The Medicare Advantage trade just got repriced—by Washington. Donald Trump‘s administration proposed 0.09% rate hike for Medicare Advantage plans in 2027, a fraction of Wall Street's 4%–6% expectations, triggering a sharp selloff across the sector. Stocks of managed-care giants like CVS Health Corp (NYSE:CVS), Humana Inc (NYSE:HUM), Elevance Health Inc (NYSE:ELV), and UnitedHealth Group Inc (NYSE:UNH) plunged on Monday, and remained in the red during pre-market on Tuesday.
It was a blunt reminder that healthcare insurers don't just trade on earnings—they trade on policy. And with managed care stocks stuck in this policy-driven carnage, billionaire hedge fund manager Seth Klarman may be quietly looking to seize the moment.
Klarman's Contrarian Healthcare Bet
Baupost Group's latest filings show insurance-related stocks now make up over 16% of its disclosed U.S. equity portfolio, with Elevance Health approaching a 9% position after a 114% increase in shares. That's not a passive allocation. That's a statement.
Klarman's playbook is familiar: buy durable, cash-generating businesses when the market prices them like melting ice cubes. Rising medical utilization and regulatory uncertainty crushed managed-care multiples in 2024–2025. Klarman appears to see the sector as structurally essential—and temporarily mispriced.
He's also kept Willis Towers Watson PLC (NASDAQ:WTW) as a top holding, trimming modestly but maintaining conviction in the brokerage model. Brokers are classic Klarman "toll booth" assets: they monetize insurance volume regardless of whether premiums rise or fall.
Policy Risk vs Margin of Safety
The Medicare Advantage shock underscores the fragility of insurer margins to political decisions. More than half of Medicare beneficiaries are now in private plans, making MA a quasi-government asset class for investors. A single rate tweak can erase billions in equity value overnight.
Klarman's bet is that the market is overreacting—that scale players like Elevance retain long-term pricing power, cost control levers, and demographic tailwinds that Washington can't legislate away.
The question is whether this is deep value or a structural value trap.
Trump just reminded investors that healthcare insurers operate at the mercy of policy. Klarman is betting that fear is exactly what creates the margin of safety.
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