UnitedHealthcare’s stock suffered its worst trading day since 1998 after slashing profit forecasts due to unexpectedly high Medicare costs, sending shockwaves through the healthcare insurance sector.
At a Glance
- UnitedHealth Group’s stock plummeted 20% after reducing its 2025 earnings guidance from $29.50-$30 to $26-$26.50 per share
- Higher-than-expected medical costs in Medicare Advantage plans were cited as the primary cause for the disappointing results
- The news triggered declines in competitor stocks including Humana, Elevance Health, and CVS Health
- Despite the setback, 27 out of 29 analysts maintain Buy ratings on UnitedHealth stock
- Wall Street firms including Raymond James, Oppenheimer, and KeyBanc have lowered their price targets on the stock
Troubling Earnings Report Sends Shockwaves Through Industry
UnitedHealth Group, the nation’s largest health insurer, shocked investors with a dramatic 20% stock decline following its first-quarter earnings report. The healthcare giant substantially reduced its 2025 profit forecast, cutting expected adjusted earnings per share to between $26 and $26.50 from the previously projected range of $29.50 to $30. This announcement triggered the company’s worst trading day in over two decades and continued to pressure the stock in subsequent sessions.
As the largest provider of Medicare Advantage plans in the country, UnitedHealth’s difficulties sent ripple effects throughout the healthcare insurance sector. Competitors Humana, Elevance Health, and CVS Health all experienced significant stock declines following the news. Notably, Cigna, which has no Medicare Advantage business, saw its stock increase amid the sector-wide selloff, highlighting the specific nature of the concerns.
Rising Medical Costs Behind Profit Warning
The primary issue driving UnitedHealth’s disappointing performance was higher-than-expected medical costs, particularly in its Medicare Advantage business. The company reported a significant increase in care utilization, especially in doctor visits and outpatient services. This surge in medical costs comes at a challenging time for health insurers, who are already contending with lower government payments and rising expenses across their operations.
“ominous signs” – Ryan Langston.
Industry analysts attribute the rising utilization to seniors returning for medical procedures they had delayed during the COVID-19 pandemic. This trend is particularly concerning because it follows an already elevated level of care activity over the past year. Some experts suggest that insurers may be reducing the intensity of utilization management practices in response to patient dissatisfaction, potentially contributing to the cost increases.
Wall Street Analysts Adjust Expectations
Following the earnings disappointment, numerous Wall Street firms downgraded their outlook for UnitedHealth. Raymond James lowered its price target to $540, while Oppenheimer reduced its target to $600 and KeyBanc set a new target of $575. The continuing decline—with the stock falling an additional 5% the Monday after the initial drop—has raised concerns about potential further volatility.
“getting difficult to find too much solace in this stock. Has blown up on several occasions over the past couple years alone and is hardly the refuge that it should be given size and (diverse) business model.” – Jared Holz.
Despite these immediate challenges, the long-term outlook for UnitedHealth remains largely positive among analysts. A remarkable 27 out of 29 analysts continue to recommend buying the stock, suggesting confidence in the company’s ability to navigate the current difficulties. The healthcare giant is expected to benefit from increased Medicare Advantage reimbursement rates announced by the Trump administration, potentially providing some relief in the coming quarters.
Industry-Wide Implications
UnitedHealth’s struggles may signal broader challenges for companies with significant Medicare Advantage exposure. Analysts are particularly concerned about insurers that have been gaining market share in this segment, such as Elevance Health, as they may face greater cost pressures. Conversely, companies that have pruned unprofitable Medicare Advantage markets, including Humana and CVS, may be somewhat insulated from the full impact.
Adding to the industry’s challenges, UnitedHealth is currently under government investigation regarding its Medicare billing practices. The company is also addressing issues in its Optum unit, including its pharmacy benefit management operations. These regulatory and operational challenges come at a time when the entire healthcare insurance sector is facing increasing scrutiny and public pressure, creating a complex environment for investors to navigate.
