Medicare insurers slide after Trump proposes flat 2026 payment rates
Flat rates pressure margins in Medicare Advantage, core business for UnitedHealth and Humana
Shares of major managed care insurers fell on Monday after the Trump administration proposed keeping Medicare payment rates steady for 2026, defying market expectations for modest increases that would have bolstered sector revenues.
UnitedHealth Group dropped 1.3% to $351.58, while Humana declined 1.1% to $263.55, as investors digested the implications of flat reimbursement rates on the Medicare Advantage business that has become a growth engine for the industry. The proposal marks a departure from previous years when rates typically increased to account for medical inflation and demographic shifts.
The Trump administration's proposal to maintain steady payments instead of implementing anticipated increases represents a particular challenge for insurers that have built their growth strategies around the Medicare Advantage program. UnitedHealth, the largest U.S. health insurer by revenue at $435.2 billion over the trailing 12 months, generates approximately 80% of its revenue through its UnitedHealthcare division, which has significant Medicare Advantage exposure.
Humana faces even greater concentration risk, with the Louisville-based company positioning itself as a leader in Medicare Advantage and individual health insurance markets. The company's smaller $32.1 billion market capitalization and higher forward price-to-earnings ratio of 20.33 make it more sensitive to regulatory changes affecting its core business lines.
The Medicare Advantage segment has become increasingly competitive, with insurers investing heavily in benefits packages and care coordination programs to attract the growing population of aging Americans. Flat payment rates could compress margins precisely when many plans were counting on rate increases to offset rising medical costs and competitive pressure on premiums.
Analysts have been closely monitoring the annual rate-setting process, which typically occurs in early spring and can significantly impact sector earnings. The proposal comes as UnitedHealth prepares to report fourth-quarter results, with MarketWatch noting the company is expected to report a plunge in profits following a challenging period for the industry.
Despite the immediate market reaction, both companies maintain substantial analyst support. UnitedHealth carries 19 buy or strong-buy ratings compared to eight holds, with an average target price of $393.77 suggesting roughly 12% upside from current levels. Humana has 10 buy recommendations against 16 holds, with analysts targeting $288.42 per share.
The final rate announcement, expected after a public comment period, will provide clarity on the extent of pressure facing Medicare Advantage operators. Insurers may respond by adjusting benefits, narrowing provider networks, or seeking efficiency gains to protect profitability in what remains a critical growth market for the managed care sector.