Marissa Plescia , 2025-04-20 13:13:00
UnitedHealth Group took quite the tumble on Thursday and Medicare Advantage troubles seem to largely be at fault.
Its shares fell by over 22% after its first quarter earnings on Thursday. This is the Minnetonka, Minnesota-based company’s largest single-day drop since 1998. The healthcare giant also revised its adjusted earnings per share outlook for 2025 to between $26 and $26.50, compared to its previous forecast between $29.50 and $30.
So what’s at blame here? In the company’s earnings call on Thursday, CEO Andrew Witty called its first quarter performance “unusual and unacceptable,” and said there are mainly two factors at play in its Medicare businesses: care activity and member profiles.
In UnitedHealthcare’s Medicare Advantage business, the insurer anticipated 2025 care activity to increase at a rate similar to the utilization trend it saw in 2024. However, it increased at twice the rate, most notably in physician and outpatient services, according to the earnings call.
In addition, UnitedHealth Group has experienced “unanticipated changes” in its Optum Medicare membership that are affecting 2025 revenue, Witty said. Optum Health took on more new Medicare patients, some from plans that exited the market. These patients had very little engagement in 2024, so their 2025 reimbursement rates are lower than expected and are “not reflective of their actual health status,” he said.
The company is also struggling to adjust to the new risk adjustment model, which has been phased in over the last few years and is a way for CMS to pay MA plans more accurately based on how healthy or sick members are, using updated diagnosis and cost data.
“Many of the current and new complex patients we serve are more affected by the CMS risk model changes that we are in the process of implementing,” Witty said. “To be sure, it is complicated, but we’re not executing on the model transition as well as we should. We must and will work to better anticipate and address these factors.”
These challenges were echoed in a Leerink Partners analyst note, which said that “elevated utilization and we believe complexity with V28 negatively impacting Optum membership complexion/rate appear to be the primary factors at play.” V28 refers to the new risk adjustment model.
These results were unexpected for at least one industry follower. The rise in medical costs due to higher care utilization is surprising since insurers have had several years after Covid-19 to account for these trends, according to Tyler Giesting, director of healthcare M&A at consulting firm West Monroe.
“What’s even more notable is the difficulty they seem to be facing in adapting to the new CMS risk adjustment model, which was fully implemented this year,” he said. “Insurers have had ample time to prepare for these changes, so the challenges — potentially compounded by new members from market exits — stand out.”
What’s ahead for UnitedHealth Group following these results? The company will likely fix these issues, and has the balance sheet to survive these challenges, according to Ari Gottlieb, principal of consulting group A2 Strategy Corp. The insurer will likely look to cut costs through strategies like leveraging AI to reduce administrative costs, asking providers for some rate concessions and pausing longer term investments.
MA insurers also recently got a 5.06% payment increase for 2026, which will eventually provide some relief for UnitedHealth Group, noted Dr. Adam Brown, an emergency physician and founder of healthcare advisory firm ABIG Health, as well as a professor of practice at the University of North Carolina.
However, he’s concerned that in the short term, the healthcare giant is going to address the increased utilization trend by trying to create barriers to care to reduce utilization. This could be done by increasing prior authorizations, limiting provider networks and reducing reimbursement rates for providers.
This would be especially concerning given that Medicare Advantage is funded by taxpayers, Brown noted.
“Medicare Advantage is a 100% funded by taxpayer program, by moving money out of Medicare into Medicare Advantage,” he said. “The profits that they are making are taxpayer dollars. I think that is often missed in this conversation. So when we say the government boosted payments by 5.06%, they are transferring taxpayer dollars to private companies: UnitedHealthcare, Humana, Aetna, etc. We as taxpayers and as a country should demand high levels of service for our most vulnerable people, and those are our seniors, because those are taxpayer dollars.”
Photo: champc, Getty Images
