At time of posting: $UNH -6.59%, $HUM -12.56%
Managed care companies were among the notable decliners in the morning hours on Tuesday after the Centers for Medicare & Medicaid Services (CMS) set a lower-than-expected reimbursement rate for privately run healthcare plans for 2025.
CMS finalized its rate decision for Medicare Advantage and Part D plans late Monday, indicating a 0.16% decline in benchmark funding, unchanged from its proposed rule, also known as "Advance Notice," in January.
Despite the implied cuts, the payments from the government to MA plans are expected to increase by 3.7% on average from 2024 to 2025, the CMS said.
The Biden administration's decision to hold payment rates unchanged has surprised analysts, with JPMorgan noting that only once over the past ten years have regulators failed to improve final rates from preliminary rates.
The final rate has indicated an average improvement of 92bps over the past four years, Truist analysts wrote, adding that despite their bullish stance on diversified managed care, "we view the Final Rule as disappointing and would expect weakness."
UnitedHealth (NYSE:UNH), the largest player in the MA market, lost sharply in reaction. Humana (NYSE:HUM), the second largest, slipped even further as Bank of America downgraded the stock to Neutral from Buy on HUM to $342 from $372 per share.
Clover Health (CLOV), Alignment Healthcare (NASDAQ:ALHC), Centene (CNC), and Elevance Health (ELV) have also joined the selloff, while Cigna (CI), which focuses on commercial insurance, is trading flat.
