Shares of UnitedHealth Group (UNH) took a dive on Tuesday, leading a broad selloff across the health insurance sector after the Trump administration announced a surprise proposal that limits future Medicare Advantage payment growth. The move caught investors off guard, raising concerns about already-tight margins across managed care and triggering one of the sector’s steepest declines in years.
UnitedHealth, the largest U.S. health insurer by enrollment and revenue, dropped nearly 20% in early trading as investors recalibrated expectations for profitability under a far more restrictive reimbursement outlook. Rival insurers followed lower, highlighting how central Medicare Advantage has become to the industry’s earnings power.
Medicare Advantage Proposal Jolts the Sector
The selloff was sparked by a late-Monday proposal from the Centers for Medicare & Medicaid Services outlining a 0.09% increase in Medicare Advantage payment rates for 2027. That figure fell dramatically short of market expectations, which had centered on increases in the mid-single-digit range following a stronger-than-anticipated adjustment for 2026.
Medicare Advantage plans now cover roughly half of all Medicare beneficiaries, making rate changes a key driver of insurer profitability. With healthcare utilization rising and medical costs remaining high, investors had been counting on higher reimbursement to help offset margin pressure. The proposed increase instead raised fears that insurers may need to cut benefits, raise premiums, or absorb higher costs directly. Industry groups warned that the proposal could ripple through the system, potentially affecting coverage options and out-of-pocket costs for seniors when plans are renewed in late 2026.
UnitedHealth’s Exposure Magnifies the Impact
UnitedHealth’s decline is due to its outsized exposure to Medicare Advantage. The company accounts for roughly 30% of national enrollment, giving it more sensitivity to reimbursement changes than any of its peers. Humana, the second-largest player in the space, also saw steep losses, reinforcing how enrollment concentration has become a risk factor in the current policy environment.
The proposal lands at a time when margins are already under strain. UnitedHealth reported a medical care ratio near the high end of its historical range, reflecting higher spending on patient care. That leaves less room to absorb reimbursement pressure without affecting earnings. Investors now appear concerned that UnitedHealth’s scale, once viewed as a competitive advantage, may amplify downside risk if payment growth remains constrained.
Earnings Add to Investor Unease
The policy shock was compounded by UnitedHealth’s quarterly earnings report, which showed revenue coming in slightly below expectations despite double-digit growth from the prior year. While earnings per share met forecasts, they fell sharply compared with the same period a year earlier, highlighting how cost pressures are weighing on profitability.
Management also guided to lower overall revenue in 2026, citing efforts to streamline operations and adjust business lines amid a shifting policy and cost backdrop. The company reiterated that it is navigating lingering effects from a major cyberattack at its Change Healthcare unit, which continues to cast a shadow over results. Taken together, the earnings report did little to reassure investors already rattled by the Medicare announcement.
Broader Implications for the Insurance Industry
The reaction across health insurers suggests investors are reassessing the sector’s risk profile. After years of steady growth driven by Medicare Advantage expansion, the industry now faces heightened regulatory uncertainty at a moment when medical utilization trends remain unfavorable. Analysts cautioned that even if final reimbursement rates are adjusted higher, the episode underscores how quickly policy shifts can reshape earnings expectations. With additional insurer earnings reports due in the coming weeks, markets are bracing for more volatility as companies outline how they plan to manage under tighter constraints.
Looking Ahead
Attention now turns to whether CMS revises its proposal before finalizing 2027 payment rates in April. Any upward adjustment could stabilize sentiment, but confidence has been shaken, particularly for insurers with heavy Medicare exposure. For UnitedHealth, the coming months will be critical as investors weigh its ability to protect margins through cost controls, pricing adjustments, and operational efficiency. Until clearer guidance emerges from policymakers, the stock — and the broader managed-care sector — is likely to remain under pressure as markets reassess what a lower-growth reimbursement era could mean for long-term earnings.