After Monday night’s announcement from the Centers for Medicare and Medicaid Services (CMS) that 2025 payment rates for Medicare Advantage plans would effectively be equal to a 0.16% decline relative to this year, managed care stocks plummeted in after-hours trading and into the trading session on Tuesday. By the time the closing bell rang on Tuesday, the S&P 500 Managed Care sub-industry fell more than 6.5% compared to the S&P 500’s decline of less than 1%. On a relative basis, managed care stocks underperformed the S&P 500 by 5.6 percentage points for the day. As shown in the chart below, today’s underperformance of the industry relative to the S&P 500 was one of the largest since the Affordable Care Act was signed into law on 3/23/10.
Tuesday’s weakness in managed care stocks is hardly the beginning of a new trend. Since hitting a peak in late October 2022, just as the broader bull market was getting started, the managed care industry has been moving in the opposite direction.Just this year, as the S&P 500 has essentially closed at 52-week highs multiple times per week, the managed care industry is right near 52-week lows.
We can’t think of a better way to illustrate the inverse correlation of managed care stocks relative to the S&P 500 over the last 18 months or so than the chart below. While it has been 370 trading days since the S&P 500’s bear market low in October 2022, the managed care sub-industry has gone 355 trading days without trading at a 52-week high, which is the longest such streak since the ACA was signed into law. As then Vice President Biden “whispered” to President Obama at the time, “This is a big F____ing deal.”
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