The No Good, Very Bad Year for UnitedHealth

It goes without saying that this past year has been anything but easy for UnitedHealth Group.

As one of the biggest healthcare companies in the U.S., it has long been a reliable stock to invest in. But in the last few months, its stock has dropped nearly 50%, it has switched CEOs and seems to be on the back foot — a surprising development for one of the biggest names in healthcare. How did all this unfold and more importantly, can it dig out of it?

First, let’s begin with the cause for the stock to decline.

The first major drop came in April after UnitedHealth Group reported disappointing first quarter earnings. The healthcare giant also revised its adjusted earnings per share outlook for 2025 to between $26 and $26.50, compared to its previous forecast between $29.50 and $30. An analyst note from Leerink Partners called it an “uncharacteristic miss” for UnitedHealth Group.

Then, UnitedHealth Group announced last month that CEO Andrew Witty was stepping down due to “personal reasons” and would be replaced immediately by Stephen J. Hemsley, who served as the company’s CEO from 2006 to 2017. The company also suspended its 2025 outlook “as care activity continued to accelerate while also broadening to more types of benefit offerings than seen in the first quarter, and the medical costs of many Medicare Advantage beneficiaries new to UnitedHealthcare remained higher than expected.” This caused the stock to plummet again.

To make matters worse, the Wall Street Journal reported this month that UnitedHealth Group is under criminal investigation by the Justice Department for possible Medicare fraud. The investigation is related to UnitedHealth’s Medicare Advantage business, though the exact nature of the allegations is unclear. The company said in a statement that it has not been notified by the Justice Department about this investigation and called the Journal’s reporting “deeply irresponsible.”

Another publication also took aim at the insurance giant and largest employer of physicians in the country.

The Guardian reported in late May that UnitedHealth was secretly paying thousands of dollars in bonuses to nursing homes so that they didn’t transfer patients to hospitals which would lead to more expensive care. These patients were all part of UnitedHealth’s Medicare Advantage plans whose members are long term nursing home residents, and for whose care UnitedHealth receives taxpayer dollars.

In addition, UnitedHealth Group was sued by its shareholders this month, who accused the company of misleading them after the December killing of UnitedHealthcare CEO Brian Thompson. The lawsuit alleged that UnitedHealth Group understated the impact of Thompson’s murder on the company. A spokesperson for the company said UnitedHealth Group “denies any allegations of wrongdoing and intends to defend the matter vigorously.”

So why is the company beset by so many issues?

During a May 13 conference call following the announcement of Witty’s departure as CEO, CFO John Rex said its challenges can be put into three categories:

“One, greater-than-expected impact in UnitedHealthcare from the health status of new members,” he said. “Two, further acceleration of utilization within Medicare Advantage. Third, indications of a broadening of this higher trend to other areas and we are prudently anticipating these trends may go even further.”

On the same conference call, Hemsley said he is “deeply disappointed in and apologize for the performance setbacks we have encountered from both external and internal challenges. Many of the issues standing in the way of achieving our goals, as well as our opportunities, are largely within our control.”

What’s notable about UnitedHealth Group’s challenges is that other public insurers, such as Elevance, Aetna or Centene, are not suffering the same fate, according to one industry expert.

“Historically, they’ve been viewed as sort of the best managed health plan out there,” said Ari Gottlieb, principal of consulting group A2 Strategy Corp, in an interview. “And so you would have expected that if United is stumbling, everyone else is as well, but this seems to be an issue that’s mostly confined to United right now. We certainly haven’t seen any other health insurers come out and say, ‘We’re seeing the same thing.’ … Everybody else sort of said, ‘Things are sort of trending as we expected.’”

He added that part of UnitedHealth’s challenges can be explained by them being too aggressive in Medicare Advantage this year. The health benefits the company offered were “greater than the market and what reimbursement supported,” he said. In other words, the plan design was too generous, which prompted increased utilization while the associated benefit costs were not adequately covered by reimbursement rates.

Another expert argued that the healthcare industry has evolved, and things that went unnoticed in the past are now catching up, such as claims denials.

“[Witty’s] strategy really was one out of the old playbook, which is the way you become successful is you increase the medical loss ratio, by which I mean you lower the value, meaning that you invest less in actual care delivery. He does that by a lot of prior authorization, a tremendous amount of claims denial,” said Dr. Robert Pearl, former CEO of the Permanente Medical Group, who is currently a professor at Stanford University School of Medicine and Stanford Graduate School of Business, as well as a healthcare author and podcaster.

“The playbook that worked in a different time period, in a different Congress, different economic mindset, that’s all changed,” he continued. “The people who are going to be successful are going to be the ones not only who can respond, but who can anticipate and move forward. And UnitedHealthcare didn’t do that.”

While UnitedHealth Group is pointing to higher-than-expected utilization in Medicare Advantage as one of the key drivers of their struggles, there’s a broader issue at play, argued Dr. Adam Brown, an emergency physician and founder of healthcare advisory firm ABIG Health, as well as a professor of practice at the University of North Carolina.

The healthcare giant has its tentacles in insurance with UnitedHealthcare, provider services under Optum and pharmacy benefits with Optum Rx. And people are starting to question whether this vertical integration has exceeded its limits.

“I don’t think this is just a blip in the stock market,” Brown said. “I do believe it’s a bit of a reckoning where United, over the past several years, has been building an empire on Medicare Advantage and on vertical integration. And remember, Medicare Advantage is taxpayer dollars. … I think regulators, politicians — we see it even in a bipartisan manner — and of course patients are asking similar questions: Have we gone too far in vertical integration, and have we handed over too much of healthcare to one single entity?”

What’s ahead for UnitedHealth Group?

While Brown doesn’t believe this is just a “blip” for UnitedHealth Group, Gottlieb seems to disagree. He thinks the company’s issues will resolve in about a year. He gave the example of CVS Health, which was reportedly exploring a breakup back in October.

“They managed to turn things around, at least on the insurance,” he said. “I think they’re still struggling on their Oak Street clinics and some of the other assets. So these things are solvable. It will take some time.”

Bringing back Hemsley will also likely provide some stability for UnitedHealth, he noted. To fix their financial issues, they’ll likely reduce benefits in their MA plans, starting with supplemental benefits, Gottlieb stated.

He added that the DOJ investigation is probably of minimal concern to the company.

“You don’t normally see the federal government really going after large corporations and taking any significant action. To me, that’s most likely a lot of noise,” he said, noting that there may be some penalties they’ll have to pay, but nothing substantial.

Pearl agreed that UnitedHealth will likely come out of this.

“They are not going to fail. They have big reserves too, so they’re not going to go out of business,” he said. “They’re not going to run out of cash, but they are going to have to get their feet back on the ground and figure out what they’re going to do over the next 10 years.”

Brown argued that the company likely isn’t at risk of failing from a profitability standpoint. However, it could be at risk of some threats from a regulatory perspective due to the scrutiny from the DOJ, FTC, HHS and Congress. In addition, with the stock dropping, the public may be viewing the company differently.

“I think if all of those different verticals are speaking and controlling more, that may give us more of a signal of where things go with this company and other companies like it,” he said.

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UnitedHealth Group has had a difficult year marked by a dramatic stock drop, leadership shake-up and mounting regulatory scrutiny. Experts point to its aggressive Medicare Advantage strategy and a rapidly evolving healthcare landscape as key drivers of its challenges.