Why UnitedHealth Group Rallied Today
Key Points
The Centers for Medicare & Medicaid Services announced an increase to Medicare Advantage reimbursements for calendar 2027.
The increase was much more than feared after a January proposal for a much lower increase.
Today is a relief rally, but is is UnitedHealth, down 50% from highs, still a buy here?
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Shares of UnitedHealth Group (NYSE: UNH) were rallying on Tuesday, up 10.5% as of 1:41 p.m. EDT.
UnitedHealth is the largest health insurer in America, and received a boost today after the government's Centers for Medicare & Medicaid Services announced a higher 2027 reimbursement rate for Medicare Advantage plans than previously indicated.
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The government boosts Medicare Advantage payments
In a statement from CMS Administrator Mehmet Oz (or "Dr. Oz" as he's known to many), the government agency announced it had approved a 2.48% increase to Medicare Advantage reimbursements for calendar 2027.
That was a relief to large insurers that offer Medicare Advantage plans, as the government had previously indicated just a 0.09% increase in next year's reimbursements back in January.
While Medicare Advantage plans are privately purchased, the government reimburses insurers for part of the underlying costs to keep these plans affordable for seniors. So, an increase in government subsidies should boost insurer profits, either directly or through lower premium rates, which would then attract more insureds. Thus, UnitedHealth rallied along with most other health insurance giants today.
Image source: Getty Images.
A welcome bit of good news
Prior to today, UnitedHealth had fallen by more than 50% from its highs, due to a toxic mix of rising costs and an ongoing Department of Justice investigation into its billing practices.
The stock currently trades at 23 times trailing 12-month earnings and around 16 times this year's earnings estimates. That's about a market multiple for an average non-tech stock, so even after its fall, UnitedHealth's stock isn't exactly "cheap."
While today's news certainly helps, ongoing medical cost inflation isn't going away, and the DOJ investigation remains unresolved. Therefore, while some investors may find shares attractive, the stock is by no means a screaming bargain, even after its precipitous decline.
Should you buy stock in UnitedHealth Group right now?
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
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