UnitedHealth Group Slashes Profit Outlook Amid Soaring Medicare Advantage Costs

UnitedHealth Group, the largest health insurer in the United States, has significantly reduced its earnings guidance for 2025 following higher-than-anticipated care costs in its Medicare Advantage businesses. The unexpected surge in healthcare utilization, particularly in physician and outpatient services, has prompted a substantial revision of the company's financial projections and sent shockwaves through the healthcare industry.

Q1 2025 Financial Performance

Despite reporting a strong first-quarter profit of $6.29 billion, or $6.85 per share, UnitedHealth Group's performance fell short of Wall Street expectations. The company's revenue for Q1 2025 reached $109.6 billion, marking a 9.8% increase from the previous year. However, both earnings and revenue missed analysts' forecasts, with adjusted earnings per share of $7.20 falling below the anticipated $7.29.

Revised Earnings Guidance

In response to the heightened care activity, UnitedHealth Group has dramatically lowered its full-year 2025 outlook. The company now projects net earnings of $24.65 to $25.15 per share and adjusted earnings of $26 to $26.50 per share. This represents a significant reduction from the previous guidance of net earnings of $28.15 to $28.65 per share and adjusted net earnings of $29.50 to $30 per share.

Factors Driving Cost Increases

UnitedHealth Group attributed the unexpected rise in costs to several factors:

1. Heightened care activity in Medicare Advantage businesses, particularly in physician and outpatient services.
2. Unanticipated changes in the profile of Optum Health members, impacting planned 2025 reimbursement due to minimal beneficiary engagement by plans exiting markets in 2024.
3. Greater-than-expected impact on current and new complex patients from ongoing Medicare funding reductions enacted by the previous administration.

Andrew Witty, CEO of UnitedHealth Group, acknowledged the company's underperformance, stating, "UnitedHealth Group grew to serve more people more comprehensively but did not perform up to our expectations, and 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%."

Market Reaction and Future Outlook

The news of UnitedHealth Group's revised outlook had an immediate and significant impact on the company's stock price, with shares plummeting 19% in pre-market trading on Thursday. Despite the setback, company executives expressed confidence that these factors are "highly addressable" over the course of 2025 and looking ahead to 2026.

As the healthcare industry closely monitors these developments, UnitedHealth Group's ability to navigate the challenges in its Medicare Advantage business will likely have far-reaching implications for the broader health insurance market and healthcare sector.