UnitedHealth Group Inc. cut its annual forecast and reported its first earnings miss in more than a decade, in a foreboding sign that weighed on other insurance stocks.
The company said it was blindsided by rising medical costs as the first quarter closed, upending a forecast it had affirmed just three months ago.
Related: How UnitedHealthcare's CEO wants to fix the company’s image
UnitedHealth fell as much as 23% on Thursday, the most since August 1998, erasing about $115 billion of market value. The guidance cut is rare for UnitedHealth, which typically forecasts conservatively and often raises its outlook as the year progresses.
The company’s performance “was frankly unusual and unacceptable,” UnitedHealth Chief Executive Officer Andrew Witty said on a call with analysts.
UnitedHealth, the largest seller of Medicare Advantage health plans, saw patients seeking care at a far higher rate than expected, the company said in a statement Thursday. It also cited “unanticipated changes” in its Optum Health care delivery business that are affecting reimbursements.
Both segments have been hit by changes from the US Medicare program meant to limit tactics insurers use to boost their revenue.
The report shocked investors. “You own UNH for its consistency,” said David Wagner, head of equities and portfolio manager at Aptus Capital Advisors. He said the firm has about a $150 million position in the stock. “That’s why this one is absolutely so surprising right now.”
Shares of rival Humana Inc., which focuses on Medicare, dropped as much as 10%. Elevance Health Inc., Centene Corp. and CVS Health Corp. also fell.
Elevance, which was set to report earnings next week, affirmed its profit outlook for the year and reported earnings above Wall Street forecasts in a surprise filing Thursday. The announcement, which came hours after UnitedHealth’s report, helped stem a 10% loss in the shares. The stock was down 2% at 1:18 p.m. in New York.
UnitedHealth has been rocked by turmoil since the December killing of a top executive. Still in mourning, the company faced a torrent of vitriol on social media from people fed up with the health-care system. It’s trying to repair its image and persuade the public that it’s part of the solution.
Adjusted earnings will be $26 to $26.50 a share this year, down from a previous range of $29.50 to $30 a share, UnitedHealth said. The initial outlook issued in October also disappointed investors.
Care Expenses
The quarter-end jump in Medicare expenses was concentrated in physician and outpatient services, the company said. It outpaced even the higher level of care expenses UnitedHealth had prepared for in 2025 based on last year’s trends. As recently as January, Chief Financial Officer John Rex told investors the company was confident that its pricing for 2025 was adequate to cover medical costs.
But UnitedHealth saw care activity in the first quarter rising twice as fast as the company saw in 2024 in Medicare, executives said on a call with analysts.
The company said there were a higher number of wellness visits to primary care doctors. Those aren’t expensive on their own, executives said, but they drove a higher level of follow-up care from specialists than the company had anticipated.
UnitedHealth’s strategy to chase growth in Medicare made it especially exposed to turbulence in the program.
UnitedHealth’s insurance unit leads the industry in private Medicare Advantage plans, which have been an important source of growth and profits for insurers. On top of that, Optum Health operates clinics, surgery centers, and home care used by Medicare patients of UnitedHealthcare and rival insurers.
That setup gave UnitedHealth an edge for years. Because of its dominance in Medicare Advantage, the company benefited more than peers from rising reimbursement rates.
It also saw revenue climb as it both insured Medicare patients and provided their care through Optum. Optum Health had been the fastest growing source of profit in recent years.
However, it’s now made UnitedHealth especially vulnerable to a US Medicare crackdown. The government pulled back on some payments just as medical costs began a post-pandemic rise. A new “risk model” for payments started to phase in last year, escalating pressure.
The company is struggling to adapt. “We’re not executing on the model transition as well as we should,” Witty said.
In its results, Elevance suggested it’s faring better. While its costs in Medicare Advantage were “elevated,” they were still in line with expectations, the company said in its filing.
The Elevance results “should assuage investor concerns” around Medicare Advantage in 2025, RBC Capital Markets Ben Hendrix wrote.
(Updates with details throughout.)
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