UnitedHealth Group Inc. cut its annual forecast and reported its first earnings miss in more than a decade, in a foreboding sign that sent shares across the insurance industry tumbling.
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.
UnitedHealth fell as much as 20% when U.S. markets opened, the most since Sept. 1999. 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 care activity in those plans rising beyond what it had 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 Medicare payment changes that the U.S. government has made to crack down on tactics insurers use to boost their revenue.
“Our concern would be, is this a near-term one-off type of a quarter, or are there more durable impacts,” said Brian Mulberry, a client portfolio manager at Zacks Investment Management, which has about $20 billion under management.
Shares of rival Humana Inc., which focuses on Medicare, fell as much as 10%. Elevance Health Inc., Centene Corp. and CVS Health Corp. all dropped at least 5%.
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.
The weak results were tied to the Optum Health business, which operates clinics, surgery centers, and home care businesses. It had been the company’s fastest-growing source of profit.
Optum Health has almost 5 million members in insurance-like arrangements, where the company is accountable for the total cost of patients’ care. It treats these patients on behalf of UnitedHealthcare and rival insurers.
The company suggested members in its Optum Health business coming from other insurance plans “may not be appropriately risk-coded,” JPMorgan analyst Lisa Gill wrote in a research note. That would reduce revenue from Medicare.
The company slashed its revenue outlook for the Optum Health segment by about $10 billion, and now expects revenue of $106 billion to $107 billion in 2025. Optum Health operating profit will be about $6.3 billion, executives said, far short of the $9.4 billion average analyst estimate in a Bloomberg survey.
UnitedHealth affirmed its total revenue outlook for the year. The shortfall in Optum Health will be offset by higher revenue in the UnitedHealthcare insurance business and its pharmacy business, Optum Rx.
