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Government payments to Medicare Advantage (MA) plans are set to rise significantly, with the Centers for Medicare & Medicaid Services (CMS) projecting an average increase of 4.33% in 2026, according to the 2026 Advance Notice. Adjusted for changes in patient risk scores, the effective growth rate will be 2.23%, translating to an additional $21 billion flowing into the Medicare Advantage space by 2026 from the 2025 level.
As market leaders, UnitedHealth Group Incorporated UNH, Humana Inc. HUM and CVS Health Corporation CVS stand to gain the most from this hike. Together, these three companies control nearly 60% of the MA market, per reports. The government’s payment rate directly impacts insurers’ pricing, plan benefits and overall profitability. Insurers will use these rates to prepare bids for the 2026 Medicare Advantage plan contracts.
UnitedHealth Group
Operating through its UnitedHealthcare division, UnitedHealth catered to over 7.8 million Medicare Advantage enrollees in the third quarter of2024, a 2.2% year-over-year increase. With a market capitalization exceeding $500 billion, UNH remains a giant in the sector. Currently, it carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Humana
Humana served more than 6.2 million Medicare Advantage members in the third quarter, reflecting a 5.5% increase from the previous year. The company anticipates robust growth for the full year 2024, with Individual Medicare Advantage memberships expected to grow by around 265,000 and Group Medicare Advantage memberships projected to increase by 35,000. HUM has a market cap of $33.7 billion.
CVS Health
CVS Health saw a remarkable 29.1% year-over-year increase in its Medicare Advantage membership, serving over 4.4 million enrollees as of the third quarter of 2024. Impressively, 88% of these members are in plans with 2025 star ratings of 4.0 or higher. Notably, plans with ratings of 4.0 or higher receive bonus payments from the government, which enables them to offer better benefits and competitive premiums.CVS currently has a market cap of $65.6 billion.
Policy Developments and Outlook
The final version of the proposed rate will be shaped by feedback from insurers, stakeholders and the public, with the Trump administration having discretion over its structure. Analysts anticipate the ultimate pay increase may exceed current projections. The finalized policy will be announced by April 7, 2025.
Under the Inflation Reduction Act, annual out-of-pocket prescription drug costs for Medicare enrollees are capped at $2,000 for 2025, which 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, the sector faces scrutiny from politicians on both sides for care denials and alleged overpayments, which could introduce regulatory challenges.