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Shares of UnitedHealth Group Incorporated UNH, Humana Inc. HUM and CVS Health Corporation CVS grew around 3.9%, 6.8% and 7.3%, respectively, yesterday. The move follows the Biden administration’s proposal on Friday to substantially increase the payments to insurers offering Medicare Advantage (MA) plans. The proposal significantly exceeded market expectations, signaling a potential windfall for these companies.
Per the 2026 Advance Notice from the Centers for Medicare & Medicaid Services (CMS), government payments to MA plans are projected to rise by an average of 4.33%, an increase of more than $21 billion from 2025 to 2026. Excluding changes in patient risk scores, the effective growth rate is expected to be 2.23%.
As the largest MA plan sellers, UnitedHealth, Humana and CVS Health collectively account for nearly 60% of the market. Overall, the health insurers had previously criticized insufficient payment rates, citing their inability to keep up with rising medical costs. The finalized 2025 payment rates, announced in April, amounted to a slight reduction when adjusted for risk scores. However, the newly proposed rates, coupled with membership growth, are poised to bolster their financial performance.
Stock Insights: HUM, UNH & CVS
Humana: The company currently has a Zacks Rank #2 (Buy) and its next-year EPS growth rate is expected at 3.3%.
UnitedHealth: Next year EPS growth rate is expected at 8% and has a Zacks Rank #3 (Hold) now.
CVS Health: Next year EPS growth rate is expected at 16.7% but has Zacks Rank #5 (Strong Sell) now.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pushback From Physicians
While health insurers stand to gain from these proposed changes, the American Medical Association (AMA) has raised concerns. Physicians treating Medicare patients face their fifth consecutive year of payment cuts, leading to frustration over perceived preferential treatment for insurers. The AMA is urging Congress to align physician payment rates with the rising cost of care.
The CMS is accepting public comments on the proposal until Feb. 10, 2025.
While annual out-of-pocket prescription drug costs for Medicare enrollees are capped at $2,000 for 2025, it will increase to $2,100 in 2026. Per CMS, the Fed will likely spend $9.2 trillion over the next 10 years on MA payments to plans. However, MA remains under scrutiny from politicians on both sides for care denials and alleged overpayments, adding an element of uncertainty.
In Conclusion
With the proposed payment increase (if adopted by the incoming Trump administration) and growing membership, Medicare Advantage sellers like UnitedHealth, Humana and CVS Health are positioned for near-term growth. However, ongoing scrutiny and pushback from physicians could influence the sector’s longer-term trajectory.