(Jan 28): The selloff in health insurers that provide Medicare Advantage plans wiped out more than US$90 billion in stock-market value as investors fled from the once-defensive sector.
Shares of managed-care companies sank on Tuesday, with UnitedHealth Group Inc and Humana Inc leading the losses by tumbling nearly 20%, after the Trump administration proposed holding payment rates flat next year and UnitedHealth forecast that revenue in 2026 will fall for the first time in more than three decades.
CVS Health Corp and Elevance Health Inc fell more than 10%. And a gauge of the group, the S&P Composite 1500 Managed Care Index, tumbled as much as 17% to its lowest level since August.
The rout was the latest blow to investors who had been betting on a rebound in the insurance sector following last year’s stumble. Tuesday’s declines cut some US$92 billion from the market values of seven big health-insurance companies, with more than US$60 billion of that from UnitedHealth. CVS Health and Elevance both erased more than US$9 billion each.
“The recovery trade we now believe will pause for a while,” Mizuho Securities USA’s Jared Holz wrote in a note to clients. “This clearly changes the calculus around the earnings ramp for UNH and the peer group and could force the industry to [continue to] reduce benefits to better match revenue.”
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The losses came after the US government late on Monday proposed holding payments to private Medicare plans flat next year, instead of enacting the 6% increase investors were anticipating. Then early on Tuesday UnitedHealth gave an annual revenue forecast that fell short of analysts’ expectations and said it expects shrinking enrolment across all its major segments — commercial health plans, Medicare and Medicaid.
The Medicare proposal marked another surprise coming from Trump’s second administration, which investors had previously anticipated would be more favorable for health insurers with private Medicare plans.
“The headline impact is real that the administration is not as friendly the Medicare Advantage as the industry and investors thought prior to last night’s notice,” said Kevin Gade, a portfolio manager at Bahl & Gaynor.
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