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By Sriparna Roy
April 7 (Reuters) - Shares of U.S. health insurers climbed on Tuesday after the government set Medicare Advantage payment rates above expectations, an increase that would result in more than $13 billion in additional payments in 2027.
Insurers had lost billions in market value after the Trump administration’s smaller-than-expected January proposal sparked backlash from an industry already grappling with significant financial strain.
Shares of UnitedHealth jumped more than 10%, CVS Health nearly 7%, while Humana gained 8% and Elevance Health added 3%.
The Centers for Medicare & Medicaid Services said late on Monday it would raise payments to private insurers offering Medicare Advantage plans to older adults in 2027 by 2.48% on average, much higher than the smaller-than-expected 0.09% rate increase that was proposed in January.
"This improvement should allow the industry to expand margins in 2027 when coupled with benefit cuts," said Mizuho analyst Ann Hynes.
BETTER-THAN-FEARED RATES
Investors had expected a rate increase of at least 1%, Wall Street analysts had said earlier.
"This elevates the case for some margin growth in 2026 and lessens the growing perception that CMS’ harsh policy stance on the group is worsening," said Leerink analyst Whit Mayo.
"At minimum, the sector will be perceived to be more investable."
Health insurers had argued the disappointing rates proposed in January did not reflect the reality of rising medical costs, which have been squeezing industry margins for nearly three years.
"The industry has continued to face a tough environment, but on the heels of this more favorable release, we might be seeing the tide changing," Oppenheimer analyst Michael Wiederhorn said.
Insurers would also get a 2.5% benefit from a change to risk assessment payments related to health status, for a total increase of about 5%, a Medicare agency official said on Monday in a call with media.