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UnitedHealth Group's profits took a big year-over-year leap, according to
its newly released first-quarter earnings, but it cut its earnings
guidance due to unexpectedly higher care costs in its Medicare Advantage business.

The insurer pulled in $6.29 billion in profit during Q1, a dramatic
turnaround from the $1.41 billion loss it reported in Q1 2024.

However, UHG said "heightened care activity indications" in its Medicare Advantage business cropped up, particularly in physician and outpatient services, leading the company to cut its outlook to net earnings of $24.65
to $25.15 per share for the year, and adjusted earnings of $26 to $26.50
per share (down from $28.15 to $28.65 and $29.50 to $30, respectively).

"UnitedHealth Group started 2025 in two seemingly disparate ways," said UnitedHealth Group CEO Andrew Witty during Thursday's earnings call. "One, continued strong growth across our businesses. Our people are providing
more health benefits and services to more members and patients as the
market responds to our distinct offerings. The other way, however, was an overall performance that was frankly unusual and unacceptable."

The disappointing performance sent UnitedHealth stocks tumbling 23.1% on Thursday, briefly touching a low of $448, its weakest level since February
21, according to Seeking Alpha.

UHG also attributed the mixed performance to unexpected changes in Optum
Health members' profiles, which will affect reimbursement this year "due
to unexpectedly minimal 2024 beneficiary engagement by plans exiting
markets."

Medicare funding reductions under the Biden administration also played a
role, executives said.

WHAT'S THE IMPACT

UnitedHealth Group's Q1 2025 revenues grew $9.8 billion year-over-year to $109.6 billion, driven primarily by serving people "more comprehensively,"
the company said. First-quarter earnings from operations were $9.1
billion.

The first-quarter medical care ratio was 84.8%, compared to 84.3% in 2024, which was attributed to the revenue effects of both the ongoing Medicare funding reductions and member mix, and higher senior care activity,
partially offset by the Medicare Part D program changes, which affected seasonality.

The Q1 2025 operating cost ratio was 12.4%, versus 14.1% in 2024,
reflecting revenue impacts from the Part D program and increased
technological efficiencies across UnitedHealthcare and Optum.

Cash flows from operations for the first quarter were $5.5 billion. During
the first quarter of 2025, the company returned nearly $5 billion to shareholders through dividends and share repurchases. Return on equity was 26.8% in the first quarter.

Optum first-quarter revenues were $63.9 billion, a $2.8 billion increase
that UHG attributed to Optum Rx. Operating earnings were $3.9 billion.
Optum Health revenues were $25.3 billion, driven by membership growth and profile changes.

Optum Insight revenues were $4.6 billion, and the revenue backlog was
$32.9 billion. Optum Rx revenues were $35.1 billion, and adjusted scripts
grew to 408 million from 395 million last year.

Witty said that "unanticipated changes" in Optum Medicare membership
affected revenue for the year.

"We added more new Medicare patients to Optum Health, a portion of whom
were covered by plans that were exiting markets," he said. "They
experienced a surprising lack of engagement last year, which led to 2025 reimbursement levels well below what we would expect and likely not be reflective of their actual health status.

"Additionally, many of the current and new complex patients we serve are
more affected by the CMS risk model changes that we are in the process of implementing. To be sure, it is complicated, but we're not executing on
the model transition as well as we should. We must and will work to better anticipate and address these factors."

THE LARGER TREND

This was the first earnings call following the fatal shooting of
UnitedHealth CEO Brian Thompson on Dec. 4, 2024, as he was about to enter
a Midtown Manhattan hotel for an Investors Conference. Luigi Mangione has
been indicted on a first-degree murder charge, among other charges.

In the New York Times soon after the incident, UnitedHealth Group CEO
Andrew Witty addressed the resulting backlash against the insurer, saying UnitedHealth is willing to partner with healthcare providers, employers, patients, pharmaceutical companies, governments and others to find ways to deliver high-quality care and lower costs.

"We know the health system does not work as well as it should, and we understand people's frustrations with it," wrote Witty. "No one would
design a system like the one we have. And no one did. It's a patchwork
built over decades. Our mission is to help make it work better."

https://www.healthcarefinancenews.com/news/unitedhealths-stock-drops-23- after-unusual-and-unacceptable-performance

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