UnitedHealth Sinks as Medicare Advantage Rate Proposal Signals Tighter Era

UnitedHealth Group lost nearly one-fifth of its market value Tuesday as investors reacted to a government proposal to barely increase payments to private Medicare plans in 2027, a move that shook one of Wall Street’s most reliable sectors and raised questions about the future of a fast-growing corner of federal health spending.

Shares of the nation’s largest health insurer fell nearly 20% at their intraday low, one of the steepest single-day declines in the company’s history. Humana Inc., another major Medicare Advantage carrier, dropped in roughly the same range. Elevance Health Inc. and CVS Health Corp. slid by double digits. Tens of billions of dollars in market capitalization evaporated in hours.

The sell-off followed the Centers for Medicare & Medicaid Services’ release late Monday of its Advance Notice for calendar year 2027. The agency projected a net average payment increase of just 0.09% for Medicare Advantage plans compared with 2026—essentially flat funding in a program that now covers more than 35 million older adults and people with disabilities.

The proposal landed the same morning UnitedHealth reported fourth-quarter 2025 results and a 2026 outlook that called for higher medical costs, a shrinking Medicare Advantage footprint and, for the first time in decades, a year-over-year decline in revenue.

Together, the announcements signaled to investors that the long-running Medicare Advantage boom, built on steady federal payment growth, may be entering a more constrained phase.

A tiny number with outsized impact

CMS issued the 2027 Medicare Advantage and Part D Advance Notice on Jan. 26, describing the proposed payment policies as steps to “improve payment accuracy and sustainability.”

The headline number—a 0.09% average year-over-year change in plan payments—is the net result of several offsetting factors. The agency estimates an effective growth rate of 4.97%, reflecting rising underlying costs. But that is largely canceled out by:

• a 3.32% reduction tied to risk-model revisions and normalization,
• a 1.53% cut related to changes in which diagnoses can be used for payment, and
• a small negative impact from star rating changes.

CMS also expects risk scores to rise by about 2.45% because of ongoing trends in diagnosis coding. Including that factor, officials say actual payments to plans would increase about 2.54% in 2027. Investors and insurers, however, focused on the near-flat 0.09% figure, which came in well below the mid-single-digit increases many analysts had projected.

“These proposed payment policies are about making sure Medicare Advantage works better for the people it serves,” CMS Administrator Mehmet Oz said in a statement. “By strengthening payment accuracy and modernizing risk adjustment, CMS is helping ensure beneficiaries continue to have affordable plan choices and reliable benefits, while protecting taxpayers from unnecessary spending that is not oriented towards addressing real health needs.”

A central change in the proposal is how the government will treat certain diagnosis codes that have helped drive plan revenue. Starting in 2027, diagnoses drawn from chart reviews not linked to a specific patient encounter would no longer count toward risk scores used to set payments. Diagnoses from audio-only telehealth visits would also be excluded.

Plans may still submit those codes, but CMS would ignore them when calculating how sick their members are on paper—and therefore how much the agency pays.

The risk-adjustment model itself would be recalibrated using more recent data—2023 diagnoses and 2024 fee-for-service Medicare costs—while retaining the current V28 structure. The agency says this will better reflect today’s patterns of disease and spending.

Wall Street’s rate shock meets UnitedHealth’s reset

The policy shift alone might have rattled investors. Its impact was amplified by UnitedHealth’s own guidance.

The company reported 2025 revenue of $447.6 billion, up 12% from the prior year, but said its medical care ratio—the share of premium dollars spent on medical claims—rose to 89.1% for the full year. In the fourth quarter it climbed to 92.4%, partly because of one-time items but also reflecting higher utilization.

For 2026, UnitedHealth forecast revenue of more than $439 billion, a modest decline that executives said would be driven by divestitures and a deliberate pullback in Medicare Advantage. UnitedHealthcare, the insurance arm, plans to shrink its Medicare Advantage membership by about 1.3 million to 1.4 million enrollees as it exits or reprices unprofitable products.

Despite the revenue drop, the company told investors it expects operating earnings above $24 billion and adjusted earnings per share of more than $17.75, implying margin expansion through cost cuts and portfolio changes.

