Medicare Payments Shock Sends Health Insurance Stocks Diving

SPEAKER_1 (0:01)

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Alex Ossola (0:32)

It's the thick of earning season. We'll bring you the latest updates from GM and other big US companies. Plus, what's next for health insurers after the Trump administration's position on Medicare payments shocked the industry?

Anna Wilde Mathews (0:44)

You'll likely see advertising campaigns. You'll likely see a lot of lobbying of members of Congress. The final rates tend to come out in early April. So we've got a window here when the industry can try to change the direction.

Alex Ossola (0:57)

And for Amazon, fresh-and-go stores are out, but Whole Foods is in. It's Tuesday, January 27th. I'm Alex Ossola for The Wall Street Journal. This is the PM Edition of What's News, the top headlines and business stories that move the world today.

Shares of Medicare insurers like United Health Group and Humana dove today. Why? The Trump administration's proposing that the rates the government pays to reimburse insurers for Medicare plans would stay roughly flat next year, rising by an estimated 0.09% on average. That's well short of the 4 to 6% that Wall Street expected and affects a business that's central to insurers' finances and hopes for growth. Anna Wilde Mathews, who covers health insurance for the journal, is here to discuss. Anna, what is the administration's reasoning behind keeping this rate essentially flat?

Anna Wilde Mathews (1:49)

Well, it's definitely a surprise for investors, as you can see with what's going on with the stocks today. The reasoning for the proposal being roughly flat, there are a lot of different things involved, but one of the main ones is just determinations made by actuaries at the Medicare agency who are estimating how much they think health costs are going to go up. But another reason is that the Trump administration is proposing a change in policy that could crimp some industry billing practices and perhaps limit how much money they get. They say that the goal here is to make Medicare payment transparent, accurate, and also to sustain the program.

Alex Ossola (2:27)

The insurance companies obviously don't like this development. And on the UnitedHealth earnings call today, an executive warned that its policyholders would be hurt.

SPEAKER_5 (2:36)

We will continue to work with CMS to ensure an appropriate final growth rate calculation to avoid a profoundly negative impact on seniors' benefits and access to care.

Alex Ossola (2:47)

Anna, what's the relationship between the rate insurers are getting and health care for people on Medicare?

Anna Wilde Mathews (2:53)

What insurers are saying is that enrollees, seniors, Medicare beneficiaries will be squeezed down the line if insurers don't get payments that they consider adequate. Insurers want to make a margin. They have shareholders. So when the government pays them rights that they consider short of what they should be given, the likely costs of the health care that these plans cover, they make other tweaks, maybe make things a little skinnier. One thing they tend to do when they're concerned about their margins is to reduce their offerings of extra benefits that beneficiaries often like, things like dental care. Another thing is they may not offer as many plans or plans in as many places. Or they may offer plans that have more restrictions, like going to your primary care doctor to get a referral if you want to see a specialist.

Alex Ossola (3:43)

These rates are still in the proposal phase. What happens next? Can we expect a big lobbying push from these insurers to try to change the rate that gets finalized?

Anna Wilde Mathews (3:54)

Absolutely, and that is definitely already underway. Industry observers expect a huge lobbying push, and frankly this tends to happen every year, but particularly when the industry feels like the rates are not as high as they expected. So, you'll likely see advertising campaigns, you'll likely see a lot of lobbying of members of Congress. The final rates tend to come out in early April, so we've got a window here when the industry can try to change the direction.

Alex Ossola (4:21)

That was WSJ Reporter Anna Wilde Mathews. Thanks, Anna.

Anna Wilde Mathews (4:24)

Thanks.

Alex Ossola (4:26)

Shares in Humana, UnitedHealth, and CVS led market losses today, sinking 14% or more. That dragged down the Dow, which fell 0.8%. But the NASDAQ rose 0.9%, boosted by an uptick in chip stocks. And the S&P 500 added 0.4%, closing at its first new high in two weeks. And three big companies reported today. First up is General Motors, which posted a $3.3 billion loss, mostly related to its struggling EV business. But shares jumped 8.8% today, as GM predicted higher than expected cash flows this year and promised to return more cash to investors. Meanwhile, Boeing swung to a fourth-quarter profit and its revenue surged as it made more planes and shipped more of them to customers. Deliveries of commercial aircraft hit their highest point since 2018, but the stock slipped 1.6%.