US to raise Medicare Advantage payments to insurers by 2.48% in 2027, insurance stocks surge

By Christy Santhosh and Amina Niasse

April 6 (Reuters) - The U.S. government said on Monday it would raise payments to private insurers offering Medicare Advantage plans to older adults in 2027 by 2.48% on average, an increase from the near-flat change it proposed in January, driving insurer shares up sharply.

A Medicare agency official said on a call with reporters that insurers would also get a 2.5% benefit from a change to risk assessment payments related to health status, for a total increase of about 5%.

Shares of UnitedHealth UNH.N, Humana HUM.N and CVS CVS.N rose between 8% and 14% in extended trading as investors were relieved by the final proposal, a sharp contrast to the share declines after the government's January draft proposal for an increase of just 0.09% for 2027.

The Centers for Medicare & Medicaid Services said the increase would result in more than $13 billion in additional payments to Medicare Advantage plans in 2027.

Julie Utterback, an analyst at Morningstar, said the payment rate was a relief for investors and provided insurers with a more favorable model for predicting 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 on changes to the way the Medicare agency models risks for health 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 pausing the risk policy change was designed to give both insurers and providers time to adjust to other longer-term structural payment changes. A CMS official noted that insurers had dropped some capitated plans that pay a set amount per member - which aim to drive down costs - and that providers had left the Medicare Advantage networks.

Health insurers had argued that the January proposal did not reflect the realities of rising medical costs.

"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.