UnitedHealth Crashes 20% on Medicare Advantage Shock
Trump administration proposes near-flat Medicare Advantage rates for 2027, far below analyst expectations. UNH sheds $60 billion in market cap.
UnitedHealth Group suffered its worst single-day loss in decades on Tuesday, plunging nearly 20% after the Trump administration proposed keeping Medicare Advantage payment rates essentially flat for 2027.
The stock closed at $285.08, down from $352 the prior day. That's roughly $60 billion in market value erased in a single session.
The Proposal That Triggered the Selloff
On Monday night, the Centers for Medicare & Medicaid Services released its preliminary 2027 payment rates for Medicare Advantage plans. The proposal calls for a 0.09% increase—far below the 5-6% bump analysts had expected.
Medicare Advantage is the privatized version of Medicare, where insurers like UnitedHealth contract with the government to provide coverage. Payment rates determine how much the government pays insurers per enrollee. Flat rates mean compressed margins for an industry that had been counting on growth.
UnitedHealth has the largest exposure to Medicare Advantage changes among insurers, accounting for roughly 30% of national enrollment. When rates disappoint, UNH feels it most acutely.
Compounding the Pain: Weak Guidance
The CMS bombshell landed just as UnitedHealth reported Q4 earnings. The company warned that 2026 revenue would decline 2% to $439 billion—the first revenue contraction since the 1980s.
Management attributed the weakness to shedding unprofitable members in Medicare Advantage and Affordable Care Act plans, plus selling off medical clinics. The combination of lower rates and deliberate member attrition creates a double-negative scenario for near-term financials.
The guidance called for adjusted EPS between $25.50 and $26.50, below the prior consensus of around $27. A company that had reliably beaten estimates for years is now actively managing expectations down.
Sector-Wide Carnage
UnitedHealth didn't suffer alone. The Medicare Advantage rate proposal hit the entire managed care sector:
| Stock | Tuesday Change |
|---|---|
| UNH | -19.6% |
| HUM | -20.3% |
| CVS | -8.1% |
| ELV | -6.7% |
Humana, which derives roughly 17% of national Medicare Advantage enrollment, matched UnitedHealth's decline. Smaller players fell less but still suffered as investors repriced the entire sector.
The selloff dragged the Dow Jones Industrial Average down over 400 points. UnitedHealth is the highest-priced component in the price-weighted index, so its 20% drop had an outsized impact. Without UNH's contribution, the Dow would have finished positive.
What Happens Next
The CMS proposal isn't final. The agency will accept public comments through early March before publishing the final 2027 rates in April. Insurers and their industry group AHIP will lobby aggressively for higher rates.
AHIP warned that if the proposal stands, it "could result in benefit cuts and higher costs for 35 million seniors" when they renew coverage in October 2026. That framing is designed to pressure the administration—benefit cuts to seniors are politically toxic.
But the Trump administration has shown willingness to challenge healthcare spending assumptions. The flat rate proposal aligns with broader efforts to contain Medicare costs, even at the expense of private insurers who've profited from the program's expansion.
For traders, the near-term setup is binary. Either the final rates come in materially higher—providing relief—or they hold near current levels and force a fundamental repricing of managed care profitability. The April rate announcement will be the catalyst.
Options activity on Tuesday showed heavy put buying alongside some contrarian call accumulation around the $290 strike. Traders are positioning for continued volatility into the rate finalization window.
UnitedHealth now trades at roughly 10x forward earnings, down from 14x before Tuesday's rout. That's cheap for a quality compounder—if you believe the Medicare Advantage business model survives intact. If you don't, the broader healthcare selloff may just be starting.