Mirror Review
April 18th, 2025
- Big Stock Drop: UnitedHealth stock falls (by 20%) due to high Medicare costs.
- The company is spending much more than expected on medical care for people in its Medicare Advantage plans.
- Because UnitedHealth is a huge insurer, this makes people worry that other insurance companies might face similar problems.
What’s Happening with UnitedHealth’s Stock?
The big news this week centers around UnitedHealth’s stock, which took a significant hit, dropping 20% on Thursday. This happened right after the company announced it was cutting its annual profit forecast. The main reason? Medical costs for its members enrolled in private Medicare Advantage plans are coming in much higher than anyone expected.
Specifically, the company noted that towards the end of the first quarter, the use of care services, particularly doctor and outpatient services, increased at “twice” the level they had planned for, a rate CEO Andrew Witty called “very, very unusual”. This follows a tough 2024 for health insurers grappling with lower government payments and rising medical expenses.
This isn’t just affecting UnitedHealth; as the industry’s bellwether, their news sent ripples across the sector. Competitor stocks also dipped: Humana fell 5%, Elevance Health dropped over 1%, and CVS tumbled 2%. Cigna, which doesn’t have a Medicare Advantage business, saw a slight increase.
Analysts are now watching closely. TD Cowen analyst Ryan Langston noted UnitedHealth’s first-quarter results reveal “ominous signs” of accelerating medical costs and suggested Thursday’s comments “will call into question” the full-year outlooks for every insurer.
5 Key Takeaways as UnitedHealth Stock Drop
Alright, now that we’ve covered the headlines, let’s understand some important points beyond the basic news:
- Medicare Advantage Costs are Soaring Unexpectedly
We knew costs were rising as seniors caught up on procedures delayed by the pandemic. But UnitedHealth, the biggest player in Medicare Advantage, saw costs jump twice as fast as anticipated recently, especially for outpatient and doctor visits. This suggests the trend of higher utilization isn’t slowing down; it might even be accelerating.
- The Ripple Effect is Real
When a giant like UnitedHealth stock falls, others often feel it. The stock drops in Humana, Elevance, and CVS show that investors are worried these higher costs might be an industry-wide problem, not just isolated to UnitedHealth. Companies that recently gained Medicare Advantage market share might be more exposed.
- External Pressures are Mounting
It’s not just about procedure costs. Bernstein analyst Lance Wilkes suggested UnitedHealth might be “pulling back” on cost-control measures (like prior authorizations) due to “policy headwinds and the scrutiny on the company”. He added, “I do think the horrible thing that happened to Brian Thompson and the company is a part of this, and I think it’s reflective of also the Department of Justice scrutiny on United over the last couple years.” The company is reportedly facing a government investigation of its Medicare billing practices.
- Even Optum Isn’t Immune
UnitedHealth also pointed to issues related to changes in the profile of patients treated under its Optum health-care unit. Optum includes the powerful pharmacy benefit manager, showing that issues are cropping up across different parts of their business
- There’s a Glimmer of Hope (for 2026)
Despite the current gloom, CEO Andrew Witty believes these issues are “highly addressable” looking ahead to 2026. Plus, insurers might get a boost from potentially higher Medicare Advantage payment rates proposed by the Trump administration for next year. It suggests the industry is bracing for change but sees potential relief on the horizon.
Conclusion
So, what’s the bottom line? UnitedHealth’s unexpected profit warning and the sharp rise in Medicare Advantage costs have clearly shaken investor confidence and raised flags across the health insurance industry. While the company points to these issues as “highly addressable” and potential policy changes might offer future relief, the immediate picture is one of increased pressure from rising care utilization, external scrutiny, and operational challenges.
For now, UnitedHealth and its competitors appear to be navigating choppy waters, and how they manage these cost trends and external pressures in the coming year will be critical not just for their bottom lines, but for the millions who rely on their plans.
