The health insurance market took a sharp hit this week after the Trump administration proposed a very small increase to Medicare Advantage payments for 2027. The Centers for Medicare and Medicaid Services (CMS) suggested raising the average payment rates by just 0.09%, a number far below the 4% to 6% increase that many investors and insurers had expected. This tiny bump felt more like a cut once rising medical costs, wage pressures, and other factors were considered.
The news hit major health insurers hard. UnitedHealth Group’s share price dropped about 18%, falling to roughly $286.68. Humana’s stock slipped over 19%, settling near $213. Meanwhile, CVS Health and Elevance Health together lost more than $20 billion in market value. This sudden shake-up challenges the growth strategy that has long relied on Medicare Advantage as a strong driver.
For years, Medicare Advantage payments grew enough to help insurers expand benefits and keep premiums low, all while making solid profits. Today’s proposal throws that model into question. It comes at a time when medical costs for seniors are rising due to pent-up demand, costly new drugs, and higher care needs. Administrative expenses and wages for care staff remain high, too. On top of that, regulators are cracking down on aggressive coding practices insurers once used to boost revenue.
UnitedHealth added to investor worries by releasing weaker-than-expected revenue forecasts for 2026 and announcing significant charges. Humana, known as a pure Medicare Advantage player, also faced doubts about the sustainability of its growth under these tighter payment conditions.
If CMS finalizes this proposal in April as planned, insurers will face tough choices in the 2027 bidding process. They could either try to keep profits up by cutting benefits, raising premiums, or narrowing networks—risking losing members. Or they might preserve enrollment and market share by maintaining benefits but with slimmer profits, relying on investors to be patient.
CMS officials defended the proposal, saying it aims to modernize payments and ensure plans are compensated fairly for real health needs, preventing unnecessary spending. Mehmet Oz, the CMS Administrator, emphasized making Medicare Advantage work better for beneficiaries and taxpayers.
More than half of Medicare beneficiaries are now enrolled in Medicare Advantage plans, attracted by lower premiums and extra benefits compared to traditional Medicare. This popularity has turned the program into a focal point for both insurance companies and federal budget discussions, with policymakers pushing hard to limit perceived overpayments.
Interestingly, the market pain was mostly limited to health insurers. Other insurance sectors like life, property, and casualty saw minor or no losses. Diversified firms such as American International Group and The Hartford saw less than 1% dips, while major life insurance companies like MetLife and Prudential Financial actually gained about 1% to 2%. In property and casualty, Progressive edged up slightly, and Allstate dipped, but not nearly as sharply as health insurers. This split reflects how this turbulence is mostly about Medicare policy risk, not the broader insurance market.
Looking ahead, health plans have a lot to figure out before locking in their 2027 bids. They need to decide how much they can trim benefits while keeping star ratings and customer loyalty. They also have to consider network management, capital spending, and whether to diversify beyond Medicare Advantage to reduce risk.
CMS is expected to finalize rates in early April after industry feedback. Insurers will oppose the proposal if it stays too tight, warning it could force cuts in senior benefits, reduce access to care, and threaten the stability of Medicare Advantage.
Until then, watch for updated guidance from insurers on how they plan to handle the impact, shifting market valuations between diversified and Medicare-focused companies, and signals from CMS and lawmakers about possible changes to the final rates.
This episode reminds everyone in health insurance that policy changes can rattle the market quickly—sometimes more than the usual business risks. The challenge now for insurers is to figure out how to adjust to what looks like a new reality for Medicare Advantage payments. Investors will be watching closely to see who can adapt and who might struggle under these tighter rules.