The U.S. government announced on Monday that it plans to raise payments to private insurers offering Medicare Advantage plans for older adults in 2027 by an average of 2.48%, up from the nearly flat adjustment proposed in January, sending insurer shares higher.
A Medicare agency official told reporters that insurers would also receive a 2.5% boost from changes to risk assessment payments based on health status, bringing the total increase to roughly 5%.
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Shares of UnitedHealth, Humana, and CVS Health climbed between 8% and 14% in extended trading as investors welcomed the final proposal, a sharp reversal from the share drops seen after the government’s January draft, which had proposed a mere 0.09% increase for 2027.
The Centers for Medicare & Medicaid Services said the adjustment would result in over $13 billion in additional payments to Medicare Advantage plans in 2027.
Julie Utterback, an analyst at Morningstar, commented that the updated payment rate was reassuring for investors and provided insurers with a more reliable framework for projecting medical costs in 2027.
CHANGE TO RISK ASSESSMENTS
Kevin Gade, chief operating officer at investment firm Bahl and Gaynor, said major health insurers would benefit from a pause in changes to how the Medicare agency models risk for insurers.
“The final rate number is actually closer to 3.5% to 4%,” he estimated when accounting for other changes in the payment methods. “We’d call it a win.”
Medicare agency officials said the pause on the risk policy change was intended to give both insurers and providers time to adapt to other long-term structural payment adjustments. A CMS official noted that some insurers had discontinued certain capitated plans which pay a fixed amount per member to help control costs and that some providers had exited Medicare Advantage networks.
Health insurers argued that the January proposal did not accurately account for the realities of rising medical expenses.
“As health plans incorporate the policies released in recent days, they will continue to focus on keeping coverage and care as affordable as possible during this time of sharply rising medical costs,” said Chris Bond, a spokesperson for health insurance trade organization AHIP.
The U.S. government had set the final 2026 Medicare Advantage reimbursement rate at an average increase of 5.06%, after initially proposing a 2.2% increase.
