UnitedHealth Slashes Outlook Amid Soaring Medical Costs, Plans Major Medicare Advantage Exits

UnitedHealth Group, the largest U.S. health insurer, has dramatically cut its 2025 earnings forecast and announced plans to exit several Medicare Advantage markets as it grapples with unexpectedly high medical costs. The company's stock tumbled following the news, reflecting broader concerns about rising healthcare expenses across the industry.

Revised Outlook and Financial Performance

UnitedHealth now projects adjusted earnings of $16 per share for 2025, a significant decrease from its previous performance and well below analyst expectations. The company anticipates revenue between $445.5 billion and $448 billion for the year. This revised outlook comes after UnitedHealth withdrew its previous guidance in May, coinciding with the abrupt departure of CEO Andrew Witty.

The insurer's second-quarter results underscored the challenges it faces. While revenue rose 13% year-over-year to $111.6 billion, profit fell 19% to $3.4 billion. UnitedHealthcare, the company's insurance division, saw its quarterly operating profit plummet to $2.1 billion from $4 billion in the same period last year.

Medicare Advantage Exodus and Rising Medical Costs

In a significant move, UnitedHealthcare announced plans to exit Medicare Advantage plans serving over 600,000 members, primarily in less managed products. This decision comes as the company faces unprecedented increases in medical costs, particularly within its Medicare Advantage business.

Tim Noel, CEO of UnitedHealthcare, revealed that the company had severely underestimated medical cost trends when pricing its plans for 2025. While UnitedHealth initially projected Medicare Advantage medical cost trend to be just over 5%, it now expects it to reach around 7.5% this year. Even more alarmingly, the company predicts trend could accelerate to almost 10% in 2026.

The surge in medical spending is attributed to increased healthcare utilization and higher costs per patient encounter. UnitedHealth noted that most medical encounters are intensifying in services and costing more, with particular pressure in physician and outpatient utilization, as well as high-cost inpatient services.

Strategic Shifts and Regulatory Scrutiny

Stephen Hemsley, who returned as CEO following Witty's departure, outlined plans to refocus on business fundamentals and improve transparency with regulators and the public. This comes amid reports of criminal and civil investigations by the Department of Justice into UnitedHealth's practices, including allegations of inflating Medicare Advantage members' illnesses and improperly delaying or denying care.

Hemsley acknowledged pricing and operational mistakes, stating, "We've made pricing and operational mistakes as well as others. They are getting the needed intention. Our critical processes, including risk status, care management, pharmaceutical services and others are being reviewed by independent experts."

The company also plans to reassess its participation in Affordable Care Act markets and may exit select areas if it cannot secure sufficiently high rates. These strategic shifts reflect UnitedHealth's efforts to navigate a challenging landscape of rising costs, regulatory pressure, and changing market dynamics in the U.S. healthcare sector.