What Happened?

A number of stocks jumped in the afternoon session after the government announced a surprise increase in payment rates for Medicare Advantage plans. 

This change raises the revenue that insurance companies receive per patient from federal funds without increasing their costs. This is projected to improve profit margins for major providers like UnitedHealth and Humana.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Health Insurance Providers company Humana (NYSE: HUM) jumped 8.5%. Is now the time to buy Humana? Access our full analysis report here, it’s free.
• Health Insurance Providers company UnitedHealth (NYSE: UNH) jumped 10.6%. Is now the time to buy UnitedHealth? Access our full analysis report here, it’s free.

Zooming In On UnitedHealth (UNH)

UnitedHealth’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. But moves this big are rare even for UnitedHealth and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 12 months ago when the stock dropped 22.9% on the news that the company reported underwhelming first-quarter 2025 results as its sales and profits fell below Wall Street expectations. 

The real story was the sudden rise in health care activity among seniors in its Medicare plans, which pushed costs higher and hurt profits. Some of those activities were delayed visits dating back to the COVID period. 

As a result, while revenue grew 10% from the previous year, costs grew faster. This reflected in the medical care ratio, which ticked up, meaning more of each dollar went to covering claims, and the company expected the ratio to increase significantly in the near term. 

Guidance was the biggest concern. The new full-year earnings forecast came in well below what analysts had been expecting, mainly because the company saw its care (medical costs in its privately run Medicare plans) and funding issues lasting longer. Overall, this was a disappointing quarter. While top-line growth was decent, bottom-line pressures and reimbursement risk remain unresolved, clouding the earnings outlook.

UnitedHealth is down 7.7% since the beginning of the year, and at $310.47 per share, it is trading 48.2% below its 52-week high of $599.47 from April 2025. Investors who bought $1,000 worth of UnitedHealth’s shares 5 years ago would now be looking at only $849.11.

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