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Health insurance stock prices plummet after final Medicare discount rates disappoint


(Bloomberg) — Health insurance stocks fell sharply in premarket trading on Tuesday after U.S. regulators stopped short of increasing payments for private health insurance plans as the industry had expected.

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President Joe Biden’s administration surprised Wall Street by deciding to maintain its proposal for preferential Medicare rates through 2025, signaling a break with recent practice. Only once in the past 10 years did the final rate fail to improve on the regulator’s original proposal. Taking a tougher stance in the face of lobbying would represent another hurdle for insurers already facing faster-than-expected increases in health care costs, according to research from analysts at JPMorgan Chase & Co.

Humana Inc., the most exposed among large insurance companies to health insurance, fell 9.2% in premarket trading. UnitedHealth Group Inc., the largest U.S. health insurer, fell 4.3%, while CVS Health Corp. fell 5.2%. Health Inc. and Centene Corp. retreated in after-hours trading after the news for stocks including Elevance.

U.S. payments to Medicare Advantage plans will increase an average of 3.7% through 2025, the same increase proposed in January, industry regulators announced Monday. After excluding estimates of how plans code patient illnesses, that would represent a 0.16% decline. This can increase payments. Companies and analysts often exclude this when analyzing rates.

Insurers have made billions of dollars selling private versions of government insurance, which the Centers for Medicare and Medicaid Services announced Monday described as increased payments. The agency said Medicare Advantage plans will pay $16 billion more in 2025 than they did last year, and the cost of the program is expected to exceed $500 billion. CMS Administrator Chiquita Brooks-LaSure said the agency’s goal is to “maintain the stability of the Medicare Advantage” program and keep payments “current and accurate.”

Medicare Advantage has been driving growth and profits in the health insurance industry for years. But the Biden administration has tightened some payment policies and taken action to claw back billions of dollars in past overpayments. Annual rate updates are always a contentious policy, with insurance companies pushing for more favorable policy treatments and sometimes arguing that without treatment, seniors will experience reduced well-being.

Investors closely watched the announcement to assess the industry’s prospects. Bloomberg Intelligence noted that the lack of greater growth “exacerbates a challenging environment” for health insurers such as Humana, UnitedHealth and CVS and “could signal continued interest rate pressure in future cycles,” analyst Duane Duane Wright wrote in a report on Monday. Insurers have until June to submit proposed 2025 prices and other plan details to Medicare for approval, so benefits could be cut or premiums raised, he added.

America’s Health Insurance Plans, an industry group, said the policy “will put more pressure on plans” at a time when the U.S. is changing other policies that affect Medicare Advantage. Some companies have called the proposed rates insufficient to cover rising medical costs that are clouding the cost of care. UnitedHealth and Humana shocked investors with higher-than-expected care costs.

Chief Financial Officer Susan Diamond said at a conference in March that Humana would not be able to hit the upper end of its target of raising earnings per share by $6 to $10 in 2025 without a significant increase in payments. That year.

Medicare Advantage plans paid $455 billion to private health insurers last year and currently cover 31.6 million people, more than half of Medicare enrollees. But the program faces greater scrutiny over costs and patient access to care.

—With help from Subrat Patnaik.

(Updated with inventory changes.)

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