May 30, 2024

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Insights Into the Late Monday Fall

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Major health insurers witnessed significant declines late Monday as U.S. regulators held on to the rates for private Medicare plans, which surprised many investors. Humana Inc. HUM stock plunged 9.6% in the after-hours trading, while CVS Health Corporation CVS fell 5.9%. Another industry player, UnitedHealth Group Incorporated UNH, declined 4.5% in the after-hours trading, whereas Elevance Health, Inc. ELV stock decreased 4%.

Let’s delve deeper to understand the overall industry scenario.

In January, The Centers for Medicare and Medicaid Services or CMS proposed a 3.7% hike in private Medicare Advantage rates on average for 2025. However, the regulator’s decision to stick to the proposed rates, announced late Monday, came as a surprise to investors. According to research from JPMorgan Securities analysts, final rates have failed to improve from initial proposals only one time in the past decade, as noted by Bloomberg.

The news affected the industry players as the past few quarters have shown a significantly rising medical cost trend. For e.g., UnitedHealth reported medical costs of $62.2 billion in the fourth quarter of 2023, up 16.1% year over year. As more seniors resumed elective procedures, claims rose in this Zacks Rank #3 (Hold) company’s Medicare Advantage business. Near the end of last year, claims increased due to several reasons, including COVID-19 activities, RSV vaccination and some other utilization of services. Nevertheless, some of the costs triggered by vaccinations and COVID-19 are expected to be short-lived in nature. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Similar trends in medical costs’ increase were witnessed by other industry players. Higher costs and lower hikes in rates can lead to lower profit growth, which concerns investors in the Medical – HMOs space. Health insurers might address the situation through benefits cuts or premium hikes, which can affect seniors. Medicare Advantage, being a major player in driving growth in the health insurance industry, companies rely heavily on these rate updates.

The Medicare Advantage program pays billions of dollars to private insurers, which provide coverage to millions of people. However, the plans are facing scrutiny regarding expenses and patient care accessibility. Overpayment allegations in the past have sparked disputes among industry stakeholders. The Biden administration has introduced stricter payment policies, while insurers are seeking more advantageous terms. Consequently, the industry is expected to navigate through a challenging landscape ahead.

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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report

Humana Inc. (HUM) : Free Stock Analysis Report

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Elevance Health, Inc. (ELV) : Free Stock Analysis Report

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