Health Check

Shock to the System of Health Insurers

US health care stocks took a hit this week, after the White House proposed nearly flat rates for Medicare Advantage insurers in 2027.

Shares of UnitedHealth Group, Humana, and CVS Health tumbled between 13-22% after the announcement.

Medicare Advantage is an “all‑in‑one” private version of America’s public health insurance for seniors. The government rate determines how much private insurers can charge for their products, directly impacting the bottom line.

Why Health Care Is Falling Behind

The recent slide is not just a single-story move. The sector is facing pressure from multiple directions: policy risk, pricing, and shifting market leadership. For much of the last market cycle, health care was treated as a defensive growth play: steady demand, decent earnings visibility, and less sensitivity to the ups and downs of the economy. 

Now that investors are leaning back into cyclical stocks and tech, the money is rotating out of defensives to fund gains elsewhere.

That means:

• Money is flowing toward AI, semiconductors, and other “high-beta” tech stocks, which are more volatile than the overall market.
• Investors are selling holdings in sectors like health care, staples, and utilities, even if fundamentals have not collapsed.

Politics At The Bedside

Health care always trades with a policy overhang, and that risk is back in focus:

• Ongoing pressure on drug prices (Medicare negotiation, political rhetoric on “excess profits”)
• Questions around reimbursement rates for hospitals and insurers
• Regulatory uncertainty around managed care, prescription drug benefits, and reimbursement models

Even modest headlines about cost controls or reforms can squeeze the earnings, especially for pharma, biotech, and managed care. Investors worry about long-term pricing power.

Earnings Under Strain

Beneath the much wider (and thus more resilient) S&P 500 Health Care index, some health care companies are dealing with real margin issues:

• Hospitals and providers: higher labor costs, staffing shortages, and wage pressure are squeezing margins
• Insurers: volatility around medical loss ratios and utilization (elective procedures coming back, new weight loss drugs, and changing behavior post pandemic)
• Medtech and devices: still solid long term, but sensitive to capital budgets, procedure volumes, and reimbursement dynamics

Earnings are not collapsing across the board, but in some pockets, profit margins are getting squashed, and guidance cuts make the sector feel less “safe” than it used to.

The Long Run Still Looks Healthy

The irony is that the secular story for health care has not changed:

• Aging populations
• Higher chronic disease burden
• Ongoing innovation in biotech, devices, and diagnostics

But markets trade on margins and momentum, not just long-term narratives. Right now, the sector is caught in an uncomfortable place:

• It isn’t growing fast enough to compete with the hot money rushing into AI and other high‑risk trades.
• Not stable enough to be the unquestioned defensive haven, like in the past.

What To Watch Next

Key things to monitor when investing in US health care stocks:

• Earnings revisions: are estimates still drifting lower, or starting to stabilize
• Policy headlines: especially around drug pricing, Medicare, and reimbursement reforms
• Utilization trends: procedure volumes, insurance claims data, and commentary on cost trends from major insurers and hospital systems
• Factor rotation: if investors shift money out of high‑risk tech stocks and back into safer, steadier sectors, health care could start outperforming again

The demand story is still there; the market is just reassessing how much it is willing to pay for it right now.