a discussion, David Tung, a senior analyst at Argus Research, noted that if the suggested rates remain unchanged, insurers might face revenue declines of 15% to 20% from their Medicare Advantage segment. “That really was unexpected,” Tung remarked. “Insurers have been struggling with higher healthcare costs and demand. They hoped to factor those increases into new rates, but that hasn’t happened yet.”

Although final rates are set to be revealed in April, historical trends indicate that improvements could follow. However, the immediate outlook remains bleak.

Holtz anticipates a period of stagnation for the sector in the coming year or two, with revenues likely not seeing the growth that was once expected.

Even though UnitedHealth posted quarterly results that showed some advancements in margins, the recent rate proposal has overshadowed these operational gains. Tung concluded, “They’re making strides toward better profitability but aren’t quite there, and this might also hinder overall economic recovery.”