Profit Warning Sends Shockwaves Through Healthcare Sector
UnitedHealth Group, the nation’s largest health insurer, delivered a significant blow to investors on Thursday by slashing its 2025 earnings outlook amid unexpected challenges in its Medicare Advantage (MA) business. The announcement sent the company’s shares plummeting 23% and dragged down other major health insurers in a sector-wide selloff.
“UnitedHealth Group started 2025 in two seemingly disparate ways,” CEO Andrew Witty told investors during Thursday’s earnings call. “One, continued strong growth across our businesses. Our people are providing more health benefits and services to more members and patients as the market responds to our distinct offerings. The other way, however, was an overall performance that was, frankly, unusual and unacceptable.”
Dramatic Guidance Cut Shocks Wall Street
The healthcare giant substantially reduced its financial outlook for 2025, cutting its net earnings forecast to $24.65-$25.15 per share from the previous guidance of $28.15-$28.65. Similarly, adjusted earnings expectations were lowered to $26.00-$26.50 per share, down from $29.50-$30.00.
This dramatic revision came despite UnitedHealth reporting first-quarter profits of $6.29 billion ($6.85 per share), a significant improvement from the $1.41 billion loss in the same quarter last year. Revenue increased 9.8% year-over-year to $109.6 billion, yet both figures fell short of Wall Street analysts’ expectations of $7.29 per share on $111.58 billion in revenue.
Medicare Utilization Surge Drives Unexpected Costs
The primary culprit behind UnitedHealth’s earnings warning was a startling increase in Medicare Advantage utilization rates. According to Witty, care activity in the MA business increased at twice the expected rate in the first quarter of 2025.
“Increases in physician and outpatient services were most notable, and inpatient to a lesser extent,” Witty explained. “This increase in care activity was limited to our MA business and was not a factor in our commercial or Medicaid businesses. Care activity trends in those areas were as expected.”
The company’s medical care ratio—a key metric measuring the percentage of premium dollars spent on medical care—rose to 84.8% from 84.3% in the same period last year, reflecting these higher utilization patterns.
CMS Risk Model Changes Complicate Reimbursement
Compounding UnitedHealth’s challenges are ongoing changes to the Centers for Medicare & Medicaid Services (CMS) risk adjustment model. These transitions, which affect how insurers are reimbursed for covering higher-risk patients, have proven particularly problematic for UnitedHealth’s complex patient population.
“To be sure, it is complicated, but we are not executing on the model transition as well as we should,” Witty admitted during the call.
The company also faced unexpected issues with new Medicare patients in its Optum Health business, particularly those who had been covered by plans exiting markets. These patients showed “a surprising lack of engagement last year, which led to 2025 reimbursement levels well below what we would expect and likely not reflective of their actual health status,” according to Witty.
Segment Performance Varies Widely
Despite the Medicare Advantage challenges, some areas of UnitedHealth’s business showed continued strength. The UnitedHealthcare insurance unit reported $84.6 billion in first-quarter revenue, growing $9.3 billion (12%) year-over-year and adding 700,000 new commercial members.
Optum Rx, the company’s pharmacy benefit manager, delivered a robust 14% revenue increase to $35.1 billion, with adjusted scripts growing to 408 million compared to 395 million last year.
However, Optum Health—a key growth driver in recent years—saw revenues decline by 5% to $25.3 billion. While the unit continues to expand its patient base and expects to serve approximately 5.4 million value-based care patients by year-end, it has been disproportionately affected by the Medicare reimbursement challenges.
Strategic Response Plan Unveiled
UnitedHealth outlined several strategic initiatives to address these headwinds:
- Ensuring complex patients most impacted by Medicare funding changes engage in clinical and value-based programs
- Increasing member engagement in homes and post-discharge settings
- Improving health status assessments for new high-risk patients
- Investing in physician clinical workflow improvements to support the CMS risk model transition
- Adjusting 2026 Medicare Advantage plan designs and pricing to reflect current utilization trends
“We are aggressively addressing those challenges to position us well for the years ahead, and return to our long-term earnings growth rate target of 13 to 16%,” Witty emphasized.
Industry-Wide Implications
As the largest provider of Medicare Advantage plans, UnitedHealth’s struggles signal potential challenges for the entire MA sector. The earnings announcement triggered a selloff across health insurance stocks, with Humana’s shares falling 7%, while Elevance Health and CVS Health (owner of Aetna) both declined about 2%.
“Clearly, we’re a leader in all of this marketplace where we’re taking almost certainly a bigger fraction, if you will, of the pressure because of our market leadership position here,” Witty noted.
Industry analysts expressed surprise at the magnitude of the utilization increase. “We, and likely other investors, believe that United properly accounted for higher care costs in its 2025 insurance rates after seeing much higher-than-normal costs in 2024. Clearly this was not the case,” wrote John Boylan, senior healthcare analyst at Edward Jones, in a research note.
Financial Outlook Maintains Revenue Targets
Despite the earnings revision, UnitedHealth maintained its 2025 revenue outlook of $450-$455 billion. Chief Financial Officer John Rex noted that better-than-expected revenues from UnitedHealthcare and Optum Rx would offset the reduced outlook at Optum Health.
The company’s full-year medical care ratio is now expected to be 87.5% (plus or minus 50 basis points), reflecting the higher utilization across senior populations and the changing patient mix at Optum Health.
Looking ahead to 2026, UnitedHealth executives expressed confidence that the MA payment rate increases announced for next year would provide some relief, though the road to recovery may be longer than initially anticipated.
“We believe the company can return to growth rates we have seen in the past, but it will take longer than we expected,” Boylan concluded.
For investors and industry observers, UnitedHealth’s unexpected challenges highlight the complexity of navigating changing healthcare utilization patterns and regulatory frameworks in the Medicare Advantage space—a reminder that even the industry’s largest player is not immune to significant operational setbacks.
