The health insurance sector experienced a significant downturn on Tuesday, primarily driven by a steep decline in UnitedHealth Group (UNH) shares, following the Trump administration’s announcement of a lower-than-expected adjustment to Medicare Advantage plans for 2027. The Centers for Medicare & Medicaid Services (CMS) revealed a proposed payment rate increase of just 0.09% for Medicare Advantage plans, which are private insurance options, significantly lower than analysts’ forecasts of up to 6%.
UnitedHealth saw its stock plummet by more than 19%, while major competitors such as Elevance Health (ELV) and CVS (CVS) also faced substantial losses, each dropping over 12%. This unexpected proposal adds financial pressure to a sector already grappling with narrow profit margins; the Medical Care Ratio (MCR) for UnitedHealth was reported at 89.1%, a figure indicating that the company allocates $0.89 of every premium dollar to cover medical claims and healthcare services.
With UnitedHealth holding the largest stake in Medicare Advantage, accounting for approximately 30% of national enrollment, the news came as a shock to investors. Humana (HUM), the second-largest player with nearly 17% of the enrollment, witnessed similar declines, with shares dropping nearly 20% on the same day.
The modest increase proposed for 2027 follows a more favorable adjustment of 5.06% for 2026, which went beyond initial expectations. Final payment rates for Medicare Advantage plans will be confirmed no later than April 6, according to analysts from William Blair.
In response to the CMS announcement, a spokesperson for AHIP, an insurance industry advocacy group, warned that implementing the proposed rate could lead to reduced benefits and increased costs for approximately 35 million seniors and individuals with disabilities when they renew their Medicare Advantage policies in October 2026. This proposal was characterized by William Blair analysts as an additional challenge for the Medicare Advantage sector, which could further strain industry dynamics.
Adding to UnitedHealth’s challenges, the company reported fourth-quarter and full-year revenues that fell short of market estimates, with figures reaching $113.2 million and $447.6 million, respectively. These numbers reflected a 12% increase compared to the previous year, but they were still below analyst expectations. The company anticipates its revenue for 2026 will exceed $439 billion, indicating a 2% decline year-over-year due to “right-sizing.”
UnitedHealth also disclosed a quarterly earnings per share of $2.11, which met analyst forecasts but represented a notable drop of approximately 70% from the same quarter in 2024. Additionally, the insurer faced fiscal repercussions from a significant cyberattack on its subsidiary Change Healthcare in February 2024, which affected revenue by approximately $799 million.
Moving forward, investors are awaiting earnings reports from Elevance Health on January 28, along with updates from CVS, Humana, and Cigna Group (CI) scheduled for February. The current landscape in the health insurance market continues to indicate heightened volatility amid regulatory changes and financial performance challenges.
