(Reuters) – Shares of U.S. health insurers fell by 6% on Tuesday after the government's final 2025 interest rate on Medicare Advantage (MA) payments signaled a cut, raising concerns about margin compression. It fell between 12%.
The rate, which represents a 0.2% decline in average payments, is unchanged from what was proposed in January, despite pressure from businesses and industry groups to factor in a year-end surge in health care demand.
The U.S. Centers for Medicare and Medicaid Services typically increases final reimbursement amounts from advance notice.
The interest rate could further squeeze profit margins for insurers already struggling with high medical costs and uncertainty over claims processing in the aftermath of the hack into UnitedHealth's tech division.
Shares of Medicare-focused insurance company Humana fell the most, dropping more than 12% to a nearly four-year low of $308.22. UnitedHealth fell 6.6% and CVS Health fell 7.7% in early trading.
The large losses also caused the blue-chip Dow index and the benchmark S&P 500 to fall in morning trading. [.N]
“Less-than-favorable interest rate updates, coupled with the potential for uncertainty over claims development in the wake of the Change Health cyberattack, are likely to undermine once-golden Medicare,” said Jason Cassola, an analyst at Citi.・The position of the advantage market may deteriorate slightly.”
In a final notice released Monday, CMS said it did not observe an increase in medical demand in the fourth quarter of 2023, contrary to recent comments from insurers such as Humana and UnitedHealth.
The closely watched proposals will determine how much insurance companies can charge in monthly premiums, benefits they offer and ultimately profits.
BoFA Securities analyst Kevin Fishbeck said in a note that high costs combined with low interest rates are putting pressure on insurers to reduce the number of benefits they cover.
“The amount of benefit reductions required could begin to weigh on the perceived value of Medicare Advantage,” he said.
(Reporting by Medha Singh and Manas Mishra in Bengaluru; Editing by Shriraj Kaluvila)
