Investing.com -- Shares of Humana Inc . (NYSE:HUM), UnitedHealth Group Inc. (NYSE:NYSE:UNH), and CVS Health Corp. (NYSE:NYSE:CVS) climbed in recent trading sessions following a government proposal that could lead to increased payments for Medicare Advantage plans in 2026. The Centers for Medicare and Medicaid Services (CMS) announced that payments to Medicare Advantage plans could rise by an average of 4.3%, with a 2.2% increase after accounting for expected changes in patient risk scores.
The proposed payment boost, which would be the largest since 2023, is a significant turnaround from recent years when insurers criticized the rates as too low to cover rising medical costs. The stocks responded positively to the news, with Humana stock jumping 4%, UnitedHealth rising 3.9%, and CVS up 2.7%.
The proposal, if adopted by the incoming Trump administration, could result in an additional $21 billion in payments in 2026 compared to the expected payments in 2025. This change comes after efforts by the Biden administration to constrain payments to Medicare Advantage plans, which have faced allegations of overcharging the government by inflating patient risk scores.
TD Cowen analyst Ryan Langston stated, "The headline rate in the Advance Notice (ex coding trend) of +2.23% was slightly higher than our 12/20/24 preview range of 0% to +2%." This proposed rate increase could lead to more supplemental benefit stabilization compared to the past two years of negative rates.
The CMS proposal is a draft, with a final notice due in April. The Medicare Advantage rate proposal is typically released in late January or early February. The increase is seen as a welcome development for the industry and has the potential to make the policy more favorable under the Trump administration.
The US is projected to spend $9.2 trillion over the next decade on payments to private Medicare plans. UnitedHealth, Humana, and CVS sold more than half of the Medicare Advantage plans in 2024. These plans covered more than half of Medicare beneficiaries and cost $455 billion in 2023, excluding Part D drug plan payments.
The impact on earnings for these health care companies will depend on the actual medical cost experience in 2026, as well as specific country benchmark updates and company Star ratings. The industry's response to the proposed rates and their effect on Medicare Advantage enrollment growth will be closely monitored.
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