Trump’s Flat Rate Medicare Advantage Proposal Is ‘Shock To The System,’ Risking 20% Earnings Hit, Delaying Healthcare Turnaround

Healthcare stocks have been in focus after the Donald Trump administration proposed a near-zero increase in Medicare Advantage payments, catching Wall Street off guard and wiping approximately $90 billion in market value from the sector.

A ‘Shock To The System’

The Centers for Medicare and Medicaid Services (CMS) proposed a net average payment increase of just 0.09% for 2027—a figure analysts described as “basically nothing” compared to the 4% to 6% hike investors had anticipated.

“This is just a shock to the system,” said Jared Holz, Healthcare Equity Strategist at Mizuho, to CNBC, noting that the severity of the proposal “delayed that dream” of a 2026 recovery.

Major insurers saw double-digit declines, with UnitedHealth Group Inc. (NYSE:UNH) and Humana Inc. (NYSE:HUM) now down 12.60% and 26.64% year-to-date, respectively, marking the sector’s worst performance in over a decade.

Earnings At Risk

The disconnect between rising medical costs and flat funding has raised concerns about profitability.

In a conversation with Schwab Network, David Toung, Senior Analyst at Argus Research, warned that if the proposed rates are finalized without adjustment, insurers could face a “15-20% decrease in earnings” from their Medicare Advantage business.

“It was a big surprise,” Toung noted. “These insurers have been coping with rising medical costs and rising utilization… they really wanted those rising costs to be baked into the new rates. And so far, they’re not there.”

Delayed Turnaround

While final rates are not due until April, and historical trends suggest the numbers could improve after industry negotiations, the immediate outlook is grim.

Holz predicts the sector may now enter a “pocket” of stagnation for the next one to two years, where earnings fail to expand as previously hoped.

Despite UnitedHealth reporting quarterly numbers that signaled progress on margins, the headline risk from the rate proposal has overshadowed operational improvements.

“They are making progress to better profitability, but they’re not there yet,” Toung added. “This is another potential headwind to that recovery.”

Here’s a list of some healthcare insurers that may be impacted.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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