By Siddhi Mahatole and Amina Niasse Jan 26 (Reuters) – The U.S. has proposed an average rate increase of 0.09% in payments to private insurers next year for the Medicare Advantage plans they manage, the government said on Monday, driving shares of the companies down more than 10%. Shares of health insurers UnitedHealth, CVS Health and Humana were down between 8% and 13% in after-hours trading, while shares of Elevance Health, Centene and Molina Healthcare were down nearly 5%. The government said the update reflects underlying cost trends, 2026 quality ratings, and changes to the risk adjustment model, in which insurers are paid more when their patients are sicker. "These proposed payment policies are about making sure Medicare Advantage works better for the people it serves," CMS Administrator Mehmet Oz said, adding that the agency wants to modernize risk adjustment and ensure taxpayers are protected from unnecessary spending. The government expects the 0.09% increase to result in more than $700 million in additional payments in 2027. "People were ballparking this flat rate to be closer to 4 to 5% given the rising costs and utilization in senior care insurance," said Kevin Gade, chief operating officer at Bahl and Gaynor, which owns shares of UnitedHealth. Insurers' 2027 margins and earnings per share estimates would be impacted, he added. Gade said he expects to hear more details about the impact of the proposed rates from UnitedHealth CEO Stephen Hemsley during the company's conference call with investors and analysts on Tuesday after it announces fourth-quarter results. The Wall Street Journal first reported the news. Morningstar analyst Julie Utterback said the industry will be watching whether the agency adjusts its assumptions before finalizing the rule. "We'll see where the agency winds up in a few months when they release their final notice," she said, adding that the proposed rate update does not include the government's expectations for a 2.45% increase in payments related to coding for next year. The Medicare agency will issue the final rate announcement on April 6. "Health plans welcome reforms to strengthen Medicare Advantage. However, flat program funding at a time of sharply rising medical costs and high utilization of care will impact seniors' coverage," said Chris Bond, spokesperson for a trade group, America's Health Insurance Plans. "If finalized, this proposal could result in benefit cuts and higher costs for 35 million seniors and people with disabilities when they renew their Medicare Advantage coverage in October 2026," Bond added. More than half of the people enrolled in the government's Medicare program for people aged 65 and older or who are disabled receive their coverage through Medicare Advantage plans. (Reporting by Siddhi Mahatole in Bengaluru and Amina Niasse in New York City; Editing by Leroy Leo)
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