“We confronted challenges directly and finished 2025 as a much stronger company, giving us the momentum to better serve those who count on us and continue to improve our core performance,” UnitedHealth Chief Executive Stephen Hemsley said in the company’s earnings release.

On an earnings call, UnitedHealthcare Chief Executive Tim Noel called the 0.09% Medicare Advantage rate proposal “disappointing” and said the company would factor the weaker funding outlook into its product and pricing decisions, according to media reports.

The combination of higher medical costs, shrinking membership, and flatter-than-expected federal payments led some analysts to describe Tuesday’s move as a structural reset rather than a routine earnings wobble.

Industry warns of benefit cuts, plan exits

Trade groups representing health insurers reacted swiftly, arguing the proposed rates do not keep up with rising costs and could force plans to scale back.

In a statement, America’s Health Insurance Plans warned that if the policy is finalized, it “could result in benefit cuts and higher costs for 35 million seniors and people with disabilities” enrolled in Medicare Advantage when they choose coverage for 2027 later next year.

Ceci Connolly, president and chief executive of the Alliance of Community Health Plans, called the proposal “disappointing and wholly unrealistic as medical costs and acuity continue to rise.”

“Without adequate updates, plans and providers will continue facing challenges to invest in care coordination, supplemental benefits and innovative approaches,” she said. “We worry more carriers will continue to exit Medicare Advantage if such low rates are finalized.”

The Better Medicare Alliance, an advocacy group that promotes the private Medicare model, said the Advance Notice “falls short of what is needed to provide stability” for beneficiaries.

“Effectively flat funding does not keep pace with rising medical costs and utilization,” BMA President and CEO Mary Beth Donahue said, adding that this could make it harder for plans to keep premiums low and maintain popular benefits such as dental, vision and transportation.

Industry officials say that if payments fail to match medical inflation, they may have to raise premiums or cost-sharing, cut back on extras, narrow provider networks or withdraw from certain markets entirely—especially in rural areas where margins are thin.

A $400 billion program under closer scrutiny

Medicare Advantage, in which private insurers provide Medicare benefits for a fixed monthly fee from the government, has grown rapidly over the past two decades. More than half of eligible Medicare beneficiaries are now enrolled in such plans, up from about one in five in 2007, according to federal and independent estimates.

UnitedHealth and Humana together account for nearly half of that market. The program has become a major profit center for insurers and a large and growing line item in the federal budget.

Policymakers and watchdogs have increasingly questioned whether taxpayers are getting value for that spending. The nonpartisan Medicare Payment Advisory Commission and health policy researchers have found that, on average, the government pays significantly more per person in Medicare Advantage than it would if those beneficiaries were in traditional fee-for-service Medicare, in part because of coding practices that make enrollees appear sicker on paper.

The Trump administration, with Health and Human Services Secretary Robert F. Kennedy Jr. and Oz at CMS, has made “payment accuracy” and reducing “waste and abuse” recurring themes across federal health programs. The Medicare Advantage proposal follows a series of drug pricing initiatives and other payment models aimed at tightening federal outlays.

Supporters of the new approach say curbing what they see as excess payments could help slow Medicare’s overall spending growth and extend the program’s solvency. Insurers counter that they use those dollars to fund extra benefits and care coordination that traditional Medicare does not cover.

What comes next

Tuesday’s market reaction does not make the 0.09% figure final. By law, CMS must take public comments through Feb. 25 before releasing a final rate announcement, expected by April 6.

In past years, the agency has sometimes proposed tougher numbers in the Advance Notice and then modestly increased them in the final rule after lobbying by insurers, provider groups and lawmakers. Many on Wall Street will be watching to see whether that pattern repeats—and whether CMS makes any concessions on the treatment of chart reviews and audio-only diagnoses.

Any changes in benefits or premiums stemming from the 2027 rates would show up during Medicare’s open enrollment period in October 2026, when beneficiaries choose plans for the following year.

For investors, Tuesday’s sell-off underscored how dependent large insurers have become on the intricate formulas set in Washington. For millions of Medicare Advantage enrollees, the impact will be measured less in stock charts than in what their plans look like when those formulas take effect—how much they pay each month, which doctors are in network, and which extras remain part of their coverage.