We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Healthcare ETFs to Buy as Flat Medicare Rate Proposal Hits Insurers
Read MoreHide Full Article
Key Takeaways
Proposed 0.09% Medicare Advantage rate hike for 2027 triggered sharp sell-offs in major U.S. health insurers.
Humana slid 13% as flat reimbursement rates threaten margins amid rising administrative costs.
Diversified ETFs like VHT balance insurer exposure with strength in pharma and biotech leaders.
The Trump administration has sent shockwaves through the healthcare sector by proposing nearly flat reimbursement rates for Medicare Advantage (MA) plans for 2027. Announced on Jan. 26, 2026, the proposal calls for an average increase of just 0.09%, well below the 4% to 6% rise Wall Street analysts had expected.
The news triggered an immediate sell-off at the bourses, particularly for U.S. health insurers. Humana (HUM), which carries the highest exposure to Medicare Advantage, saw its shares plummet 13% in the after-market session yesterday, while other industry bellwethers UnitedHealth Group (UNH - Free Report) and CVS Health (CVS - Free Report) tumbled approximately 8-9%.
This sudden policy shift directly impacts a crucial revenue stream for these companies and also puts the spotlight on healthcare exchange-traded funds (ETFs) that hold substantial positions in these affected insurers.
In light of this regulatory pivot, a portfolio re-evaluation is essential. However, before adjusting your holdings, it is critical to understand the mechanical link between government reimbursement rates and insurer profitability. We will analyze why this 'flat' rate creates a margin squeeze for managed care giants and, more importantly, how a diversified healthcare ETF strategy can shield your capital.
By balancing vulnerable insurers with resilient pharmaceutical and MedTech leaders, you can navigate this policy shift and make an informed, data-driven decision for your long-term health sector exposure.
The Critical Link: Medicare Rates & Insurer Profits
The connection between government-set Medicare Advantage payment rates and insurer financial health is direct and powerful. Medicare Advantage is a lucrative program where private insurers manage Medicare benefits for seniors. The federal government pays these insurers a set rate per member.
When these payments increase, insurers often see expanded profit margins. Conversely, a proposal to keep rates flat, especially amid rising medical and administrative costs, squeezes these margins.
Thus, for companies like Humana, which derives a vast majority of its revenues from this program, the impact of a flat Medicare rate is particularly acute and bears the potential to squeeze its profit margin. The market’s dramatic reaction highlights fears that flat funding leaves insurers with few options beyond benefit reductions, aggressive cost cutting, or absorbing lower earnings — each detrimental to long-term profitability.
How Healthcare ETFs Offer a Strategic Hedge
While the managed care sub-sector is expected to suffer significantly if the proposed flat Medicare rates are enacted, diversified healthcare ETFs might be the best strategic choice at the moment. Unlike single-stock exposure, these funds often balance insurance volatility with high-performing allocations in Pharmaceuticals and Biotechnology.
In this context, it is important to note that as of early 2026, the “Big Pharma” segment of the U.S. healthcare industry is benefiting from a more favorable regulatory outlook, with the late-2025 “Most-Favored-Nation” drug pricing agreement serving as a key growth catalyst. By holding a diversified ETF, investors remain cushioned; the growth in obesity medications (GLP-1s) and oncology breakthroughs acts as a hedge against the policy-driven headwinds hitting insurers.
This will allow investors to maintain healthcare exposure without being fully vulnerable to the Trump administration’s "Accountability" drive against big insurance.
Healthcare ETFs to Buy
As investors scramble to assess the damage to their portfolio, particularly those who are heavily exposed to the aforementioned insurance giants, the following healthcare ETFs should offer them the desired cushioning against risks associated with the flat Medicare rate:
This fund, with net assets worth $17.3 billion, offers exposure to 416 companies that manufacture health care equipment and supplies or that provide health care-related services, and companies that are primarily involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products. Its top three holdings include pharma giants: Eli Lily (LLY - Free Report) (12.59%), AbbVie (ABBV - Free Report) (4.94%) and Johnson & Johnson (JNJ - Free Report) (4.49%).
VHT has risen 8.6% over the past year. The fund charges 9 basis points (bps) as fees and sports a Zacks Rank #1 (Strong Buy).
State Street Health Care Select Sector SPDR ETF (XLV - Free Report)
This fund, with assets under management (AUM) worth $41.91 billion, offers exposure to 60 companies from the pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology industries. Its top three holdings include pharma giants: LLY (14.73%), JNJ (9.32%) and ABBV (6.81%).
XLV has gained 7.9% over the past year. The fund charges 8 bps as fees and sports a Zacks Rank #1.
This fund, with net assets worth $976 million, offers exposure to U.S. companies that manufacture prescription or over-the-counter drugs or vaccines. Its top three holdings include drugmakers: LLY (22.97%), JNJ (22.86%) and Merck (MRK - Free Report) (4.75%).
IHE has risen 2.3% over the past year. The fund charges 38 bps as fees and holds a Zacks Rank #2 (Buy).
