Investing.com -- Shares of Humana Inc (NYSE: HUM) rallied on Tuesday as the U.S. government released final 2027 Medicare Advantage (MA) rates that significantly outperformed earlier proposals, according to a Wells Fargo Securities research report released Tuesday.

The Centers for Medicare & Medicaid Services (CMS) announced a 2.48% expected rate increase for 2027, a sharp upward revision from the nearly flat 0.09% increase suggested in the initial Advance Notice.

The latest CMS decision guarantees that private health insurance companies will receive over $13 billion in incremental Medicare Advantage reimbursements from federal sources during 2027.

The 239-basis-point improvement marks a "meaningful" shift that places margin recovery for health plans back on solid footing, Wells Fargo analysts noted. The primary driver for the hike was CMS’s decision to abandon a controversial risk model revision that had been proposed in the preliminary notice, the note said.

"The 2027 MA Final Rule improved significantly, leaving us much more confident that plans can improve margins," the analysts wrote. While average improvements between preliminary and final rules typically hover around 100 basis points, this year’s nearly 240-basis-point jump caught the market by surprise.

The report estimates that when factoring in "normal coding trends" of 2% to 3%, public insurers are now looking at implied revenue growth of 6.0% to 6.5%.

While this still sits slightly below the estimated 7% cost trend for Medicare Part A and Part B, analysts believe the spread is manageable. The report suggests that insurers can bridge this gap through "modest benefit reductions," allowing them a clear line of sight to improved profitability in 2027.

While the outlook for Medicare Advantage has brightened, Wells Fargo remains cautious about other sectors of the managed care industry. The report noted that while they are "clearly the most constructive" on the Medicare Advantage story, significant uncertainty remains regarding Medicaid and the health insurance Exchanges.

The update provides much-needed clarity for major insurers heavily invested in the private version of the government’s health program for seniors, which has faced increasing regulatory and cost pressures over the past year.