Medicare Advantage Squeeze: Are CVS and Humana's Dividend Stocks Now a Buy?
The golden era of predictable, high growth in Medicare Advantage may be facing its sternest test. A proposal from the Centers for Medicare & Medicaid Services (CMS) for near-flat payment rates in 2025, coupled with rising medical costs, has cast a shadow over a segment long considered a profit engine for U.S. health insurers. This regulatory shift is forcing a market-wide reassessment of companies heavily reliant on the program.
Despite the policy headwinds, the fundamental value proposition of Medicare Advantage remains robust. Recent independent analyses confirm the program continues to deliver greater value than traditional Medicare, with lower average costs to the government and significantly reduced out-of-pocket expenses for enrollees. This tension—between near-term policy pressure and long-term program viability—is the central drama playing out in the stock prices of sector leaders.
Two giants, Humana (HUM) and CVS Health (CVS), now find themselves in the eye of the storm. Both stocks have retreated as investors recalibrate expectations for future profitability. For income-focused investors, the critical question is whether this pullback has created a rare chance to buy quality dividend payers at a discount, or if it foreshadows an era of diminished returns.
Humana: A High-Stakes Turnaround Bet
Humana, a Louisville-based insurer with a deep focus on Medicare Advantage, embodies the sector's volatility. Its stock, trading around $195, has plummeted approximately 34% over the past year. The company offers an annualized dividend of $3.54 per share, yielding about 1.34%.
The challenges are multifaceted. Humana is navigating the CMS rate environment while also undergoing a significant leadership transition. Longtime insurance chief George Renaudin is retiring, with Amazon veteran Aaron Martin stepping in to lead the Medicare Advantage division through a phased handover.
Recent financials highlight the squeeze. While Q3 2025 revenue of $32.65 billion slightly beat estimates, net income fell sharply year-over-year due to higher medical utilization. Notably, adjusted EPS of $3.24 surpassed expectations, suggesting core operations retain strength. The road ahead looks rocky, with analysts forecasting a steep earnings decline in 2026 as new rates take full effect. Yet, the average analyst price target of $285 implies a faith in a substantial rebound, presenting a high-risk, high-potential-reward scenario.
CVS Health: A More Defensive, Diversified Play
CVS Health presents a contrasting profile. The Woonsocket, Rhode Island-based behemoth—spanning insurance (Aetna), pharmacy benefit management, and a vast retail network—offers diversification that may provide stability. Its stock, at around $74.60, yields a more attractive 3.17% from its $2.66 annual dividend.
Financially, CVS shows both resilience and scars. Q3 2025 revenue hit a record $102.87 billion, though a massive goodwill impairment charge led to a GAAP net loss. Crucially, adjusted EPS of $1.60 handily beat estimates, demonstrating management's ability to manage cost pressures. Strategically, CVS is doubling down on integrated care, expanding Aetna Medicare Advantage plans that link pharmacy, virtual care, and clinics, backed by community health investments like a recent grant to combat maternal diabetes.
Trading at a significant discount to sector valuation multiples, CVS carries a "Strong Buy" consensus rating. The average price target of $94.48 suggests a steadier, if less explosive, path to appreciation, making it a candidate for risk-averse income portfolios.
The Bottom Line
Humana offers a purer, more volatile bet on a Medicare Advantage recovery, suited for investors who can stomach policy uncertainty and earnings volatility for potentially greater upside. CVS provides a more defensive entry with a higher yield and the ballast of a diversified healthcare ecosystem, likely appealing to those seeking gradual capital appreciation and reliable income.
Market Voices: What Investors Are Saying
Michael R., Portfolio Manager (Boston): "This is a classic overreaction to a known regulatory cycle. CMS rates are always negotiated; the long-term demographic tailwind for Medicare Advantage is intact. I'm adding to CVS for its yield and integrated model. Humana requires more patience, but the valuation is compelling for a strategic position."
David Chen, Retail Investor (San Diego): "I'm staying clear. This isn't a 'dip,' it's a fundamental repricing. The government is clearly signaling it wants to claw back margins from insurers. Why catch a falling knife? There are safer dividends elsewhere until the regulatory picture clears."
Sarah Gibson, CFA (Independent Analyst): "The divergence in strategy is key. CVS's vertical integration is a moat. Humana's intense focus makes it more efficient but also more vulnerable. For most retail investors, CVS is the less stressful way to gain exposure, even if the upside is more muted."
Lisa Torresso, Medicare Advocate (Florida): "It's outrageous! These companies built empires on taxpayer-backed Medicare dollars, and now they cry foul when asked to operate efficiently? The sell-off is deserved. Maybe they should focus less on stock buybacks and more on actually lowering costs for seniors like they promised."
On the date of publication, the author did not have positions in any securities mentioned. This article is for informational purposes only.