By Anna Wilde Mathews and Christopher Weaver

On Feb. 5, top executives of UnitedHealth Group gathered in a conference center on the company's suburban Minneapolis campus. Chief Executive Officer Andrew Witty stood up in the front and offered an encouraging message: Business was good. He was optimistic about the company's prospects in the coming year.

A trio of other executives extolled the recent insurance season, when people start their new coverage, including a large number of Medicare enrollees. They were happy with how smoothly things were going.

Two months later, those same Medicare patients would be at the center of a financial meltdown that has wiped out more than $250 billion in market capitalization at the healthcare giant.

On April 17, Witty announced disappointing profits and cut UnitedHealth's earnings projection for the rest of 2025. Weeks later, the company withdrew its financial guidance altogether, saying costs were accelerating. With that, Witty was out, replaced by UnitedHealth's chairman and former longtime chief, Stephen Hemsley. Today, UnitedHealth's shares are worth about half of their value before the April announcement.

It is a plunge that has left investors asking how UnitedHealth -- a company with earnings and shares that rose steadily for decades -- could have reversed fortunes so rapidly.

Aggressive business practices left the company vulnerable to regulatory change and scrutiny, including three investigations from the Justice Department. Higher costs for Medicare patients slammed a key sector. And Witty, a British executive whose background wasn't in the U.S. insurance industry, didn't delve deeply into operational details, striking an optimistic tone with investors and employees even as problems stacked up, according to interviews with current and former employees, industry officials, analysts and internal documents viewed by The Wall Street Journal.

A company spokesman said Hemsley would share more details about the company's performance and plans during its shareholder meeting on Monday. He said Witty's departure was for personal reasons, and that he "led UnitedHealth Group with compassion and dignity through some of the most challenging times any company has ever faced." He said Witty, who is now a company adviser, wasn't available for comment.

Witty, who was earlier CEO of the drugmaker GlaxoSmithKline (now known as GSK), took over UnitedHealth in 2021. The sprawling company is parent of the largest health insurer in the country, UnitedHealthcare, as well as a health-services arm, Optum, which includes doctor groups, a pharmacy benefit manager and other assets.

From the start, he presided over the Minnesota-based healthcare giant while living across the Atlantic in Buckinghamshire, outside London, according to property records and UnitedHealth's proxy documents. The proxies said the company helped with his taxes because he lived in the U.K.

When he was in the U.S., he generally worked out of a UnitedHealth office in Washington, D.C., where he has an apartment. For meetings such as the February gathering, which happened quarterly, he typically flew in using a corporate Gulfstream jet. The jet also went back and forth to London.

Witty never moved into the window-lined CEO office at the Minnesota headquarters once occupied by Hemsley, which was given to a local executive, operating chief Dirk McMahon. Monthly executive meetings -- which had been in-person under Hemsley and were so intense some executives called them "colonoscopies" -- were often presided over virtually under Witty, according to former executives. He generally left the detailed grilling to McMahon, who retired in April 2024.

The UnitedHealth spokesman said that when Witty was in the U.S., he split time between Minnesota and Washington, and that he had offices in both places and an apartment in Minnesota. In 2024, the company began saying in its financial filings that it had headquarters in both places.

As CEO, Witty brought a different style to a company that had been led for 15 years by accountants who wore suits to work. He sported zippered tracksuit-style tops and a signature collection of brightly colored sneakers. Witty enhanced some educational and child-care benefits and changed some of UnitedHealth's hiring practices to add to the workforce's diversity.

Some of his top hires were former colleagues from GSK who hadn't spent their careers in the U.S. insurance or healthcare-provider industries. Roger Connor, a longtime pharmaceutical executive, was put in charge of Optum Insight, the technology and data unit. Starting in 2022, UnitedHealth's general counsel was Rupert Bondy, a British attorney who had worked at GlaxoSmithKline and BP, but not in the heavily regulated U.S. insurance sector.

Under Witty, UnitedHealth grew in ways that brought outsize profits, but also exposed it to greater downside when costs rose and Medicare payment rules changed.

The company is dominant in Medicare Advantage, the business of privately managed Medicare plans, in which enrollment continued to grow. And Witty scaled up the role of its Optum doctor practices. With UnitedHealthcare getting taxpayer-funded payments to cover Medicare patients, while also using a share of those premiums to pay its Optum doctors to treat them, Medicare was a booming business for UnitedHealth. The company was reaping profits on both the doctor and insurance sides.

UnitedHealth's total margins on Medicare enrollees could be double what traditional Medicare insurers made, former employees said -- partly because federal rules limit how much premium revenue health insurers can retain, constraining the margins for pure insurance companies.

In addition, the government pays Medicare insurers more for sicker patients with certain diagnoses, and UnitedHealth gathered those lucrative diagnoses for Medicare customers at high rates, a Journal investigation showed last year.

At the start of 2025, Witty set a typically optimistic tone, after a difficult year that included both a devastating hack of a technology unit and the killing of the leader of UnitedHealthcare. Witty told analysts in January that the company always found a way to deliver on its commitments, and "we're invigorated by the path ahead."

But the roots of the financial downfall were already growing.

The Medicare agency in 2023 made big changes to the system that had worked so well for UnitedHealth, eliminating or limiting those lucrative payments for many diagnoses. The new phased-in rules first affected payments in 2024.

UnitedHealth had long known the Medicare payment change would be challenging. An internal Optum analysis of around 900,000 patients from the end of 2023, viewed by the Journal, projected that the new billing rules would cut back sharply on diagnoses of chronic health conditions that led to the higher payments.

UnitedHealth also bet on Medicare growth for 2025, including in plans that target high-risk patients, even as competitors were retrenching, after high costs across the industry in 2024 hurt profits and share prices.

On April 17, disclosing the earnings miss, Witty spoke with far less of his trademark ebullience. He called the results "frankly unusual and unacceptable." The company was seeing higher-than-expected costs for its Medicare plan enrollees, among other issues. Because of UnitedHealth's model, profits were squeezed at both its insurance unit and its Optum doctor groups.

"The margin has shrunk, and they can't double dip" in both the insurance and doctor businesses, said John Ransom, an analyst with Raymond James.

Witty also acknowledged that UnitedHealth was struggling with the new Medicare payment system.

In the weeks following the April earnings announcement, Hemsley was in the Minnesota offices nearly every day, meeting with executives, asking questions and delving into the company's issues, according to people familiar with the matter.

Witty told people he was considering his alternatives, including whether he should step down, a person familiar with the matter said. The board met in early May, and Witty's departure was announced May 13.

Hemsley is "working around the clock, asking tough questions, and meeting leaders and colleagues across the enterprise," the UnitedHealth spokesman said.

Write to Anna Wilde Mathews at Anna.Mathews@wsj.com and Christopher Weaver at Christopher.Weaver@wsj.com

(END) Dow Jones Newswires

June 01, 2025 21:00 ET (01:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.