Shares of UnitedHealth Group (UNH 0.50%) jumped more than 9% on Tuesday on news that Medicare Advantage rates would be going up by 2.48% in 2027. Previously, the Trump administration suggested just a 0.09% change, which was far lower than analysts were expecting.
While this is positive news for the health insurance giant, and the stock has been rallying, investors shouldn't assume it's off to the races. The company reports earnings in a few weeks, and the stock could end up giving back any gains it has generated up until then.
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UnitedHealth's biggest issue remains rising costs
A big reason UnitedHealth's stock has been taking a beating in recent years hasn't been due to Medicare Advantage rates. Instead, there have been concerns over consistently high costs. Last year, its medical care ratio, which is a measure of how much of premiums are being used to cover medical claims, was up to 89%. It has normally been far lower in the past, closer to around 80%, and that difference can have a big impact on the bottom line.
And while the boost to Medicare Advantage rates is encouraging and will help with the company's overall profits, investors shouldn't forget that it's still less than the 4% to 6% increase that analysts were expecting earlier this year.
NYSE: UNH
Key Data Points
When the company reports earnings on April 21, investors could get a reality check and see that the healthcare stock, which is down more than 40% over the past 12 months, still has a long road ahead to recovery. This rally may not end up lasting for long.
