UnitedHealth shares crash after surprise earnings miss, cuts to forecast

By Sriparna Roy and Bhanvi Satija

(Reuters) -UnitedHealth Group surprised investors with what its CEO said was an “unusual and unacceptable” quarterly earnings miss, and it lowered its outlook for the full year due to higher-than-expected medical costs, sparking a more than 20% selloff in shares that reverberated across the sector.

The company’s first earnings miss since 2008 and accompanying bleak forecast sent investors to the exits, as they were hoping the U.S. insurer would maintain its profit outlook on expectations that demand for medical services would be similar to 2024. UnitedHealth has historically provided a conservative forecast, at least two investors said.

“Nobody was expecting this level of a miss or cut to guidance,” said Kevin Gade, chief operating officer of Bahl & Gaynor, which owns UnitedHealth’s stock.

UnitedHealth reported adjusted earnings of $7.20 per share, also below expectations of $7.29 per share. Shares were down 23% by midday on heavy trading.

UnitedHealth said the need for medical care rose beyond what the health insurer had expected, led by physician and outpatient services. It also cited “unanticipated changes” in its Optum business that impacted planned 2025 reimbursements.

The U.S. health insurance industry has been grappling with increased costs since mid-2023 due to a surge in demand for healthcare services under government-backed Medicare plans for older adults or individuals with disabilities. While other insurers slumped on UnitedHealth’s news, they recovered some losses after rival Elevance Health said it was sticking with its current quarterly outlook, even as UnitedHealth shares continued to sink.

Its Optum Health unit, which includes the prescription drug plans it runs for Medicare, also faced pressure from patients who required more care and the continued effects of funding cuts for Medicare plans implemented under the Biden Administration.

The company added more patients in its Optum business, a portion of whom joined from other plans that exited markets, and it underestimated the revenue or the premium that they would be seeing on these new members, said Leerink Partners analyst Whit Mayo.

These patients experienced a surprising lack of engagement last year, leading to 2025 payments from the government that are well below what the company would expect, said CEO Andrew Witty on a post-earnings conference call.

The reimbursement rates were “not reflective of their actual health status,” said Witty.

Patients seeking follow-up visits with specialists also generated higher costs for the insurance business, said Tim Noel, CEO of UnitedHealthcare, the company’s insurance unit.