On Tuesday, there was a notable surge in the stock prices of key health insurers following the federal government’s announcement of an unanticipated increase in payment rates for Medicare Advantage plans slated for 2026.
The Centers for Medicare and Medicaid Services disclosed on Monday evening that final rates for these plans are projected to increase by over 5% in 2026.
According to Leerink Partners analyst Whit Mayo, this increase surpassed previous forecasts, as highlighted in a research brief.
Analyst David Larsen from BTIG also indicated that the confirmed rate hike more than doubled the January proposals, attributing this to an uptick in care utilization that the program has recently encountered.
Larsen attributed some success to the Trump administration, stating, “The substantial final rate aligns with the view that Republican governments tend to favor Medicare Advantage.” He remarked that while issues like fraud and inefficiency are concerns for the new administration, the rate announcement was a welcome development.
The increased rate is anticipated to add $25 billion in taxpayer costs next year, as per the CMS. Despite efforts by the Trump administration to pare down the health department’s immense $1.7 trillion budget, a substantial portion of which supports elderly, low-income, and disabled individuals through Medicare as well as Medicaid programs, the budget will still be impacted.
Medicare Advantage plans serve as privately-managed variants of the government-backed Medicare scheme, primarily for individuals aged 65 and over.
Following the announcement, shares of major Medicare Advantage providers like UnitedHealth Group Inc. and Humana Inc. saw a significant rise, increasing by over 7% and 12%, respectively, by Tuesday morning. Other health insurance stocks, including those of Elevance Health Inc. and Centene Corp., also experienced notable gains.
This surge contributed to the health sector ranking among the top performers in an overall market recovery that emerged on Tuesday morning.