UnitedHealth Stock: Should Investors Bet On A Rebound?

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UnitedHealth was once hailed as the market’s top bet to become the first trillion-dollar healthcare company. The stock has delivered steady gains for decades, rewarding both retail and institutional investors. But recently, the fairy tale has fractured with UNH erasing nearly 50% of its market value within a few weeks. This article delves into:

• How sick is this healthcare giant really?
• Is the trouble in paradise temporary or the beginning of its swan song?
• Should investors buy the sell-off or steer clear?

What Triggered The Steep Sell‑Off In UnitedHealth Stock?

UnitedHealth shares have fallen nearly 40% year-to-date, due to a perfect storm of:

• Weak earnings
• Withdrawn guidance
• Regulatory/legal clouds
• Reputational damage
• Sudden leadership shakeup

This string of setbacks comes on the heels of a turbulent 2024 marked by a massive cyberattack, surging medical costs and intense public backlash following the high-profile murder of UnitedHealthcare CEO Brian Thompson.

In April, UnitedHealth reported its first earnings miss since the 2008 financial meltdown, and cut its full-year earnings guidance, rattling investor confidence. This triggered a 22% single-day stock drop, its steepest since 1998.

Then, on May 13, UnitedHealth CEO Andrew Witty abruptly stepped down for “personal reasons” and former CEO Stephen Hemsley returned to lead the company. With Witty stepping down, UNH also withdrew guidance for 2025, sending shares down 18%.

Within a couple of days, the Wall Street Journal reported that the U.S. Department of Justice is conducting a criminal investigation into UnitedHealth Group for possible Medicare fraud. However, UnitedHealth denied the report and stated that it has not received any notification from the DOJ regarding the reported investigation and reaffirmed “the integrity of its Medicare Advantage program.” Nevertheless, the stock slipped further.

Adding to its woes, a whistleblower-backed investigation published by The Guardian later in May, alleged that UnitedHealth paid nursing homes large bonuses to reduce hospital transfers for ailing residents, a strategy that allegedly prioritized cost savings over patient care. UnitedHealth has denied the claims and filed a defamation lawsuit against The Guardian, but the report has intensified public and media scrutiny.

These compounding challenges have dampened investor sentiment and even sparked questions about UnitedHealth’s continued inclusion in the prestigious Dow Jones Industrial Average.

But, exactly how sick is this healthcare conglomerate?

Understanding UnitedHealth’s Business Model

UnitedHealth Group (UNH) is more than just a traditional insurer. It operates as a vertically integrated healthcare ecosystem, combining insurance with healthcare delivery and services. Its two primary segments complement each other:

UnitedHealthcare – the traditional insurance business, providing coverage across employer-sponsored plans, Medicare Advantage, Medicaid and individual markets. This segment generates revenue from premiums, and its profitability is tied to effective control of medical care ratios (MCR) also known as medical loss ratios (MLRs). The more healthcare patients use, the less money insurance companies typically make.

Optum – The tech-enabled healthcare services division includes:

• OptumHealth: Provides care delivery via clinical services and physician networks
• OptumRx: A Pharmacy benefit manager (PBM)
• OptumInsight: Provides data analytics for healthcare providers and payers

Optum diversifies UnitedHealth’s revenue beyond insurance and supports margin expansion through its more profitable services.

This dual-core structure allows UnitedHealth to capture value across the healthcare value chain – from providing insurance to delivering care to managing drug benefits and data analytics.

Medicare has been a thriving business for UNH with its dominance in Medicare Advantage – a Medicare-approved plan offered by a private company as an alternative to original Medicare for an individual’s health coverage.

It works like this: UnitedHealthcare gets reimbursed to cover Medicare patients, while channeling a share of the premiums to pay UNH’s Optum doctors to treat the patients, thereby profiting from both the doctor and insurance sides. An estimated 10% of doctors in America are employed by or under contract with UNH.

Thanks to this vertically integrated business model, UNH’s margins are typically higher than pure-play insurers that face tighter federal caps on profits.

Medicare insurers receive higher payments for sicker patients with certain diagnosed conditions, and a Wall Street Journal report noted that UnitedHealth consistently identified such conditions among its Medicare beneficiaries, resulting in increased reimbursements.

Premiums still represent the lion’s share of UNH’s revenue—over 75% for the past three years. Optum on the other hand has higher operating margins vs. UnitedHealthcare.

