2026-01-27 15:34:00
Medicare spending is skyrocketing, but the government just decided that insurers aren’t getting a cut of it.
Today was a rude awakening for US healthcare providers. The chart above shows the “inevitable” doubling of Medicare spending from 2023 to $1.9 trillion, which is the entire bull thesis for the sector.
The Trump administration just flipped the table on the trade.
Today’s market moves:
UNH stock
Analysts had expected a 4-6% rise for Medicare Advantage plans in 2027 but the White House via the CMS raised it by just 0.09%. That’s lower than inflation (which is particularly high in healthcare) and effectively means that either services will be cut for people on Medicare or Medicaid or profit margins will fall.
Extra benefits will continue to worsen Medicare Advantage plans are popular because they offer “extras” that traditional Medicare doesn’t, like dental, vision, gym memberships, and over-the-counter spending cards.
The whole US system is a bit of a mess at the moment and it won’t get easier due to demographics.
By keeping rates flat, the administration is trying to bend that curve. They are effectively saying that the delta between the “historical” line and the “projected” line shouldn’t just flow into insurer buybacks. Now the question is what insurers will do. They can simply walk away from low margin lines, or redirect spending to more lobbying.
This is a battle that’s going to continue for 20 years as boomers age and healthcare spending eats further into the US government budget. Seniors are a huge voting bloc and they will not tolerate a cut in services, so there is no easy path here. Even without the costs of aging, the US is running a massively-problematic deficit with no real plans to fix it.
