By UnitedHealth Group (NYSE: UNH) crashed nearly 20% this morning after the insurance behemoth came in slightly ahead of estimates in its fiscal Q4 but issued disappointing guidance for 2026.
Despite this sharp sell-off, UNH shares hardly appear attractive for an investment, as the weakness in its outlook stems mostly from a CMS update that creates structural headwinds for its insurance business.
Following the post-earnings plunge, UnitedHealth stock is again down more than 50% versus its 52-week high.
Why CMS update is super negative for UnitedHealth stock
Every year, the “Centers for Medicare & Medicaid Services” tells insurance firms how much more it will pay them per person to run Medicare Advantage plans.
Investors thought the government would increase these payments by about “5%” next year to keep up with rising medical costs, but the government instead announced an increase of “0%”.
Imagine you’re a business owner and you know your costs (rent, electricity, labour) will “increase” significantly, but your biggest customer tells you it won’t pay you a penny more than they did last year.
Your profits will get squeezed – and that’s exactly what investors fear will happen with UNH stock.
CMS rule change will also hurt UNH shares in 2026
UnitedHealth shares remain unattractive despite compelling valuation also because the latest CMS update means it will no longer be able to exploit the chart review loophole.
To get paid more by the government, insurers have to prove their patients are sick.
So far, what they did was hire people to look through old medical records, find a diagnosis that a doctor mentioned once, and send it to the government to get a higher payment – even if the patient wasn’t actually being treated for it that year.
But in the new CMS rule, the government essentially said: “if you don’t treat it, you don’t get paid for it.” They’re eliminating payments for these “unlinked” diagnoses.
It effectively shuts down a major accounting method insurers used to boost their revenue.
How to play UnitedHealth after Q4 earnings
Finally, investors should remain cautious in buying the dip in UNH shares because the company’s medical loss ration (MLR) went up 300 basis points in 2025.
Simply put, people are going to the doctor more, and surgeries are costing more, according to the NYSE-listed firm.
Still, the government just told the insurer that our data shows costs are actually flattening out – so we aren’t giving you a raise.
As a result, in UnitedHealth’s own words, this new CMS policy will result in a massive $6 billion hit to revenue, which makes its stock significantly less attractive to own in 2026.
Note that UNH slipped below all of its major moving averages (50-day, 100-day, 200-day) on Jan. 27, indicating bears are now fully in control across multiple timeframes.
While Wall Street analysts maintain an “overweight” rating on UnitedHealth currently, it’s well within reason to assume some of them will downwardly revise their expectations in the coming weeks following the Q4 earnings release and the CMS update.
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