Within Optum, OptumInsight is the high-margin standout, with operating margins of 16.5% in 2024, 22.5% in 2023 and 24.6% in 2022.

Although UNH has historically maintained a strong competitive moat, the chinks in the armor were clearly visible when UNH cut its 2025 earnings guidance in April. The company cited indications for increased care activity in its Medicare Advantage business and lower-than-expected Medicare reimbursements in OptumHealth due to lower patient engagement. This was a double whammy, as UnitedHealthcare earns more when members use less healthcare, while Optum benefits when patients use more. It must be noted that Optum’s Medicare business is multi-payer and not limited to just UnitedHealthcare members.

Still, the company described these headwinds as “highly addressable” and expressed confidence in its ability to course correct. Later, when CEO Andrew Witty stepped down, UnitedHealth withdrew its 2025 guidance entirely, as Medicare Advantage cost trends worsened.

Examining The Financial Health Of UnitedHealth

Despite recent headwinds, UnitedHealth remains profitable, cash-rich and creditworthy.

In 2024, cash flows from operations reached $24.2 billion, about 1.6 times net income. For the first quarter of 2025 alone, operating cash flow was $5.46 billion. Its cash and cash equivalents totaled $30.7 billion as of March 31, 2025, up from $25.3 billion at the end of 2024.

UNH’s available-for-sale debt securities portfolio had a weighted-average duration of 4.2 years and carried a weighted-average credit rating of “AA” as of March 31, 2025 – an investment grade rating which means the debt carries a relatively low risk of default.

Top-line growth has been steady: Revenues climbed from $324.2 billion in 2022 to $400.3 billion in 2024. Earnings from operations rose from $28.4 billion to $32.3 billion over the same period with operating margins holding above 8%.

However, rising medical costs, up from $210.8 billion in 2022 to $264.2 billion in 2024, remain a concern. UnitedHealth’s medical care ratio (MCR) – the share of premiums spent on medical claims – also increased, from 82% in 2022 to 85.5% in 2024, and was 84.8% for the first quarter of 2025.

Is UNH Stock’s Sell-Off Temporary?

Is UnitedHealth stock’s recent sell-off temporary and can investors expect a rebound? In this section, we’ll examine in detail whether the issues that caused the sell-off are transitory or structural.

Guidance Cut And Withdrawal – All Fixable

Newly reinstated CEO Stephen Hemsley said in his prepared remarks at the annual shareholder meeting held in June that UNH will establish a “prudent 2025 earnings outlook” along with initial 2026 commentary when it reports second quarter earnings on July 29. So, any concerns about withdrawn guidance should be quelled by July end.

What Caused UNH’s Rare Earnings Miss And Why It May Not Be A Long-Term Problem

Former CEO Andrew Witty called UNH’s first-quarter performance “unusual and unacceptable,” citing the following main reasons:

• Surging Care Activity in Medicare Advantage (MA): Care activity in UnitedHealthcare’s Medicare Advantage (MA) business increased at twice the rate of the utilization trends for 2024 with notable increases in physician and outpatient services. This spike caught the company off guard, as it had planned for 2025 care activity to increase at a rate consistent with last year’s. This does not appear to be an industry-wide trend because rivals Humana and Elevance Health said they didn’t experience any unusual spike in their insurance care activity and medical costs remained inline with expectations. The silver lining is that this surge in care activity was limited to its MA business. Care activity trends in its commercial and Medicaid businesses remained in line with expectations.,
• Optum’s Medicare Reimbursement Shortfall: Optum works with several Medicare insurers, not just UnitedHealthcare. UNH added new Medicare patients to OptumHealth. Some of these patients were covered by plans that were exiting markets. These new patients experienced a surprising lack of engagement last year, leading to lower-than-expected reimbursement levels in 2025 – likely not reflective of the patients’ actual health status.

Can UNH Fix These Issues?

During the June shareholder meeting, Hemsley offered an apology for UnitedHealth’s recent performance. He stated, “Clearly, we have gotten things wrong. We underestimated care activity and cost trends and generated outsized growth.” He added that UNH was significantly re-tooling its efforts to ensure more accurate forecasting of both care and financial activity and has incorporated its elevated care activity experience into the Medicare Advantage bids for next year’s Medicare business.

