UnitedHealth shares tumbled Friday in their worst performance since 1998, after CEO Andrew Witty called the company’s first-quarter results “unusual and unacceptable.” The healthcare giant saw its stock plunge over 7%, erasing nearly $33 billion in market value.
The dramatic decline came as UnitedHealth reported higher-than-expected medical costs in its Medicare Advantage business. These plans, which serve seniors and have been a key growth driver, experienced a surge in non-urgent procedures and diagnostic services. The company’s medical loss ratio—which measures the percentage of premiums spent on healthcare services—hit 84.3%, exceeding analyst expectations.
Witty didn’t mince words during the earnings call. “We’re obviously not satisfied with this performance,” he said. “We’ve already taken significant steps to address these issues.” The CEO outlined plans to tighten cost controls and improve risk assessment for Medicare patients.
UnitedHealth maintained its full-year profit forecast despite the disappointing quarter. The company still expects adjusted earnings between $27.50 and $28.00 per share for 2024. However, investors seemed unconvinced, as evidenced by the massive selloff.
The problems weren’t limited to Medicare. UnitedHealth also cited higher costs in its commercial insurance business. The company pointed to increased utilization of outpatient services and diagnostic procedures across its membership base.
Industry experts note this could signal broader challenges for healthcare insurers. “UnitedHealth is typically seen as the industry bellwether,” said Michael Newshel, an analyst at Evercore ISI. “When they sneeze, the whole sector catches cold.”
Indeed, the announcement triggered a sector-wide decline. Competitors Humana, Cigna, and CVS Health all saw their stocks drop as investors worried about similar cost pressures affecting the entire industry.
The timing is particularly challenging as health insurers face increasing regulatory scrutiny. The Centers for Medicare and Medicaid Services recently finalized rules that could limit profit opportunities in Medicare Advantage plans. These regulations aim to ensure taxpayer dollars are used efficiently.
UnitedHealth’s Optum division, which includes pharmacy benefits management and healthcare delivery services, remained a bright spot. Revenue for this segment increased 14% to $62.2 billion, helping to partially offset the insurance challenges.
The company’s overall revenue rose 8.6% to $99.8 billion, slightly exceeding Wall Street expectations. However, the profit concerns overshadowed this top-line growth. Adjusted earnings per share came in at $6.91, missing analyst estimates of $6.98.
Market watchers note that UnitedHealth typically offers conservative guidance. “They have a history of under-promising and over-delivering,” said Lisa Gill, healthcare analyst at JPMorgan Chase. “But today’s commentary suggests genuine concern about cost trends.”
Investors are now closely watching whether this represents a temporary blip or the start of a more persistent challenge. The company’s second-quarter results will be crucial in determining if management’s corrective actions are working.
UnitedHealth’s sheer size makes its performance significant beyond just the healthcare sector. As one of the largest companies in the Dow Jones Industrial Average, its stock movement influences the broader market.
Despite Friday’s selloff, some analysts see a potential buying opportunity. “The fundamentals remain strong, and UnitedHealth has successfully navigated challenges before,” noted Scott Fidel, managing director at Stephens Inc. “Their diversified business model provides some insulation against insurance market volatility.”
For consumers, especially seniors on Medicare
