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On Tuesday, the shares of U.S. health insurers dropped after the Biden administration did not increase payments for private Medicare plans as much as expected. This led to stocks such as CVS Health, UnitedHealth Group, Elevance Health, Centene, and Humana dropping in value. Humana was particularly affected as it heavily relies on private Medicare plans, also known as Medicare Advantage.

On Monday, the Centers for Medicare and Medicaid Services announced that government payments to Medicare Advantage plans would rise by 3.7% year over year, which equates to a 0.16% decline after stripping out certain assumptions. This announcement has added pressure on insurers who are already facing high medical costs and challenges following a cyberattack on UnitedHealth Group’s tech unit. The Medicare Advantage business has traditionally been a source of growth and profits for the insurance industry.

Medicare Advantage is a privately administered health insurance plan that works in conjunction with Medicare. More than half of Medicare beneficiaries are enrolled in these plans due to lower monthly premiums and added benefits not covered by traditional Medicare. The rate set by the federal agency determines how much insurers can charge for premiums, plan benefits, and ultimately, their profits. The current rate remains unchanged from an earlier proposal in January, which is not typical as the agency usually increases the rate after the initial proposal.

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