The federal government announced Monday it will increase payments to private Medicare Advantage insurers by 2.48% in 2027, a rate hike that exceeded industry expectations and sent health insurance stocks surging.

The Centers for Medicare and Medicaid Services finalized the payment rate after months of industry lobbying and analysis. The increase represents a significant boost for major health insurers that offer Medicare Advantage plans, which serve as private alternatives to traditional Medicare for seniors.

Health insurance stocks responded positively to the announcement, with major insurers seeing gains as investors viewed the payment rate as more favorable than anticipated. The Medicare Advantage program has become increasingly important for insurers' revenue streams as enrollment in the private plans has grown substantially over the past decade.

The payment rate determines how much the government reimburses insurers for each Medicare Advantage enrollee. Higher rates allow insurers to offer more benefits or maintain profit margins, while lower rates can force benefit cuts or plan exits from certain markets. Industry analysts had expressed concerns about potential payment reductions given ongoing federal budget pressures.

Medicare Advantage plans now serve more than 28 million seniors, representing nearly half of all Medicare beneficiaries. The program allows private insurers to provide Medicare benefits, often including additional services like dental and vision coverage not available in traditional Medicare.