Declining Profit, Medicare Budget-Tightening Spell Double Trouble for UnitedHealth
UNH has struggled in recent years on account of rising medical costs and lower-than-expected Medicare Advantage reimbursements.
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In medical school lingo, comorbidity is when a patient has two or more conditions at once.
On Tuesday, Minnesota-based UnitedHealth Group (UNH) suffered the financial equivalent, as disappointing annual earnings combined with a dramatic tightening in 2027 federal Medicare reimbursements to send its shares reeling. Unfortunately for those holding other insurance-sector stocks, the bad news was contagious.
Down with the Sickness
UNH has struggled in recent years due to rising medical costs and lower-than-expected Medicare Advantage reimbursements, both of which squeezed margins, as well as a major cyberattack that drew regulatory scrutiny and shook investor confidence (shares are down 48% in the past 12 months).
On Tuesday, the company reported 2025 earnings of $19 billion, an unwelcome 41% year-over-year decline. And while fourth-quarter and full-year revenues only narrowly missed expectations, with both rising 12% to $113.2 billion and $447.6 billion, respectively, executives did not exactly offer a rosy prognosis for 2026. The insurer expects revenue to decline 2% this year to $439 billion, marking the first decline since 1989. Unsurprisingly, that’s not what Wall Street wanted to hear — UNH explained that it reflects a “right-sizing across the enterprise.”
Medicare Advantage reimbursements were part two of the double whammy. The Centers for Medicare & Medicaid Services announced late Monday that the payment rates for government-backed Medicare Advantage health plans will increase an infinitesimal 0.09% in 2027, way off the 6% markets expected (the 5.06% increase for 2026 was higher than expected). That news spread across insurance stocks on Tuesday like a merciless case of winter flu:
- The biggest exposure to Medicare Advantage belongs to UNH, which accounts for roughly 30% of enrollment and saw roughly $60 billion in market cap erased as its shares fell 19.6%.
- Humana, which is in second place with 17% enrollment, took an even steeper 21% tumble, while CVS Health slumped 14%.
Margin Fall: UNH said its medical care ratio — an important metric that measures how much of an insurer’s premium revenue is spent on medical care — rose to 88.9% in 2025, compared with 85.5% in 2024. Other insurers have reported similar ratios, reflecting rising costs and tighter margins across the sector. The stingy 0.09% Medicare Advantage hike in 2027 won’t help: It represents about $700 million in additional revenue for insurers, whereas 2026’s 5% rate hike is worth some $25 billion.
