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Shares of major U.S. health insurers dropped sharply after the Trump administration unveiled a proposal that would keep Medicare Advantage reimbursement rates nearly flat in 2027, catching investors off guard and raising fresh concerns about profitability across the managed care sector.

The Centers for Medicare & Medicaid Services (CMS) said Monday that it is proposing a net average payment increase of just 0.09% for Medicare Advantage plans in 2027. That compares with Wall Street expectations for a much stronger hike in the range of 4% to 6%, prompting an immediate selloff in health care stocks.

In after-hours trading, Humana plunged nearly 13%, CVS Health slid about 9%, and UnitedHealth Group dropped close to 9%. Elevance Health fell roughly 5%, while Centene declined more than 3%, as investors reassessed earnings outlooks under a far tighter reimbursement environment.

The proposal represents one of the weakest annual updates in recent years and signals a tougher stance from regulators at a time when insurers are already grappling with rising medical costs, tighter margins, and increased scrutiny of billing practices.

Why Medicare Advantage rates matter so much

Medicare Advantage, also known as Medicare Part C, is a privately run alternative to traditional Medicare. Insurers contract with the federal government to provide coverage, and CMS sets annual payment rates that directly influence how much companies can charge in premiums, what benefits they can offer, and ultimately how much profit they can generate.

Today, more than half of all Medicare beneficiaries are enrolled in Medicare Advantage plans, attracted by features such as low or zero monthly premiums, capped out-of-pocket costs, dental and vision coverage, and fitness or wellness perks that standard Medicare does not typically include.

Because of this scale, even small changes in reimbursement rates can have an outsized impact. Analysts estimate that Medicare Advantage now accounts for a substantial share of earnings at companies like UnitedHealth, Humana, and CVS, making the CMS announcement a major catalyst for the sector.

If finalized as proposed, CMS said the 0.09% increase would translate into more than $700 million in additional payments to Medicare Advantage plans in 2027. While that may sound sizable, it falls far short of what insurers and investors had anticipated, especially given ongoing inflation in hospital services, physician fees, and prescription drug costs.

CMS is expected to finalize the rates in early April, leaving several weeks for insurers, industry groups, and other stakeholders to submit feedback.

Crackdown on billing practices adds pressure

Beyond the headline rate increase, CMS also signaled plans to tighten oversight of a lucrative industry practice tied to risk adjustment, a system that increases payments to insurers when patients are coded as having more or more severe medical conditions.

For years, regulators and watchdog groups have argued that some insurers aggressively document diagnoses to boost reimbursements, costing taxpayers billions annually. As part of the new proposal, CMS aims to improve payment accuracy and rein in what it views as excessive or unsupported coding.

“These proposed payment policies are about making sure Medicare Advantage works better for the people it serves,” said CMS Administrator Dr. Mehmet Oz. He added that the changes are designed to modernize risk adjustment, protect taxpayers from unnecessary spending, and ensure beneficiaries continue to have access to affordable plans and reliable benefits.

Industry analysts note that tighter risk-adjustment rules could further weigh on earnings, especially for insurers that rely heavily on Medicare Advantage growth to offset slower performance in other lines of business.

A challenging backdrop for health insurers

The rate proposal comes at a difficult moment for the managed care industry. Over the past year, insurers have faced higher-than-expected medical utilization as patients returned to hospitals and clinics for procedures delayed during the pandemic. Labor shortages in health care have also driven up provider costs, which insurers must absorb or pass on through premiums.

At the same time, competition for Medicare Advantage members has intensified, with insurers offering richer benefits to attract seniors, even as margins tighten. Several companies have already warned investors about elevated medical loss ratios and slower earnings growth.

Adding to the uncertainty, policymakers in Washington continue to debate broader health care reforms, drug pricing measures, and the long-term sustainability of Medicare, all of which could influence insurer business models over the next decade.

What investors will be watching next

Markets will now focus on whether CMS adjusts its proposal before finalizing rates in April and how aggressively insurers push back during the comment period. Historically, preliminary Medicare Advantage rates have sometimes been revised upward after industry feedback, though there is no guarantee that will happen this time.

Investors will also be looking for updated guidance from companies like UnitedHealth, Humana, CVS, and Elevance, as well as any strategic changes such as benefit redesigns, cost-cutting initiatives, or shifts in enrollment targets.

For now, the message from Wall Street is clear: with reimbursement growth slowing and regulatory scrutiny intensifying, the Medicare Advantage business is entering a more challenging phase, and health insurers may need to recalibrate expectations for 2027 and beyond.

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