UnitedHealth Adjusts Profit Forecast Amid Rising Costs

Revised Profit Forecast and Earnings Overview

UnitedHealth Group has adjusted its profit forecast for the year to $16 per share, a figure that has fallen short of Wall Street’s average expectation of $20.91 per share, according to data from LSEG. This represents a significant reduction from the company’s prior guidance of $26 to $26.50 per share earlier this year. The announcement, coupled with disappointing second-quarter results, has put additional pressure on the health insurer.

For the second quarter, UnitedHealth reported adjusted earnings per share (EPS) of $4.08, missing the consensus estimate of $4.48. Revenue for the quarter stood at $111.6 billion, slightly above the $111.53 billion forecasted by analysts. Despite a 13% year-over-year increase in revenue, the company’s profit margins have contracted, falling from 4.3% in the same quarter last year to 3.1% this quarter. These developments have led to a decline in UnitedHealth’s stock, which dropped 3% in premarket trading.

Impact of Rising Medical Costs on Performance

UnitedHealth continues to grapple with elevated medical expenses, which have been a recurring challenge for the health insurance sector. The company’s medical expense ratio, a critical metric indicating the proportion of premiums spent on medical claims, reached a record high of 89.4% in the second quarter. This marks a significant increase from 84.8% in the previous quarter and surpasses the company’s historical high of 85.5% set in 2024.

The higher ratio is attributed to increased utilization of healthcare services, particularly among seniors under Medicare Advantage plans. These expenses have been exacerbated by postponed surgeries and treatments from the pandemic era, such as hip and knee replacements, now being performed at a higher rate. Rising costs in prescription drugs and behavioral health services have also contributed to the financial strain. Notably, other insurers, including CVS Health and Elevance Health, have reported similar trends, with some experiencing medical expense ratios exceeding 90%.

Leadership and Strategic Outlook

Under the leadership of CEO Stephen Hemsley, who returned to his role earlier this year, UnitedHealth is focusing on addressing its operational and financial challenges. Hemsley has emphasized the importance of transparency and prudent cost management to navigate the current headwinds and position the company for long-term growth. The company has set a goal to return to earnings growth by 2026, signaling its commitment to stabilizing its performance.

Hemsley has acknowledged the underestimation of care cost trends and pledged to implement measures that ensure sustainable growth. These include streamlining operations, leveraging technology for efficiency, and reducing prior authorization burdens, which have been a source of criticism from patients and regulators. As part of these efforts, UnitedHealth aims to rebuild investor confidence through greater operational clarity and improved financial discipline.