UnitedHealth Group shares plummeted by 10% on Tuesday after the company revealed that its projected earnings for 2025 would likely fall below Wall Street expectations, the Wall Street Journal reports.
The health insurance giant said it expects earnings per share to top out around $30, significantly lower than analysts’ forecast of $31.17, according to FactSet. The announcement triggered a broader decline in the sector, affecting other healthcare companies like CVS Health and Humana, which have also been grappling with Medicare-related issues.
The disappointing projection, which comes amid ongoing concerns about the health insurance industry’s Medicare business, highlighted the challenges UnitedHealth faces, particularly from federal payment changes and rising medical expenses. CEO Andrew Witty emphasized that the company is taking a conservative approach but remains committed to long-term growth in the Medicare space.
“We’re not going to sacrifice the long-term potential of what the company has built,” Witty said.
UnitedHealth pointed to several factors affecting its earnings outlook for 2025, including higher-than-expected usage of costly specialty drugs for conditions such as cardiovascular disease and cancer among Medicare members. New federal policies that reduce out-of-pocket costs for Medicare beneficiaries have exacerbated the issue. Additionally, changes to Medicare drug benefits and what UnitedHealth describes as rate cuts in federal payments are expected to squeeze the company’s financial results.
The company also raised concerns about its Medicaid business, citing a funding gap due to a mismatch between payments and the healthcare costs of enrollees. Many Medicaid members have recently lost coverage due to eligibility verification requirements, adding to the uncertainty surrounding the business.
Despite the challenges, UnitedHealth reported strong third-quarter results for 2024. Profit increased to $6.06 billion, or $6.51 per share, up from $5.84 billion, or $6.24 per share, a year earlier. Adjusted earnings, which exclude one-time items, reached $7.15 per share, surpassing analyst estimates of $7. Revenue rose 9.2% to $100.82 billion, also beating expectations.
Looking ahead, the company is absorbing the impact of a cyberattack on its Change Healthcare unit, which handles medical claims processing. The February hack is now expected to reduce this year’s earnings by 75 cents per share, up from an earlier estimate of 65 cents. UnitedHealth revised its 2024 earnings guidance to between $27.50 and $27.75 per share, trimming 25 cents from the upper end of its previous forecast.
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