UnitedHealth (UNH) or Humana (HUM): Which Stock Is the Better Buy After CMS’ Surprise Rate Hike

UnitedHealth (NYSE:UNH) shares are climbing nearly 7% in after-hours trading, while Humana (NYSE:HUM) is rallying close to 12%, as investors react to a Medicare Advantage update that turned out far better than many had anticipated and reshaped the near-term outlook for managed care providers.

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The move follows the Centers for Medicare & Medicaid Services’ final notice on 2027 payment rates, which delivered a roughly 2.48% average increase to plans, coming in well above the earlier proposal and easing concerns that reimbursement pressure could weigh on margins across the sector. That shift matters a great deal for companies like UnitedHealth and Humana, where Medicare Advantage represents a meaningful portion of the business and plays a central role in profitability.

In recent months, investors had been bracing for a tougher update, particularly given ongoing debates around risk adjustment changes and the potential for stricter reimbursement dynamics. Instead, the final outcome suggests a more measured approach, one that gives insurers additional breathing room and improves visibility into earnings over the next few years. The stronger rate environment also helps offset lingering concerns around utilization trends and medical cost pressures that had been hanging over the group.

Molly T. Turco, a healthcare policy analyst at TD Cowen, frames the outcome as a policy-driven decision that leans in favor of stability rather than immediate recalibration. She notes that “this increase is largely due to the policy decision to not update the risk adjustment model,” pointing to a choice that softens what could have been a more restrictive reimbursement framework and postpones a more challenging transition for insurers.

Turco also interprets the final notice as carrying a broader message about policymakers’ priorities at this stage. In her view, “the meaningfully improved final update indicates CMS, or more likely the White House, was swayed by concerns” about potential disruptions in the Medicare Advantage market, suggesting that maintaining continuity took precedence over pushing through more aggressive changes right away.

When it comes to earnings, Turco sees the implications as meaningfully positive, particularly if plans are able to translate the improved rate environment into margin recovery. The analyst points out that even incremental changes can have a sizable effect, noting that every 50 basis point improvement in Medicare Advantage margins could drive roughly 3% to 5% earnings upside for companies like UnitedHealth and Humana. At the same time, she cautions that the ultimate benefit will depend on execution, explaining that insurers will need to balance pricing, coding intensity, and medical cost management to fully capture the opportunity embedded in the updated rates.

UNH Stock Is a Better Buy

To round it out with Wall Street’s view, the contrast between the two names is fairly clear, and it leans in favor of UnitedHealth. From a consensus standpoint, UnitedHealth boasts a Strong Buy rating, backed by 18 Buys and just 4 Holds, with no Sell ratings at all, alongside an average price target of $368.15 that implies about 30% upside from current levels. Humana, by comparison, holds a more cautious Hold consensus rating, with only 5 Buys against 12 Holds and 2 Sells, and a more modest implied upside of ~13% as the 12-month average price target of $207.18 suggests.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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