Medicare Payments Shock Sends Health Insurance Stocks Diving

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0:33It's the thick of earnings season. We'll bring you the latest updates from GM and other big U.S. companies. Plus, what's next for health insurers after the Trump administration's position on Medicare payments shocked the industry? You'll likely see advertising campaigns. You'll likely see a lot of lobbying of members of Congress. The final rates tend to come out in early April. So we've got a window here when the industry can try to change the direction. And for Amazon, fresh and go stores are out, but Whole Foods is in. It's Tuesday, January 27th. I'm Alex Osola for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

1:18Shares of Medicare insurers like UnitedHealth Group and Humana dove today. Why? The Trump administration's proposing that the rates the government pays to reimburse insurers for Medicare plans would stay roughly flat next year, rising by an estimated 0.09 percent on average. That's well short of the 4 to 6 percent that Wall Street expected and affects a business that's central to insurers' finances and hopes for growth. Ana Wieldy-Matthews, who covers health insurance for the journal, is here to discuss. Ana, what is the administration's reasoning behind keeping this rate essentially flat? Well, it's definitely a surprise for investors, as you can see with what's going on with the stocks today.

1:56The reasoning for the proposal being roughly flat, there are a lot of different things involved. But one of the main ones is just determinations made by actuaries at the Medicare agency who are estimating how much they think health costs are going to go up. But another reason is that the Trump administration is proposing a change in policy that could crimp some industry billing practices and perhaps limit how much money they get. They say that the goal here is to make Medicare payment transparent, accurate, and also to sustain the program. The insurance companies obviously don't like this development.

2:32And on the UnitedHealth earnings call today, an executive warned that its policyholders would be hurt. We will continue to work with CMS to ensure an appropriate final growth rate calculation to avoid a profoundly negative impact on seniors' benefits and access to care. Ana, what's the relationship between the rate insurers are getting and health care for people on Medicare? What insurers are saying is that enrollees, seniors, Medicare beneficiaries will be squeezed down the line if insurers don't get payments that they consider adequate. Insurers want to make a margin. They have shareholders.

3:09So when the government pays them rates that they consider short of what they should be, given the likely costs of the health care that these plans cover, they make other tweaks, maybe make things a little skinnier. One thing they tend to do when they're concerned about their margins is to reduce their offerings of extra benefits that beneficiaries often like, things like dental care. Another thing is they may not offer as many plans or plans in as many places. Or they may offer plans that have more restrictions, like going to your primary care doctor to get a referral if you want to see a specialist.

3:45These rates are still in the proposal phase. What happens next? Can we expect a big lobbying push from these insurers to try to change the rate that gets finalized? Absolutely. And that is definitely already underway. Industry observers expect a huge lobbying push, and frankly, this tends to happen every year, but particularly when the industry feels like the rates are not as high as they expected. So you'll likely see advertising campaigns. You'll likely see a lot of lobbying of members of Congress. The final rates tend to come out in early April. So we've got a window here when the industry can try to change the direction.

4:22That was WSJ reporter Ana Wielde-Matthews. Thanks, Ana. Thanks. Shares in Humana, UnitedHealth, and CVS led market losses today, sinking 14 percent or more. That dragged down the Dow, which fell 0.8 percent. But the Nasdaq rose 0.9 percent, boosted by an uptick in chip stocks. And the S &P 500 added 0.4 percent, closing at its first new high in two weeks. And three big companies reported today. First up is General Motors, which posted a$3.3 billion loss, mostly related to its struggling EV business. But shares jumped 8.8 % today, as GM predicted higher-than-expected cash flows this year and promised to return more cash to investors.

5:05Meanwhile, Boeing swung to a fourth-quarter profit, and its revenue surged as it made more planes and shipped more of them to customers. Deliveries of commercial aircraft hit their highest point since 2018, but the stock slipped 1.6%. And UPS says it's cutting 30 ,000 jobs in operations, part of an ongoing cost-cutting push that the company says is paying off. Its profit grew in the fourth quarter, and for this year, UPS expects revenue will grow slightly. Shares closed up 0.2%. And the Federal Reserve also kicked off its latest meeting today. You'll hear more about that from us tomorrow when officials announce their decision.

5:42They're expected to hold rates steady after making cuts at three meetings in a row.

