UnitedHealth Group Inc. (NYSE:UNH), CVS Health Corp. (NYSE:CVS), and Humana Inc. (NYSE:HUM) declined last week, but while investors focused on the Donald Trump administration’s proposed near-zero increase in Medicare Advantage, another major regulatory threat emerged late Thursday that could squeeze the industry’s profits from the other end.
Shining A Light On ‘Ghost’ Billions
The U.S. Department of Labor (DOL), on Jan. 29, issued a landmark proposed regulation demanding “radical transparency” from Pharmacy Benefit Managers (PBMs), the powerful middlemen owned by health giants like CVS (Caremark), UnitedHealth (OptumRx), and Cigna (Express Scripts).
The proposed rule would require PBMs to fully disclose their compensation to self-insured group health plans, which cover approximately 90 million Americans. Specifically, the regulation targets:
- Spread Pricing: Compensation received when the PBM charges a health plan more for a drug than it reimburses the pharmacy.
- Rebates: Payments from drug manufacturers that critics argue are often retained by PBMs rather than passed to employers or patients.
- Clawbacks: Payments recouped from pharmacies.
“When middlemen are forced to operate in the sunlight, American workers and their families win,” said Secretary Lori Chavez-DeRemer. “Hidden fees and distorted incentives have no place in American healthcare.”
Targeting The ‘Shell Game’
The timing of the rule is notable given rising scrutiny over how PBMs handle rebates. On Jan. 6, Benzinga reported on an investigation by Hunterbrook Media alleging that major insurers use “shell companies” or Group Purchasing Organizations (GPOs) to hide billions in fees.
The report claimed that while PBMs often promise to pass through 100% of rebates to customers, they allegedly funnel money through subsidiaries—some located in “ghost offices” in Ireland and Switzerland—that collect massive “fees” from drugmakers instead.
The new DOL regulation appears directly calibrated to close this loophole. The text of the proposed rule specifically defines “affiliates” and “agents” to ensure that compensation funneled through GPOs or rebate aggregators is disclosed to plan fiduciaries.
The One-Two Punch
Health insurers were already reeling from the Centers for Medicare and Medicaid Services (CMS) proposal to increase Medicare Advantage payments by a net average of just 0.09% for 2027—effectively a flat rate in an environment of rising medical costs.
Analysts had expected a 4% to 6% hike. The surprise announcement wiped approximately $90 billion in market value from the sector, with Humana dropping over 13% and UnitedHealth falling nearly 9% in immediate reaction.
However, the DOL’s new rule, announced Thursday, targets the complex web of fees, rebates, and “spread pricing” that powers the PBM side of these businesses.
Why It Matters?
For companies like CVS, UnitedHealth, and The Cigna Group (NYSE:CI), PBM services are a massive revenue driver.
If the Medicare Advantage flat rate restricts top-line growth on the insurance side, and the DOL rule compresses margins on the PBM side by forcing fee disclosure, these healthcare giants could face a prolonged period of earnings pressure.
“The Department of Labor is delivering on President Trump’s promise to fix a broken healthcare system by introducing radical transparency,” said Deputy Secretary Keith Sonderling. “[This] will allow employers to see the full extent of the fees charged… enabling them to negotiate a better deal.”
Here’s a list of the price performance by some healthcare insurers.
| Health Insurers | 6-Month Performance | YTD Performance | One Year Performance |
| UnitedHealth Group Inc. | 18.51% | -15.10% | -47.90% |
| CVS Health Corp. | 22.73% | -5.88% | 34.80% |
| Elevance Health Inc. (NYSE:ELV) | 24.33% | -3.51% | -15.62% |
| Cigna Group | 1.86% | -2.72% | -7.15% |
| Humana Inc. | -24.32% | -29.22% | -36.11% |
| Centene Corp. (NYSE:CNC) | 63.30% | 2.44% | -33.97% |
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: Shutterstock
Recent Comments