UnitedHealth (UNH) is America's largest private health insurer. That's its biggest problem.

The parent company, UnitedHealth Group, traded down nearly 20% Thursday morning after missing Wall Street estimates on both the top and bottom lines.

The reason for the steep sell-off? Medicare Advantage. 

UnitedHealth's book of business for the privately run government insurance program for seniors is the largest in the country — and the reason a misalignment between utilization and reimbursement hurt the company's first quarter earnings.

It also forced the company to revise down its 2025 earnings per share guidance, from between $29.50-$30 down to a range of $26-$26.50.

"We're taking almost certainly a bigger fraction, if you will, of the pressure because of our market leadership position here," CEO Andrew Witty said on an earnings call Thursday.

An analysis from healthcare research firm KFF estimates that more than half of eligible Medicare enrollees are now on an Advantage plan.

In 2024, UnitedHealthcare boasted 9.4 million enrollees, or 29% of the total eligible population. By comparison, Humana (HUM) came in a distant second with 6 million, or about 18% of the population. CVS (CVS) reported 4.1 million, or 12%.

Pricing volatility

Last year was also a bad one for the Medicare Advantage business, for much the same reason as what was seen in the first quarter results: Seniors were using their coverage at a higher rate than the year before, and the government was cutting costs at the same time. 

Daniel Barasa, portfolio manager at Gabelli Funds, said that UHG's lowered guidance was largely from this misalignment in costs versus reimbursements.

"It seems like the company priced for 2025 Medicare claims trends to stabilize at the elevated levels that we saw in 2024, but the trends seem to be accelerating," Barasa said in a note to clients Thursday.

All large Medicare Advantage players, which also include CVS and Humana, have had to balance the increase in utilization, along with lowered payments, while adjusting to a different type of payment model being phased in by next year. All the moving parts have made it hard for the insurers to predict their costs, resulting in headwinds for the past year.

ASSOCIATED PRESS

That, Witty said, is also an area where the company needs to manage expectations and predict better. It could also be a start-of-year rush for annual checkups and the like. But those visits could end with referrals for specialists, thereby increasing costs, he said.

Prior to stepping down from her role as CEO of CVS, Karen Lynch similarly addressed the issue during last year's first quarter earnings call.

"Outpatient services and supplemental benefits continue to be elevated in the first quarter and exceeded our projections. We also saw new pressures in the inpatient and pharmacy categories, some of which were seasonal or one-time in nature," Lynch had said.

Adding to the problem are the cuts from the Biden administration, which came after years of criticism around the sector being overpaid with taxpayer dollars. Medicare Advantage plans, which are paid a set fee per patient, were found to be overpaid by 22% to 39%, compared to traditional Medicare costs, according to an analysis from the think tank Center for American Progress.

The rates for 2026 have been revised upwards and should bring relief to the entire sector next year. Meanwhile, current rates and utilization could mean another painful year ahead for MA players.

"What we're going through, like the rest of the industry, is a dramatic, really never-seen-before adjustment in pricing for this marketplace. And what we're seeing this year is two or three areas where the pressure that that has created across the market is creating dynamics we haven't seen," Witty said.

But he added that it will be addressable during the remainder of the year.

It remains to be seen how other players fare during this earnings season.

Humana will report first quarter results on April 30, and CVS will report on May 1.

Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. That includes GLP-1s, of course. Follow Anjalee on social media platforms X, LinkedIn, and Bluesky @AnjKhem.

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