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Shutterstock
3 Healthcare ETFs to Buy as Flat Medicare Rate Proposal Hits Insurers
Key Takeaways
The Trump administration has sent shockwaves through the healthcare sector by proposing nearly flat reimbursement rates for Medicare Advantage (MA) plans for 2027. Announced on Jan. 26, 2026, the proposal calls for an average increase of just 0.09%, well below the 4% to 6% rise Wall Street analysts had expected.
The news triggered an immediate sell-off at the bourses, particularly for U.S. health insurers. Humana (HUM), which carries the highest exposure to Medicare Advantage, saw its shares plummet 13% in the after-market session yesterday, while other industry bellwethers UnitedHealth Group (UNH - Free Report) and CVS Health (CVS - Free Report) tumbled approximately 8-9%.
This sudden policy shift directly impacts a crucial revenue stream for these companies and also puts the spotlight on healthcare exchange-traded funds (ETFs) that hold substantial positions in these affected insurers.
In light of this regulatory pivot, a portfolio re-evaluation is essential. However, before adjusting your holdings, it is critical to understand the mechanical link between government reimbursement rates and insurer profitability. We will analyze why this 'flat' rate creates a margin squeeze for managed care giants and, more importantly, how a diversified healthcare ETF strategy can shield your capital.
By balancing vulnerable insurers with resilient pharmaceutical and MedTech leaders, you can navigate this policy shift and make an informed, data-driven decision for your long-term health sector exposure.
The Critical Link: Medicare Rates & Insurer Profits
The connection between government-set Medicare Advantage payment rates and insurer financial health is direct and powerful. Medicare Advantage is a lucrative program where private insurers manage Medicare benefits for seniors. The federal government pays these insurers a set rate per member.
When these payments increase, insurers often see expanded profit margins. Conversely, a proposal to keep rates flat, especially amid rising medical and administrative costs, squeezes these margins.
Thus, for companies like Humana, which derives a vast majority of its revenues from this program, the impact of a flat Medicare rate is particularly acute and bears the potential to squeeze its profit margin. The market’s dramatic reaction highlights fears that flat funding leaves insurers with few options beyond benefit reductions, aggressive cost cutting, or absorbing lower earnings — each detrimental to long-term profitability.
How Healthcare ETFs Offer a Strategic Hedge
While the managed care sub-sector is expected to suffer significantly if the proposed flat Medicare rates are enacted, diversified healthcare ETFs might be the best strategic choice at the moment. Unlike single-stock exposure, these funds often balance insurance volatility with high-performing allocations in Pharmaceuticals and Biotechnology.
In this context, it is important to note that as of early 2026, the “Big Pharma” segment of the U.S. healthcare industry is benefiting from a more favorable regulatory outlook, with the late-2025 “Most-Favored-Nation” drug pricing agreement serving as a key growth catalyst. By holding a diversified ETF, investors remain cushioned; the growth in obesity medications (GLP-1s) and oncology breakthroughs acts as a hedge against the policy-driven headwinds hitting insurers.
This will allow investors to maintain healthcare exposure without being fully vulnerable to the Trump administration’s "Accountability" drive against big insurance.
Healthcare ETFs to Buy
As investors scramble to assess the damage to their portfolio, particularly those who are heavily exposed to the aforementioned insurance giants, the following healthcare ETFs should offer them the desired cushioning against risks associated with the flat Medicare rate:
Vanguard Health Care ETF (VHT - Free Report)
This fund, with net assets worth $17.3 billion, offers exposure to 416 companies that manufacture health care equipment and supplies or that provide health care-related services, and companies that are primarily involved in the research, development, production, and marketing of pharmaceuticals and biotechnology products. Its top three holdings include pharma giants: Eli Lily (LLY - Free Report) (12.59%), AbbVie (ABBV - Free Report) (4.94%) and Johnson & Johnson (JNJ - Free Report) (4.49%).
VHT has risen 8.6% over the past year. The fund charges 9 basis points (bps) as fees and sports a Zacks Rank #1 (Strong Buy).
State Street Health Care Select Sector SPDR ETF (XLV - Free Report)
This fund, with assets under management (AUM) worth $41.91 billion, offers exposure to 60 companies from the pharmaceuticals; health care equipment and supplies; health care providers and services; biotechnology; life sciences tools and services; and health care technology industries. Its top three holdings include pharma giants: LLY (14.73%), JNJ (9.32%) and ABBV (6.81%).
XLV has gained 7.9% over the past year. The fund charges 8 bps as fees and sports a Zacks Rank #1.
iShares U.S. Pharmaceuticals ETF (IHE - Free Report)
This fund, with net assets worth $976 million, offers exposure to U.S. companies that manufacture prescription or over-the-counter drugs or vaccines. Its top three holdings include drugmakers: LLY (22.97%), JNJ (22.86%) and Merck (MRK - Free Report) (4.75%).
IHE has risen 2.3% over the past year. The fund charges 38 bps as fees and holds a Zacks Rank #2 (Buy).