5:50TikTok has settled a lawsuit in California over teenagers and mental health, a growing issue in the courts. The lawsuit said that social media companies designed their products to addict young people. There are about 3 ,000 similar claims in California pending against social media companies, including Meta, YouTube, Snap, and TikTok. The companies say that they invest in online safety measures and that the lawsuits are misleading. And the 72 Amazon Go and Amazon Fresh stores are closing. It's the latest turn in Amazon's efforts to break into physical retail. The online shopping giant says it does plan to open more than 100 new Whole Foods stores.

6:28And a big box Amazon store is also in the works in Illinois, where the company plans to sell groceries and general merchandise. Coming up, why the U.S. population is growing more slowly and why the Trump administration is betting on bigger tax refunds this year. That's after the break.

6:51Agentic AI uses intelligent systems, or agents, that can reason, plan, and act with minimal human input to achieve defined goals. Jason Garzadas, CEO of Deloitte U.S., says businesses are already leveraging the possibilities. Whether that's in software and code development or contact-centered processing, standardized processes with existing data that can be highly automated are where we're seeing the most impact. It's a way to empower teams to reimagine business processes in a way that can be really energizing and differentiating for organizations. — Homeland Security Secretary Kristi Noem is facing criticism on both sides of the aisle for how she's handled the death of Alex Preddy in Minnesota.

7:35She said that he approached federal agents with a handgun and attacked them. Video footage contradicts Noem's claims. President Trump today defended Noem and said she wouldn't step down. Meanwhile, Senate Republicans and the White House are trying to broker a last-minute deal with Democrats over immigration enforcement. Democrats want limits on the Department of Homeland Security passed into law. A deal is seen as necessary to stop another government shutdown. And the Trump administration's immigration restrictions have slowed U.S. population growth. New estimates from the Census Bureau found that the population grew by 1.8 million people, or half a percent, in the 12 months through June.

8:14That's the slowest pace since COVID-19 caused a surge in deaths and curbed border crossings.

8:25On yesterday's show, we talked about how a lot of people are probably getting bigger tax refunds this year. Having that drop into Americans' bank accounts during an election year is far from a coincidence. It's engineered to improve Republicans' chances with voters ahead of the midterms. But there's no guarantee that strategy will work. For more, I'm joined now by WSJ tax policy reporter Richard Rubin. So, Rich, it seems like a pretty simple strategy to me, put money in voters' wallets, get rewarded at the polls. How has this kind of thing worked in the past? Medium. Republicans tried to cut taxes in 2017 for the 2018 year.

9:01That really people didn't notice so much. And so this year they're really trying to make them very visible as these lump sum refunds and tell people who's responsible for them. The issue is twofold. One is like getting the IRS to function well and make sure that they're getting the money out. Two is there's so much happening in the world, so much happening in the country. The real political challenge here is to keep it in the forefront for people. So the average tax refund last year was a little more than$3 ,100. And this year it's expected to be another$1 ,000 more. For the people who get much bigger refunds, they're going to be easier to see.

9:38The things like the standard deduction and child credit are smaller and broader, so more people will get them. But can you associate that extra$200,$300,$400 in your refund with your local Republican House member? I'm interested in what you were saying about making sure the IRS does this efficiently. I'm remembering to last year when the IRS saw pretty big staff cuts when the Trump administration came into office. Does that mean the agency is going to have a harder time getting these refunds out in a timely fashion? So for the basic chunk of refunds, it should be the same. Like electronic filing, direct deposit, no issues on your return.

10:18It's all automated. The issue with the IRS and staffing comes down to when you have a question, when there's a problem on your return, those things require people on the other end. And that's where they may run into trouble. That was WSJ reporter Richard Rubin. Thanks, Richard. Sure. Thanks for having me.

10:38The families of two men from Trinidad killed in a boat strike off the coast of Venezuela are suing the U.S. It's the first challenge in a U.S. court over the Trump administration's campaign targeting boats that they say are used in drug trafficking. The suit says the strike amounted to murder. A White House spokeswoman said the strike was against, quote, designated narco-terrorists and that President Trump had the authority to order it. And Yale University said that starting this fall, students from households earning up to$200 ,000 can attend tuition-free. A few wealthy institutions like Harvard and MIT have made similar offers to middle-class families.

11:16And that's what's news for this Tuesday afternoon. Today's show is produced by Pierre Bien-Aimé with supervising producer Tali Arbel. I'm Alex Osula for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

11:50We'll see you next time.

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