Shares of some of the largest players in the Medicare Advantage market, including UnitedHealth Group Inc (NYSE:UNH) and Humana Inc (NYSE:HUM), rose by more than 2% in after-market trade on Friday following the U.S. government’s announcement of a lower-than-expected 1.1% average cut of 2024 reimbursement rates for health insurers that offer coverage through the Medicare Advantage program. Elevance Health Inc shares were up nearly 2%, while CVS Health Corp (NYSE:CVS) and Cigna (NYSE:CI) Group shares were up by over 1% after hours.
Medicare Advantage is a program in which private insurers are paid a set rate by the government to manage member healthcare. The government sets reimbursement rates for insurers each year, and insurers must submit bids based on those rates. The lower the bid, the more money the insurer can keep as profit.
The Centers for Medicare and Medicaid Services (CMS) initially estimated a 1% cut to reimbursement rates for 2024, but revised that estimate to a 1.1% cut. However, the CMS also estimated that total payments for next year will rise by 3.3% from 2023, or around $13.8 billion, up from its initial estimate, and reduced drops on some costs resulting from rule changes.
The companies that saw a boost in shares are among the largest players in the Medicare Advantage market. The program has become increasingly popular among seniors, with more than 26 million people enrolled in a Medicare Advantage plan as of 2021, according to the Kaiser Family Foundation.
The CMS said the risk model revision would result in a 2.16% drop, down from 3.12% in its initial proposal, and kept its estimate for a separate drop in bonus payments at 1.24%. The risk model revision is a calculation used to adjust payments to insurers based on the health status of their members.
Overall, the announcement was seen as good news for Medicare Advantage insurers, as the reimbursement cuts were not as steep as initially expected. However, some analysts caution that the Medicare Advantage market remains highly competitive, and insurers will need to continue to adapt and innovate in order to stay ahead.
In conclusion, the lower-than-expected reimbursement cuts for Medicare Advantage insurers resulted in a boost in shares for some of the largest players in the market. While this news was well-received by investors, the Medicare Advantage market remains highly competitive and insurers will need to continue to innovate in order to stay ahead.