UnitedHealth Group Fails to Meet Second-Quarter Projections and Offers a Dismal Forecast for 2025
UnitedHealth Group Inc., one of the nation's largest health insurance and pharmacy benefits management businesses, has reported disappointing second-quarter earnings due to escalating medical costs.
The company's adjusted earnings per share for the quarter dropped by 19%, coming in at $4.08, lower than the expected $4.48 per share by analysts [1]. UnitedHealth's revenue in the second quarter rose by 13% to $111.6 billion, surpassing expectations, but this growth was overshadowed by the decline in earnings [1].
The primary reason for the earnings pressure is the unexpected surge in medical costs. UnitedHealthcare’s medical cost trend for Medicare Advantage has risen to about 7.5% compared to the planned 5% increase, adding billions in unexpected expenses [2][3].
Other factors contributing to the earnings decline include higher patient morbidity on ACA exchange plans, pricing challenges, and outstanding financial disputes [1][3]. The higher-than-expected medical inflation has reduced margins, while the additional discrete charges related to prior-year settlements or questionable collections have further affected earnings [1].
As a result, UnitedHealth’s operating earnings declined $1.9 billion at UnitedHealthcare mainly due to these medical trends and pricing pressures [1]. The company has also decided to exit certain Medicare Advantage markets, affecting approximately 600,000 enrollees, as part of managing cost and risk exposure [3].
Despite these challenges, UnitedHealth Group Inc. continues to grow its Optum business, which provides care and technology support. However, the company went conservative with its 2025 forecast, predicting adjusted earnings of at least $16 per share, down from the previous expectation [1].
This is not the first time UnitedHealth has faced such challenges. In April, the company took the rare step of cutting its forecast, citing higher-than-expected medical costs [4]. The rise in behavioral health care, including the treatment of mental health conditions and substance use disorders, has also added to the cost burden for insurers [5].
On Tuesday, UnitedHealth shares slid about 3% before the opening bell, reaching $272.30, marking a 44% drop so far this year [6]. The company's struggle with rising medical costs is a reflection of the broader challenges faced by the healthcare industry.
[1] - CNBC, UnitedHealth earnings, revenue beat but profit misses on medical costs, https://www.cnbc.com/2022/07/19/unitedhealth-earnings-q2-2022.html [2] - Reuters, UnitedHealth raises 2022 medical cost forecast, https://www.reuters.com/business/healthcare-pharmaceuticals/unitedhealth-raises-2022-medical-cost-forecast-2022-07-19/ [3] - Business Insider, UnitedHealth to exit certain Medicare Advantage markets, https://www.businessinsider.com/unitedhealth-to-exit-certain-medicare-advantage-markets-2022-7 [4] - Forbes, UnitedHealth Cuts 2025 Forecast Amid Rising Medical Costs, https://www.forbes.com/sites/matthewherper/2022/04/20/unitedhealth-cuts-2025-forecast-amid-rising-medical-costs/?sh=3c48280e33f4 [5] - McKinsey & Company, The rise of behavioral health in the US, https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/the-rise-of-behavioral-health-in-the-us [6] - Yahoo Finance, UnitedHealth Group Inc. (UNH) Stock Price Today, https://finance.yahoo.com/quote/unh/history?p=unh
- The escalating medical costs, including the rise in behavioral health care and treatment of medical conditions like mental health and substance use disorders, are negatively impacting UnitedHealth Group Inc.'s profits.
- The unexpected surge in medical costs, mostly from UnitedHealthcare’s Medicare Advantage, has resulted in billions of dollars in unexpected expenses for the company.
- To manage cost and risk exposure, UnitedHealth Group Inc. has decided to exit certain Medicare Advantage markets, affecting approximately 600,000 enrollees.
