TSX runs higher on rate cut expectations
Investing.com -- Shares of major healthcare insurers, including CVS Health (NYSE: NYSE:CVS), UnitedHealth Group (NYSE: NYSE:UNH), Humana (NYSE: NYSE:HUM), and Elevance Health, witnessed a significant uptick following the announcement of a substantial increase in Medicare insurer payment rates by the Trump administration. CVS Health's stock rose by 8%, UnitedHealth Group's by 5%, Humana's by 10%, and Elevance Health's by 4%.
The Centers for Medicare and Medicaid Services revealed on Monday that payment rates for Medicare insurers in 2026 would see a 5.06% increase, a figure that more than doubles the 2.23% hike initially proposed by the Biden administration in January, according to a report from the Wall Street Journal. This increase, which surpassed Wall Street analysts' forecasts, is anticipated to generate over $25 billion in additional revenue for the industry.
The revised rate is a response to rising medical costs, with more recent data justifying the steeper increase compared to the earlier proposal. The Trump administration's decision signals robust support for Medicare Advantage, where private insurers manage benefits for the federal program's older and disabled participants.
While the administration upheld a policy change from the Biden era that restricts certain billing practices, potentially increasing payments to Medicare Advantage insurers, it also rejected suggestions to halt the phase-in of this change, set to complete by 2026.
The news marks a positive shift for the healthcare insurance sector, which had previously seen the Medicare business impact margins and share prices negatively. Last week's rule withdrawal of a Biden administration proposal to cover obesity drugs further contributes to a more favorable outlook for these insurers.
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