Federal Medicare payment unexpectedly revised upward! The 2027 premium "red envelope" ignites the US stock market healthcare insurance sector

According to Zhitong Finance APP, the stock prices of American health insurance companies collectively rose in pre-market trading on Tuesday, after the U.S. government announced plans to significantly increase the payment rates for the Medicare Advantage program in 2027, far exceeding market expectations.

In pre-market trading on Tuesday Eastern Time, shares of UnitedHealth (UNH.US), a giant in the U.S. Medicare industry, surged 6.9%, while shares of leading health insurers CVS Health (CVS.US), Elevance Health (ELV.US), Centene (CNC.US), and Molina Healthcare (MOH.US) rose between 3.6% and 6%. Notably, shares of Humana (HUM.US), an insurance company that has long focused on federal Medicare business, soared over 11% in pre-market trading, making it the best-performing stock in the S&P 500 index before the market opened.

It is understood that the Centers for Medicare & Medicaid Services (CMS) announced late Monday that it would raise the payment levels for private insurers providing Medicare Advantage plans to the elderly in the U.S. by an average of 2.48% in 2027, significantly higher than the 0.09% increase proposed in January.

An analyst team from RBC Capital Markets stated in a recent research report that this increase is clearly above their previous most optimistic expectations of 1% to 1.5%.

"We believe this revision is more about correcting an actuarial error rather than CMS relaxing its disciplinary stance on MA," the analyst team from Wall Street financial giant Jefferies stated in a report.

A Medicare official in a conference call with reporters indicated that insurers would also receive an additional 2.5% boost due to adjustments in payment methods associated with risk assessments related to health conditions, bringing the total increase to about 5%.

CMS stated that this adjustment will bring over $13 billion in additional payment bonuses to the Medicare Advantage federal health insurance program in 2027.

Government payment rates affect the baseline pricing of monthly premiums for insurance companies, the benefits offered in their plans, and ultimately how much profit they can earn; these health insurance companies will also prepare bids for the Medicare Advantage plan contracts they will sell in 2027 based on this rate. For insurers that have long relied on Medicare Advantage business, this is equivalent to an official upward revision on the profit side, and the increase is significantly higher than Wall Street's original expectations, leading to an immediate revaluation of stocks like Humana, CVS, and Elevance.

Medicare Advantage (also known as Medicare Part C) is essentially a government-funded health insurance program for the elderly, underwritten and managed by private insurance companies. Enrollees do not directly use the traditional federal Medicare program but instead join commercial insurance plans approved by Medicare; Such plans must cover Medicare Part A and Part B, and often bundle in prescription drug coverage Part D, with many products also including additional benefits such as dental, vision, or fitness, which traditional Medicare may not necessarily cover.

Therefore, Medicare Advantage can be understood as: federal Medicare funds flowing to commercial insurers, who are responsible for product design, physician networks, benefit configuration, and medical cost management. The non-profit health policy research organization KFF points out that Medicare Advantage has covered more than half of eligible Medicare beneficiaries, meaning it is no longer a marginal supplement but one of the core profit pools in the U.S. healthcare commercial model.

The official payment rates for Medicare Advantage directly determine what prices insurance companies can bid for 2027 products, whether they can maintain or expand benefits, whether they need to raise premiums, and ultimately how much underwriting profit they can retain. Recently, the market has been concerned that rising healthcare utilization among the elderly and increasing drug and treatment costs would erode these companies' profit margins; however, this rate increase effectively provides the industry with a much thicker "profit cushion" while cost pressures have not yet fully dissipated