By JEFF GOLDSMITH
In mid-April 2025, UnitedHealth Group (UNH) reported its 1Q25 working outcomes, together with a modest shortfall in anticipated earnings and lowered its 2025 earnings forecast by 12%. The corporate blamed accelerating medical prices and federal coverage modifications for his or her most worthwhile service line, Medicare Benefit. Market response was swift and savage. UNH inventory misplaced greater than 22% in a single day. In Might, United fired its CEO, Sir Andrew Witty and withdrew its earnings steerage for 2025, with the inventory declining one other 15%. Witty was adopted out the door two months later by President and CFO John Rexheir-apparent to longtime Chairman Stephen Hemsley.
Seems, UNH’s market capitalization trajectory presaged the collapse in UNH’s 2025 cashflow. UNH’s projected cashflow from operations is now anticipated fall to be half of its 2025 forecast- a wide ranging $16 billion shortfall. In a number of investor calls, the brand new/previous CEO Stephen Hemsley and his new crew haven’t come remotely near explaining the place the $16 billion went. Struggling UnitedHealth Group is one gigantic smoking black field.
2024 was a nightmare 12 months for the corporate, starting with the large Change Healthcare cyberattack in February and concluding with the brutal killing of their senior medical health insurance govt, Brian Thompson, in November. It’s clear in hindsight that enterprise fundamentals for UNH’s medical health insurance and care supply companies deteriorated sharply throughout 2024, and its senior management have been scrambling to restore the harm.
Well being insurers throughout the nation are experiencing document working challenges. Nevertheless, UNH’s enterprise mannequin enhanced their vulnerability. UNH had spent $118 billion in simply 5 years (2019-2023) shopping for worthwhile smaller firms, virtually all of which ended up inside their huge Optum subsidiary. These acquisitions included: multi-specialty doctor teams, ambulatory surgical procedure and pressing care, enterprise intelligence/enterprise course of outsourcing and claims administration firms.
These companies are intently intertwined with United’s legacy medical health insurance enterprise. With a purpose to attain estimated $445 billion in complete 2025 UNH revenues, one has to remove $165 billion in intercompany income flows (Examples- purchases of companies by Optum Well being from its consulting arm, OptumInsight, or buy of well being companies from Optum Well being by United Healthcare, UNH’s insurance coverage enterprise).
The corporate’s practically fifty 12 months previous medical health insurance enterprise had been a dependable 5.5-6% working margin generator. Nevertheless, in 2025, it’s going to produce solely a 3% working margin. Nevertheless, UNH’s incremental revenues and earnings development for the previous decade haven’t come from medical health insurance, however have been produced by Optum, whose revenues have been rising a lot quicker than its medical health insurance enterprise.
A number of items of Optum have additionally been much more worthwhile than United Healthcare itself. Optum Well being grew right into a $100 billion enterprise (earlier than eliminations), and used to earn an 10% working margin. In 2025, that margin might be extra like 2.5%. Optum Perception, a $19 billion enterprise (earlier than eliminations), which used to earn a scorching 28% working margin might be fortunate to earn 8% in 2025. The complicated interpenetration of Optum and United Healthcare’s companies makes it unattainable to gauge the seriousness of the corporate’s working issues.
Optum Well being seems to be a serious supply of the smoke, however it’s unattainable to inform from the skimpy disclosures the place precisely the hearth is.
In its October 28 convention name, Patrick Conway, the brand new CEO of Optum, mentioned that Optum Well being is $6 billion under anticipated earnings for 2025, the most important single acknowledged perpetrator within the large earnings miss.
Optum Well being was constructed over twenty years out of acquisitions of enormous refined regional multispecialty doctor teams like Well being Care Companions, Everett Clinic, Atrius, Reliant and Kelsey Seybold. These teams had in depth expertise with managing capitated threat. These acquisitions had introduced UNH what was in 2024 $23 billion in “premiums”e.g. capitated income – from insurance coverage rivals with United (like Blue Defend of California, Blue Cross of Massachusetts, and so forth.). It appears to be like like “premium” revenues to Optum Well being from these United rivals fell by virtually $3 billion in 2025.
