UnitedHealth CEO Addresses Earnings Miss Amid Rising Medicare Advantage Costs
UnitedHealth Group's new CEO, Steve Hemsley, addressed investors following the company's first earnings miss in nearly 20 years, attributing the shortfall primarily to rising medical costs within the Medicare Advantage segment. The company suspended its full-year guidance as the medical care ratio increased to 84.8% in Q1 2025 from 84.3% the previous year, with expectations it will climb to 87.8% for the full year.
Medical expenses surged 11.7% in Q1 alone, following a 9.2% rise in 2024, and are forecasted to grow more than 16% throughout 2025. Concurrently, the Department of Justice is investigating UnitedHealth's Optum unit for billing practices tied to Medicare Advantage services, prompting Hemsley to initiate a comprehensive review of company operations including risk adjustment and pharmacy benefit manager (PBM) policies. This review aims to incorporate external expertise and implement meaningful reforms, alongside plans for increased transparency and stricter cost controls to regain market confidence.
Despite these challenges, UnitedHealth saw a 6.3% growth in Medicare Advantage membership in Q1, with projections of 9.2% growth for the full year. Competitors Humana and Elevance Health are similarly experiencing rising benefit expenses; Humana's benefits costs increased 13.9% YoY in 2024 and 5.6% in Q1 2025, while Elevance's benefits expenses rose 2.6% in 2024 with a significant 15.6% increase in the first quarter. However, Humana's Medicare Advantage membership declined by 6% in Q1 with forecasts of continued decreases, contrasting Elevance’s membership growth of 11.8% in Q1 and anticipated 8.8% rise for the year.
From a market perspective, UnitedHealth shares have declined nearly 40% year-to-date, underperforming the industry’s 29.1% decline. The company’s forward price-to-earnings ratio stands at 12.42, above the industry average but below its five-year median of 19.20. Zacks Investment Research assigns UnitedHealth a Value Score of B and a strong sell rating, anticipating a 17.3% earnings drop in 2025 compared to the previous year.
This performance reflects broader cost pressures and competitive dynamics across the Medicare Advantage insurance market, underscoring the challenge of managing escalating care costs amid regulatory scrutiny. UnitedHealth's efforts to recalibrate pricing assumptions and operational strategies will be critical for restoring profitability and shareholder confidence in a rising claims cost environment. Industry peers are also adjusting to similar financial pressures, indicating sector-wide implications for benefit expense management and membership trends. Regulatory investigations and compliance remain key factors influencing risk management and long-term growth prospects in the Medicare Advantage segment.