Here's why big insurance stocks in the US fell up to 13% in extended trade on Monday

Shares of major insurance and healthcare companies in the US, Humana, CVS Health, UnitedHealth, Elevance Health, among others, fell between 3% to 13% in extended trading on Monday, after the Trump administration proposed nearly no change for Medicare Advantage insurers.

Humana shares fell up to 13%, while CVS Health fell nearly 10%. UnitedHealth, a key constituent of the Dow Jones, also fell 9%. The result is that the Dow futures are currently under pressure in late evening trading, currently down nearly 150 points. UnitedHealth will also be reporting results later this evening.

The proposal made by the Trump administration entails an average payment increase of 0.09% for Medicare Advantage plans in 2027, as per the Centers for Medicare and Medicaid Services. The number is significantly lower than what Wall Street analysts were working with. They had projected the hike to be between 4% to 6%.

Medicare Advantage (MA) rate is the fixed monthly allowance that the US government pays to private insurance companies, to ensure coverage for citizens. When a citizen joins a Medicare Advantage plan, the government stops paying doctors and hospitals directly and instead, diverts those funds to a private player like the stocks highlighted earlier.

If he current proposal holds, the rate hike would result in an increase in payments of more than $700 million to the Medicare Advantage plan in 2027. The proposals are usually finalized in April. More than half of the Medicare beneficiaries are enrolled in such plans due to lower premiums.