As for Optum, it is reinvigorating the theme of value-based care, which aligns and incentivizes physicians and care teams to get ahead of disease rather than chasing symptoms. Hemsley said UNH will provide better clarity and understanding on the financial drivers of OptumHealth, particularly as it moves through the final phases of the risk model transition.

CEO Shakeup: Awkward Timing, But Transition To Proven Leadership

The sudden departure of Andrew Witty raised red flags, but the transition of leadership to Stephen Hemsley may ultimately restore investor confidence.

Witty, who became the CEO of UNH in 2021, was a British executive and came from a pharma backdrop. Prior to joining UNH, he was the CEO of the drug maker GlaxoSmithKline (GSK). Some of his key hires also lacked insurance experience. Witty worked from the U.K, and flew to the U.S. in corporate jets for attending company meetings.

His non-insurance background may have left him at a disadvantage. Some online discussions blame Witty for missing the writing on the wall and failing to accurately forecast the business he was heading, implying that his exit, though sudden, may have been necessary.

Looking ahead, UNH’s direction over the next few years will be shaped by Stephen Hemsley, a solid and seasoned leader who played a pivotal role in the company’s giant-sized growth. His appointment seems decisive with no mention of an interim role or a pending leadership search.

According to a SEC filing, Hemsley will receive a $1 million annual base salary and a one-time $60 million stock option grant, with a 3-year cliff vesting provision and no additional annual equity awards or cash incentives during the first three years of his employment.

A man of few words, Hemsley has historically let his performance speak for itself which, under the current circumstances, may be exactly what the company needs.

Key Risks To Consider Before Buying UNH

While UNH appears confident in addressing its near-term issues, the most consequential headwind for UNH appears structural. UNH’s true and bigger challenges to navigate, include the Medicare reimbursement reform, and regulatory/legal risks.

A significant risk that could affect UnitedHealth more than other insurers is an ongoing change in how Medicare compensates Medicare Advantage plans. UNH is the largest provider of Medicare Advantage plans, which offer additional benefits not included in traditional Medicare – such as vision, hearing and dental coverage, along with caps on out-of-pocket spending.

Medicare pays insurers a fixed amount per insured patient, based on the patient’s disease and health conditions reported by the insurer. This reporting process is dubbed risk coding. Reports suggest that UNH is particularly effective in this area, identifying and reporting more diseases and health conditions vs. competitors, resulting in substantially higher Medicare reimbursements to the tune of billions of dollars. However, these practices have also drawn scrutiny, including from the Department of Justice, according to reports.

Due to rising costs across the system, Medicare is implementing changes to reduce the financial impact of coding. The new model, known as V28 eliminates or reduces many high-value payments tied to specific diagnoses. UnitedHealth has been struggling to adapt to the new Medicare payment system, which replaced a framework that had previously worked in its favor. V28 is being phased in over three years from 2023. With the second year completed, the majority of those reductions are already in effect. Some analysts believe that this transition is largely responsible for the sharper-than-expected financial impact on UNH. Its prior efficiency at maximizing reimbursements may be why it is absorbing a bigger share of the blow.

The highlight in UNH’s June shareholder call was Hemsley’s “fresh perspective on some of the most publicly discussed matters.” UnitedHealth will bring in independent experts for a comprehensive review of some of the company’s reportedly controversial practices, including in Medicare billing.

One of the most significant risks UnitedHealth may face is any regulatory effort to dismantle or restrict its vertically integrated structure. The company’s competitive edge stems from the integration of insurance, pharmacy services, data analytics and care delivery under a single umbrella. If regulators move to unwind this model, it could diminish operational efficiency and cost advantages eroding UNH’s competitive differentiation.

Bottom Line

The issues that triggered UNH’s sell-off appear temporary and largely manageable. However, deeper, structural challenges tied to Medicare reimbursement changes and regulatory scrutiny could weigh on the stock longer than expected. Stephen Hemsley’s return adds much-needed credibility and continuity, but rebuilding investor trust will take time. Investors should brace for short-term volatility, but UnitedHealth’s long-term narrative appears intact given its integrated business model, resilient revenue growth, and strong cash flows. The stock is badly bruised but I think it’s far from broken.

Please note that I am not a registered investment advisor and readers should do their own due diligence before investing in this or any other stock. I am not responsible for the investment decisions made by individuals after reading this article. Readers are asked not to rely on the opinions and analysis expressed in the article and encouraged to do their own research before investing.

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