(Bloomberg) -- UnitedHealth Group Inc. shares plunged the most in four years on Tuesday after its forecasts for 2024 and 2025 fell short of investors’ expectations, a rare stumble for the health-care giant.
The company hasn’t issued an early outlook that missed Wall Street’s view for years. The forecast reflects persistent hurdles, including rising medical expenses and stricter federal reimbursement rules that are cutting into revenue.
UnitedHealth said it sees around $30 a share for the top end of its adjusted 2025 earnings outlook. Analysts were expecting $31.16 a share on average, according to a Bloomberg survey.
The shares fell as much as 10.3%, the biggest intraday decline since March 2020. Stocks of rivals Elevance Health Inc., CVS Health Corp., Humana Inc. and Centene Corp. also dropped, a sign that investors see UnitedHealth’s troubles threatening the entire sector.
Executives emphasized that the targets are preliminary and they aim to outperform them.
“We anticipate stepping out for 2025 more conservatively than is typical,” Chief Executive Officer Andrew Witty said on a call with investors, noting the company will give detailed guidance in December.
He cited lower payments from the US government’s Medicare insurance program for the elderly, state Medicaid program cuts and increasing medical costs broadly for the lower-than-expected forecast.
Higher medical costs first emerged in the middle of last year, as people who deferred care during the Covid pandemic returned for surgeries and tests. At the same time, the Biden administration proposed a series of changes to the Medicare Advantage program to curb practices insurers used to boost revenue. UnitedHealth is the largest seller of private versions of the government health program.
Witty said the company will have to further cut operating expenses and more tightly manage medical costs in response.
“We have been relentless around how can we find sustainable cost reductions,” he said.
2024 Guidance
UnitedHealth also lowered the top end of its 2024 forecast by 25 cents a share on Tuesday, bringing the midpoint of the range below analysts’ average view.
The new 2024 outlook includes a bigger impact from a catastrophic hack of the company’s Change Healthcare division than UnitedHealth had previously forecast. Some costs for responding to the crisis were excluded from adjusted results.
The company typically forecasts conservatively heading into the year and raises its outlook over time. That didn’t happen in 2024.
Instead, UnitedHealth stuck with the same profit view it set out late last year until it narrowed the range Tuesday, evidence that the hack and unexpected medical costs have made it harder for management to beat their initial targets.
UnitedHealth, the first health insurer to report results, is seen as a bellwether for the sector. Its shares had increased 15% this year through Monday’s close.
Higher Costs
The company’s medical-loss ratio, a crucial gauge of spending for patient care, was 85.2%, less favorable than Wall Street’s view.
Higher medical costs were due in part to “aggressive” billing by hospitals, Chief Financial Officer John Rex said on the call with analysts. The trend is also impacted by states reducing Medicaid coverage and greater use of high-cost medications for cancer and cardiovascular and autoimmune diseases, he said.
Higher investment income and lower taxes helped the company’s results in the third quarter, analysts said. Lower operating expenses also offset higher medical costs.
UnitedHealth “found a way to deliver EPS upside, but not a high-quality way,” Jefferies analyst David Windley wrote.
UnitedHealth’s adjusted 2024 third-quarter earnings were $7.15 a share, compared with analysts’ average estimate of $6.99. Quarterly revenue for the health-care giant was $100.8 billion, while analysts had estimated $99.2 billion.
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