US health insurers slide as final Medicare payment rates fall below expectations

(Reuters) - Shares of U.S. health insurers tumbled between 6% and 12% on Tuesday after the final 2025 rates for Medicare Advantage (MA) payments by the government implied a cut and triggered worries about a margin squeeze.

The rates, which indicated a 0.2% fall in average payments, are unchanged from what was proposed in January, despite pressure from companies and industry groups to incorporate a late-year surge in medical care demand.

The U.S. Centers for Medicare & Medicaid Services typically raises the final reimbursement from the advanced notice.

The rates could pile more pressure on margins at insurers already struggling with high medical costs, and uncertainty around insurance claims processing due to the fallout of a hack at UnitedHealth's tech unit.

Shares of Medicare-focused insurer Humana fell the most, plunging more than 12% to a near four-year low of $308.22. UnitedHealth slumped 6.6%, while CVS Health sunk 7.7% in early trading.

The steep losses also dragged down the blue-chip Dow index and the benchmark S&P 500 in morning trading. [.N]

The "less-than-favorable rate updates, which coupled with the potentially clouded claims development in light of the Change Health cyberattack ... may put the once-golden Medicare Advantage market in somewhat less favorable standing," said Citi analyst Jason Cassorla.

The CMS, in a final notice published on Monday, said it had not observed higher demand for medical care during the fourth quarter of 2023, in sharp contrast to recent comments from insurers such as Humana and UnitedHealth.

The closely watched proposal determines how much insurers can charge for monthly premiums, plan benefits they offer and, ultimately, their profits.

The high costs, coupled with low rates, put pressure on insurers to cut the number of benefits they cover, said BoFA Securities analyst Kevin Fischbeck in a note.

"The amount of benefit cuts needed could begin to weigh on the perceived value of Medicare Advantage," he said.

(Reporting by Medha Singh and Manas Mishra in Bengaluru; Editing by Sriraj Kalluvila)