UnitedHealthcare dropping some Medicare Advantage plans, impacting 600,000

Trying to reset its declining finances, UnitedHealth Group’s massive health insurance business will drop some Medicare Advantage health plans next year, impacting more than 600,000 people.

The Eden Prairie-based health care giant could also exit portions of the “Obamacare” market where individuals use Affordable Care Act (ACA) tax credits to buy coverage.

As health care costs continue to rise, UnitedHealth disclosed to investors Tuesday morning that the company is putting a sharp focus on rising medical expenses following unprecedented financial woes this spring.

The company’s UnitedHealthcare business is the nation’s largest provider of Medicare Advantage health plans, which are a privatized version of the original government health insurance program.

The Medicare Advantage exits primarily will come in health plans where seniors have a broader choice of care providers. A spokesman said it was too soon to predict any impact in Minnesota, where about 94,000 have the company’s Medicare Advantage coverage.

Patients’ medical care in Medicare Advantage has far exceeded projections, including more testing, services by medical specialists, and care in emergency rooms, said Tim Noel, the chief executive at UnitedHealthcare, during a call with investors.

“Considering the continued cost trend and funding pressures, and the need to support margin recovery, we have made significant adjustments to benefits,” he said of the Medicare business.

UnitedHealthcare is prepared to keep competing in the majority of the 30 markets where it currently sells on ACA health exchanges, Noel said. But “we may need to make the difficult decision to exit select markets if we are unable to achieve the rates necessary” given higher use of health care.

He said the company underpriced coverage for 2025 in both Medicare Advantage and the ACA individual market, with premiums not sufficiently covering the cost of medical services used by patients.

Overall, investors were unimpressed by UnitedHealth’s big financial reset after unprecedented financial woes this spring.

As the markets opened Tuesday morning, UnitedHealth shares were down about 5% on a company forecast of adjusted earnings per share of at least $16 this year.

The number fell short of projections from analysts forecasting a 2025 profit of $20.90 per share.

And it was far shy of the financial guidance that UnitedHealth suspended in May due in part to surprisingly high medical cost trends. The cancelled projection had told investors to expect adjusted per-share earnings of $26 to $26.50.

“We take this as more evidence that it may take a few years for United to regain predictable growth, and the stock may struggle today,” John Boylan, an analyst with Edward Jones, wrote in a note to investors.

The financial issues have stemmed from results in the UnitedHealthcare division and spillover problems in Optum Health, which runs outpatient medical clinics across the country.

In the insurance business, the percentage of premium revenue spent on beneficiaries’ health care — a widely watched measure of insurer profitability — landed at 89.4% in the second quarter, higher than analysts had expected.

This “medical loss ratio” was 84.8% in the first quarter.

“The increase was primarily due to medical cost trends which significantly exceeded pricing trends, including both unit costs and the intensity of services delivered, and the ongoing effects of Medicare funding reductions,” the company said Tuesday morning in a statement.

The funding reductions refer to a push by the federal government to reign in “risk adjustment” payments to insurers in the Medicare Advantage program, where seniors opt to receive their government-backed health insurance via private health insurance companies.

UnitedHealth has been dogged by allegations that it has manipulated billing codes to wrongly boost risk-based payments. The company disclosed this month that it’s facing a federal investigation over its Medicare business that’s apparently connected to risk adjustment practices.

UnitedHealth and the health insurance industry have faced public outrage over insurance claims denials and payment delays following the December killing of UnitedHealthcare CEO Brian Thompson, who was fatally ambushed on a public sidewalk while walking to an investor conference in New York City.

In April, the company failed to beat analyst expectations for quarterly profit for the first time since 2008. And in May, with continued signs of financial stress, chief executive Andrew Witty stepped down, clearing the way for former CEO Stephen Hemsley to return as chief executive.

The financial forecast issued Tuesday amounts to a diagnosis from Hemsley of what’s troubling a company that for many years had been a reliable source of profits for investors. It put the spotlight on medical cost trends, saying they’re driven both by an increase in the amount of care patients are using and the price of many services.

In Medicare Advantage, for example, the company had set prices for its health plans in 2025 based on projections of a 5% increase in medical cost trends. But those trends are running higher, at about 7.5%.

“The pricing and benefit designs for 2026 anticipate these trends to continue to accelerate meaningfully to nearly 10%,” the company said in a news release.

About 8.5 million people have Medicare Advantage coverage from UnitedHealthcare.

In Optum Health, the company has significantly expanded “value-based care” arrangements where health care providers are at some financial risk for the costs of health care services used by patients. UnitedHealth Group has touted these contractual relationships as bringing much-needed reform to the nation’s health care system, by providing incentives for health care providers to provide better care at a lower price.

But the company said Tuesday it’s reducing its planned 2025 expansion of patients in value-based care arrangements from 650,000 to 300,000 in order to “better focus on the geographies, practices and clinicians with the most developed capabilities and to strengthen operational execution across the platform.”

In the second quarter, UnitedHealth Group reported a profit of $3.4 billion on revenue of $111.6 billion during the three-month period. On a per-share basis, the adjusted earnings worked out to $4.08 — compared with $4.45 forecast by analysts.

Edward Jones’ Boylan wrote that growth should eventually return, particularly as care delivery costs begin to normalize and expected increases in Medicare Advantage plan payments from the federal government. But he added: “It might take United a little bit longer than many of its peers to see growth rebound due to the size and scope of its operations.”

This is a developing story. Check back for updates.

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