Last Thursday marked a tumultuous day for UnitedHealth Group as its shares plummeted over 22%, the most significant single-day drop since 1998. This drastic decline followed the company’s first-quarter earnings announcement, which revealed troubling insights into its Medicare Advantage business. UnitedHealth Group, based in Minnetonka, Minnesota, revised its adjusted earnings per share forecast for 2025, lowering expectations to a range of $26 to $26.50 from the previous estimate of $29.50 to $30.

During the earnings call, CEO Andrew Witty characterized the first-quarter performance as “unusual and unacceptable.” He pinpointed two primary factors impacting the company’s Medicare operations: care activity and changes in member profiles.

In the Medicare Advantage division, UnitedHealthcare initially projected care activity for 2025 to align with the usage trends observed in 2024—a reasonable expectation given the fluctuations in the healthcare landscape post-COVID-19. However, the actual increase in care utilization outpaced expectations, reportedly doubling the anticipated rate, particularly within physician and outpatient services.

Additionally, the company faced “unanticipated changes” in its Optum Medicare membership, which have further complicated revenue forecasts for 2025. Witty noted that Optum Health had welcomed a surge of new Medicare patients, many transitioning from plans exiting the market. These new members had limited engagement in 2024, leading to lower-than-expected reimbursement rates that did not accurately reflect their health status.

The healthcare giant is also grappling with the adjustment to the new risk adjustment model established by the Centers for Medicare & Medicaid Services (CMS), which aims to provide more accurate payments to Medicare Advantage plans based on the health status of their members. Witty admitted that the company’s execution during this transition has not met the necessary standards and highlighted the complexity of managing a diverse patient population under the evolving model.

An analysis from Leerink Partners reinforced these challenges, attributing elevated utilization rates and complications with the new risk adjustment model—referred to as V28—as key factors influencing the dynamics of Optum’s membership. Notably, Tyler Giesting, a director at West Monroe, expressed surprise at the rising medical costs due to care utilization, stressing that insurers had ample opportunity to prepare for such trends in the aftermath of the pandemic.

Looking ahead, experts suggest that while UnitedHealth Group has the financial stability to navigate these challenges, it will need to implement significant changes to regain ground. Ari Gottlieb from A2 Strategy Corp. indicates that the company may pursue cost-cutting measures, such as leveraging artificial intelligence to enhance administrative efficiency, seeking concessions from providers, and pausing long-term investments.

The recent 5.06% payment increase announced for Medicare Advantage plans in 2026 may offer some respite, as pointed out by Dr. Adam Brown, an emergency physician and healthcare consultant. However, he raises valid concerns that the healthcare giant might respond to increased utilization by imposing barriers to care, potentially leading to increased prior authorizations and more restrictive provider networks.

As taxpayers fund Medicare Advantage, there is a critical emphasis on ensuring high-quality care for the nation’s vulnerable senior population. It remains imperative for stakeholders and taxpayers alike to hold companies accountable and advocate for optimal service delivery within these public programs.