UnitedHealth Group shares (NYSE: UNH) plunged after U.S. regulators signaled minimal growth in future Medicare Advantage payments, overshadowing the company’s slightly better-than-expected profit outlook for 2026.
The regulatory update rattled investors across the health insurance sector, shifting attention away from near-term earnings and toward longer-term policy risk and earnings visibility.
Medicare Advantage Rates Trigger Sector-Wide Sell-Off
Although UnitedHealth projected adjusted earnings for 2026 modestly above Wall Street expectations, the guidance failed to reassure markets. The company said it expects earnings per share to exceed $17.75 next year, edging past consensus forecasts.
Investor focus instead zeroed in on regulatory risk. UnitedHealth shares (NYSE: UNH) fell roughly 18% following the announcement, with losses spreading quickly across the industry. Humana (NYSE: HUM) slid more than 18%, while CVS Health (NYSE: CVS) dropped over 10% in regular trading.
The sell-off followed a late-Monday update from the Centers for Medicare and Medicaid Services, which said Medicare Advantage payment rates would rise by just 0.09% in 2027. This increase fell far short of Wall Street expectations, which had anticipated rate hikes of up to 6%.
Analysts Flag Structural Risks for Insurers
The muted rate increase raised concerns about how insurers will manage rising costs. Jefferies analyst David Windley said the change could force insurers to introduce member premiums across a broad swath of Medicare Advantage plans—something largely avoided to date.
Windley also highlighted mounting pressure on value-based care businesses, which are reimbursed based on patient outcomes rather than service volume. UnitedHealth’s Optum Health operates under this model, he noted, and may need to renegotiate government payment terms or absorb higher costs internally to defend margins.
He added that UnitedHealth could face an outsized impact from regulatory changes. Specifically, a revised risk-adjustment model reduces the company’s historical benefit from medical coding, thus increasing the per-member earnings effect if payment rates remain constrained.
Rising Costs Prompt Strategic Adjustments
These concerns compound challenges already facing the sector. Medicare Advantage providers have faced elevated medical costs for more than two years. Consequently, UnitedHealth is scaling back portions of its Medicare Advantage footprint.
Despite these pressures, the company continues to target a return to growth in 2026. However, management expects a slower recovery in its Medicaid business. The company cited a mismatch between reimbursement rates and healthcare service costs for lower-income populations.
Chief Executive Stephen Hemsley said the company addressed recent operational challenges head-on and exited 2025 in a stronger position.
Earnings Guidance Offers Limited Support
While regulatory uncertainty dominated sentiment, UnitedHealth’s financial outlook provided some offset. Kevin Gade, chief operating officer at Bahl and Gaynor, said recent results and 2026 guidance were broadly in line with expectations.
The company expects its 2026 medical care ratio to be about 88.8%, slightly above analyst estimates of 88.64%.
For comparison, UnitedHealth reported an adjusted medical care ratio of 88.9% in 2025, up from 85.5% in 2024. Nevertheless, the result fell short of analysts’ prior expectation of 89.1%.
Quarterly Results and Stock Context
Operationally, UnitedHealth delivered a modest earnings beat in the most recent quarter. On an adjusted basis, the company earned $2.11 per share in the fourth quarter, narrowly exceeding the consensus estimate of $2.10.
At the time of reporting, UnitedHealth shares (NYSE: UNH) were trading at $288.24. The stock was up 8.26% over the past month but remained down 33.62% over the past year, giving the company a market capitalization of approximately $265.4 billion.
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