UnitedHealth (UNH) – ★★★★ – Ranked #50 in Q2 2024 Large Cap Rankings
CVS Health (CVS) – ★★★ – Ranked #73 in Q2 2024 Large Cap Rankings
Shares of healthcare giants UnitedHealth (UNH) and CVS Health (CVS) tumbled on Tuesday after the Biden Administration announced that final 2025 Medicare Advantage rates will remain unchanged from initial proposals in January.
The Centers for Medicare and Medicaid Services said late Monday that private Medicare Advantage plan reimbursement rates will increase by an average of just 3.7% next year. This matched the rate increase CMS had proposed back in January, disappointing investors who were expecting a larger final rate hike.
Typically, the regulator raises the Medicare Advantage reimbursement rates higher than the initial proposal when releasing the final rates each year. However, this did not occur for 2025, likely due to federal efforts to control healthcare spending growth.
As two of the largest providers of Medicare Advantage plans in the United States, UnitedHealth and CVS were hit hard by the news of unchanged rates. UnitedHealth stock plunged 6.4% on Tuesday, suffering its worst single-day decline since July and giving back all its year-to-date gains.
CVS Health stock also got crushed, falling 7.2% as investors fled the drugstore operator and health insurer. The drop pushed CVS shares below their 50-day and 200-day moving average price levels.
The decreases for both UnitedHealth and CVS came amid a broad selloff on Wall Street, with all the major stock indexes falling sharply. Treasury yields also spiked higher as investors reacted to comments from Federal Reserve officials reiterating the central bank's commitment to fighting inflation.
However, the Medicare Advantage rate decision was the clear primary driver of the sell-offs in UnitedHealth and CVS on the day. As key players in the rapidly growing Medicare Advantage market, any pressure on reimbursement rates will weigh heavily on the future earnings and revenue growth potential for these healthcare leaders.
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