UnitedHealth Group Q1 2025 Earnings

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UnitedHealth Group was the first of the “Big Six Payors” to report earnings on Thursday before the market opened. The company guided down for both EPS and top-line revenue for 2025, prompting a 22% decline in its stock, the fourth worst trading day in the company’s history and worst since 1998.

CEO Andrew Witty opened the call by outlining two key reasons behind the revised outlook. First, the Medicare Advantage (MA) business is seeing almost double the utilization they had modeled, primarily due to undercoding of new members switching from other MA-PD plans. Second, OptumHealth, which takes on risk for other payers, saw an influx of members with underreported risk coding, leading to inherited financial risk.

Despite the sharp selloff, management believes the core business remains strong and that expectations are now set at levels they can exceed over the next three quarters.

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UHC Segment: Medicare Pressures, but Commercial Resilience -2025 Medical Care Ratio Projected at 87.5%

UnitedHealth is forecasting a Medical Care Ratio (MCR) of 87.5% for 2025, with a range of plus or minus 50 basis points. This projection is largely driven by elevated utilization in the Medicare business, while other segments like Commercial, Medicaid, and ACA are not experiencing similar cost pressures.

Medicare Advantage: The Core of the Downside  

Utilization & Risk Adjustment Model Struggles

Much of the projected downside stems from underestimating utilization trends in their senior population, spanning group MA, individual MA, and capitation agreements in OptumHealth.

In the Q&A, executives clarified that the uptick in PCP visits was largely preventative care, but also saw a rise in specialty visits. Witty acknowledged struggles managing the dual implementation of the new CMS risk adjustment model (V28) and legacy processes. These headwinds are expected to ease in the second half, but any upside is not yet baked into their forecast.

Still, UNH expects to add 800,000 new Medicare Advantage members in 2025, including 520,000 from open enrollment, with strength in Kentucky, New York, and Florida.

Andrew Witty also pointed to structural cost issues in U.S. healthcare, citing that procedures like heart bypass surgery and spinal fusions cost 4x more in the U.S. than in Germany, Australia, or the UK. Total hip replacements are twice as expensive. These systemic cost challenges add to the unit economic pressure facing payers.

Medicaid: Rate Adjustments Coming  -35% of Increases Effective July 1

UnitedHealth noted that 2024’s utilization outpaced the reimbursement rates they received in Medicaid. They expect rate alignment to improve in the back half of 2025, with about 35% of rate increases effective July 1. UNH operates in 32 states and sees Medicaid as a slow-growth business until more policy direction is provided by the next administration.

Commercial: Growth Through Retention  -Self-Funded Membership Up 700,000