Piper Sandler has issued its analysis of Healthcare Technology & Distribution equities after the Centers for Medicare & Medicaid Services (CMS) published its CY27 Medicare Advantage Advance Notice. The firm flagged several key metrics in the notice that fell short of its prior expectations and outlined investment recommendations in response.
The CMS advance notice sets the non-ESRD FFS USPCC at $1,293.23 and calculates an Effective Growth Rate of 4.97%. That growth rate is below Piper Sandler's earlier projection of 6.47%. CMS's paperwork also implies an average revenue change of just 0.09% for CY27, a marked deceleration from a 5.06% average change recorded in CY26. Piper Sandler notes this softer outlook reflects headwinds identified in the notice, including a 3.32% combined impact from Risk Model Revision and FFS Normalization and a further 1.53% impact attributed to the proposed Risk Adjustment reform.
In the wake of the notice and ensuing market reaction, Piper Sandler recommends buying Alignment Healthcare (NASDAQ:ALHC) and CVS Health (NYSE:CVS) on the selloff that followed the announcement. The firm characterizes Alignment Healthcare as the most insulated operator among Medicare Advantage participants, citing the company’s focus on quality and care delivery as factors that could support margin expansion through calendar year 2030.
For CVS, Piper Sandler points to quality improvements, benefit rationalization, and an intensified emphasis on care delivery as potential drivers of continued margin improvement within Medicare Advantage. The firm emphasizes that its CY28 adjusted EPS estimate of $9.41 for CVS includes an assumption of only a 1.71% operating margin in Medicare Advantage within CVS's Health Care Benefits segment.
Regarding UnitedHealth Group (NYSE:UNH), Piper Sandler highlights the possibility that the company could reclassify Optum Financial by moving it out of Optum Health and into Optum Insight. This potential accounting reorganization was first previewed on UnitedHealth's 3Q25 call and may be revisited on the company's upcoming 4Q25 earnings call. Piper Sandler recommends buying UNH on any volatility that this accounting update might cause.
The firm’s commentary also came amid broader sector developments affecting insurers. Humana Inc. has faced several notable shifts. Fitch Ratings downgraded Humana, citing persistent margin pressure and a reduction in Medicare Advantage quality bonus payments. Fitch lowered Humana’s Insurer Financial Strength rating to 'A-' from 'A', its Long-Term Issuer Default Rating to 'BBB' from 'BBB+', and reduced senior notes ratings to 'BBB-' from 'BBB'.
Concurrently, Humana announced a clinical partnership with Atlas Oncology Partners to enhance cancer care services for Medicare Advantage members in Tennessee and Mississippi, aiming to deliver coordinated care through interdisciplinary teams. The company also disclosed a leadership succession plan: George Renaudin, the current Insurance Segment President, intends to retire by the third quarter of 2026. Aaron Martin is slated to join Humana as President of Medicare Advantage in January 2026 and will eventually succeed Renaudin. Despite these transitions and rating actions, Humana is maintaining its full-year adjusted earnings guidance.
Market reaction to the CMS notice and related payment-rate developments triggered a sector-wide selloff that affected multiple insurers, including UnitedHealth, Humana, and CVS Health.
Summary
The CMS CY27 Medicare Advantage Advance Notice delivered a lower-than-expected Effective Growth Rate and minimal average revenue change for CY27, prompting Piper Sandler to recommend buying select insurers seen as more resilient. The firm identified specific drivers of the slower growth rate, including risk-model and risk-adjustment impacts, and highlighted potential corporate moves and sector headwinds that are influencing investor responses.
Key points
- CMS set the non-ESRD FFS USPCC at $1,293.23 and projected a 4.97% Effective Growth Rate for CY27, below Piper Sandler's prior 6.47% estimate.
- Piper Sandler recommends buying Alignment Healthcare (ALHC) and CVS Health (CVS) on the post-notice selloff, citing Alignment’s care-focused positioning and CVS’s margin opportunity assumptions within Medicare Advantage.
- The analysis notes potential accounting changes at UnitedHealth (UNH) and records sector pressure including Humana’s recent Fitch downgrade, a clinical partnership, and a planned leadership transition.
Risks and uncertainties
- Regulatory and model changes - The CMS notice cites a 3.32% impact from Risk Model Revision and FFS Normalization and a 1.53% impact from proposed Risk Adjustment reform, which could continue to pressure Medicare Advantage revenue assumptions.
- Rating and market volatility - Credit rating actions, such as Fitch's downgrade of Humana, and sector-wide selloffs following payment-rate announcements introduce market and funding uncertainties for insurers.
- Execution and transition risk - Corporate actions and leadership transitions, including Humana’s planned succession and possible accounting reorganizations at UnitedHealth, create near-term execution risks that could affect operating results and investor perceptions.