As Optum Well being’s labor and prices rose, these contracts have been probably not renewed at charges which coated the rising expense of the massive practices. Since many of those elite managed care actors have been on the recreation for thirty years, they’ve in all probability run out of “efficiencies” akin to decreasing hospitalization charges or shifting surgical procedure to ambulatory settings to decrease their prices.
Different points have arisen with the massive community of personal practising physicians that wrap round Optum’s employed teams. Maybe 80 thousand of the 90 thousand physicians United bragged about “controlling” are usually not really employed by Optum. There have been indicators within the October 28 convention name about shrinking the non-employed a part of the Optum Well being networkspresumably to get higher management over doctor conduct. This shrinkage may have an effect on community adequacy and lift affected person entry issues if these physicians don’t want to be instantly employed by Optum and stop contracting with the corporate.
Optum Perception’s issues virtually actually stem from the disastrous multi-hundred billion greenback AlphV cyberattack in February, 2024, which not solely shook accomplice confidence in Change’s administration however probably value excess of the $3 billion in direct prices United acknowledged as a part of its 2024 monetary disclosures. Integrating the handfuls of IT service purposes acquired within the large Change/Equian/naviHealth rollup right into a safe and coherent enterprise was simply a 5 12 months mission had the corporate not been experiencing the organizational chaos stemming from the assault itself.
Change’s safety failure value it not solely United money and credibility however probably dozens of shoppers who discovered they might work with rivals like Waystar or Cotiviti with much less problem and fewer safety issues. Optum Perception’s different main development enterprise, Optum 360, its enterprise course of outsourcing service, misplaced a serious buyer throughout early 2024 (St. Louis-based SSM Healthcare) and has reportedly had nice issue delivering a coherent product to different prospects.
UNH’s October 28 investor name additionally raised questions concerning the core well being Insurance coverage enterprise’s challenges. United underestimated medical value development in its contracts by $6 billion in 2025. Tens of millions of “unprofitable” United subscribers are going to search out themselves on the lookout for different carriers. How the corporate will handle a ten% discount in its industry-leading 10 million individual Medicare Benefit enrollment shouldn’t be clear. A variety of seniors who purchased in to United’s MA choices by its lengthy collaboration with AARP are going to search out themselves on the road, going through fewer decisions. larger premiums and fewer perks.
United apparently may even be exiting numerous state Medicaid applications, because the OBBBA federal Medicaid “reforms” proceed shrinking their Medicaid enrollment. Additionally they instructed buyers in October to anticipate a 2/3 discount in United’s Well being Alternate enrollment in 2026. One suspects that United will attempt to blame hospitals for a few of these evictions. However as a result of sterling well being programs like Mayo Clinic, Johns Hopkinsand the Mass Common have proven UNH’s Medicare Benefit particular person plans the door, it’s going to be exhausting to shrug off the “second class networks” label.
The practically 14% decline in UNH’s inventory value since its October 28 name reveals a number of investor skepticism concerning the firm’s prospects. The corporate’s greatest issues is probably not operational or political, however quite an absence of transparency.
What would assist:
– Disclosures of MLRs for every of their main insurance coverage market segments (MA, Managed Medicaid, Alternate and Business), in addition to the utilization developments that drive them.
– How a lot Optum or medical health insurance income are generated by intercompany fees versus contracts with exterior actors (together with United rivals).
– How a lot of UNH’s earnings are attributable to acquisitions or gross sales of companies which can be accretive to earnings vs the results of operations.
– Particulars on UNH overhead, which is in depth given its 400 thousand workers, and is presently intermingled with intercompany eliminations.
Absent much more working particulars, calls to break up the corporate will probably develop louder. How lengthy it’s going to take Hemsley and his new crew to place out all of the fires in addition to deal with calls for for clear disclosure of its working issues stays to be seen.
.Jeff Goldsmith is a veteran well being care futurist, President of Well being Futures Inc and common THCB Contributor. This comes from his private substack
