U.S. proposes to increase health insurance payments by $21 billion to insurance companies

(Bloomberg) — Health insurers selling private Medicare Advantage plans in the United States would see bigger payment increases in 2026 than this year if the incoming Trump administration adopts a proposal released Friday.

Medicare Advantage plan payments will increase an average of 4.3%, the government said, boosting revenue for companies including UnitedHealth Group Inc., Humana Inc. and CVS Health Corp. Excluding expected changes in patient risk scores, which would increase revenue, payments would increase 2.2%.

Shares of all three companies rose on the news after the close in New York. Humana rose 7%, UnitedHealth gained 3.9% and CVS gained 2.7%.

The proposed increase from the Centers for Medicare and Medicaid Services would be the largest since 2023. Insurers have complained over the past two years that rates are too low to cover rising medical costs and that payment policies have squeezed earnings and weighed on stock prices.

In recent years, the Biden administration has sought to limit payments to Medicare Advantage plans, which lawmakers, regulators and whistleblowers have accused of wasting tax dollars. Rate changes for 2025 were finalized in April and represent a slight decrease after excluding changes in risk scores, a measure of a patient’s disease that affects payments.

This positive update is likely to be welcomed by the industry, and the incoming Trump administration may make the policy more favorable. If today’s proposal passes, the 2026 payments would be $21 billion higher than the expected payments in 2025.

JPMorgan analyst Lisa Gill wrote in a research note ahead of Friday’s proposal that “while Medicare insurers believe rates have been insufficient in recent years,” there is “optimism that under Trump’s CMS Rates may improve under the circumstances.”

CMS plans to complete phased changes to certain risk coding policies that were first proposed in 2023 but faced opposition from insurance companies. Despite industry outcry that the changes would destabilize the market, Medicare officials said in a news release that the market remains strong.

According to CMS, the United States is expected to spend $9.2 trillion over the next decade paying for private health insurance plans. Healthcare groups UnitedHealth, Humana and CVS will sell more than half of Medicare Advantage plans by 2024, according to health policy group KFF.

Medicare Advantage, which covers more than half of Medicare beneficiaries, will cost $455 billion by 2023, not including Part D drug plan payments, according to the Medicare Payment Advisory Commission, a nonpartisan adviser to Congress.

The group said that by 2024, the United States will pay $83 billion more for people enrolled in Medicare Advantage plans than for people enrolled in traditional Medicare plans. This is due to the way the plan selects members and records patients’ illnesses, among other aspects of the plan that result in higher payments.

Medicare Advantage rate proposals are typically released in late January or early February, with final notifications sent out in April.

Democratic Sen. Elizabeth Warren and Rep. Lloyd Doggett asked Biden officials to release the rule as soon as possible, saying Medicare Advantage plans were setting the stage for patients to be sicker by claiming they were sicker than they actually were. They bring in more money, thereby charging the government exorbitant fees.

There is precedent for outgoing administrations proposing preferential Medicare rates in their final days in office. In 2021, the first Trump administration released its plan on January 15, less than a week before President Joe Biden took office.

(Updated with share changes in third paragraph.)

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