By Catherine Dunn
UnitedHealth Group's 20% one-day stock tumble last week was one more painful moment in a long-run of tough times for the stock. It was also another reminder of major health insurers' often uncomfortable reliance on the federal government's Medicare Advantage program for seniors.
UnitedHealth, CVS Health, and Humana all fell hard last week after the government proposed rate changes for 2027 that fell short of investor expectations. The announcement about Medicare payments landed particularly hard for UnitedHealth, the country's largest private health insurer and largest operator of Medicare Advantage plans. The news came on the eve of UnitedHealth's earnings report, which itself managed to disappoint investors.
For years a Wall Street darling, UnitedHealth shares fell nearly 35% in 2025. New CEO Stephen Hemsley, who'd previously led the company from 2006 to 2017, has overseen a turnaround effort since last May. The company has focused on retooling its Medicare Advantage offerings in order to recover profit margins and on shoring up the Optum Health segment, whose doctors treat insurance customers enrolled through UnitedHealthcare, among others.
After Hemsley's return, UnitedHealth disclosed in July that it was cooperating with a Justice Department probe on aspects of its Medicare business. The company said it had "full confidence in its practices" and a "long record of responsible conduct and effective compliance."
UnitedHealth also launched a series of third party reviews internally. Those reviews have looked at company practices in areas such as risk assessment coding, a way for insurers and medical providers to demonstrate that a Medicare patient is sicker, and that a health plan is owed more money from the government to manage the patient's care .
During the Biden administration, the Medicare agency began tightening the reins on funding for risk scores -- also known as risk adjustment -- and estimated the government would save billions of dollars on payments to Medicare Advantage plans. The surprise in last week's announcement from the Trump administration was twofold: not only did the agency propose a relatively small rate bump for plans of 0.9%, but officials indicated they'll continue bearing down on risk adjustment payments.
"That took the wind out of everyone's sails," says Baird analyst Michael Ha. The risk adjustment changes present headwinds "that will pressure insurers, and it's in a similar vein as Biden's risk model revision," he added.
The results sparked a one-day selloff of nearly 20%. UnitedHealth's shares are down 53% from their 2025 peak of $606.36 last April, thanks to a series of missed earnings expectations and weak forecasts.
In April, then-CEO Andrew Witty called out an increase in medical care activity that appeared much higher than expected. Shares fell nearly 47% over the next three and a half weeks, through May 13, when Witty stepped down.
It was a stunning turn for a company with UnitedHealth's growth trajectory to that point. From 2015 through 2024, annual revenue more than doubled and the stock quintupled in value.
Part of that growth story consisted of big acquisitions outside the insurance segment. UnitedHealth bolstered its Optum division by buying a large pharmacy benefits manager, specialty pharmacies, and doctor offices. By 2023, Optum Health developed a footprint of nearly 90,000 physicians, according to an investor day presentation, roughly 10% of U.S. doctors. Clinicians may be employed by Optum Health directly, or otherwise affiliated with the company.
Alongside M&A deals, Medicare Advantage became a key driver for the company, as more seniors choose the privately-run plans over traditional Medicare operated by the government. Between 2015 and 2024 UnitedHealth's enrollment in its Medicare Advantage plans grew from 3.2 million seniors to 7.8 million.
UnitedHealth's insurance business has been integrated to varying degrees with businesses under Optum. A Medicare Advantage enrollee can get pharmacy services from Optum Rx and medical care from Optum Health.
Profits from Optum Health are normally compelling for investors, but that has faltered. "It's been a full year of underperforming expectations on Optum Health," says Baird's Ha.
The company's Medicare portfolio encompasses prescription drug coverage, as well as supplement plans. While UnitedHealth doesn't break out revenue for individual Medicare product lines, it discloses the portion of total revenue derived from premiums paid by the federal Centers for Medicare and Medicaid Services.
In 2015, those premiums accounted for 26% of UnitedHealth's total consolidated revenue, nearly $41 billion. By 2024, that figure was 40%, or $160 billion, according to company filings.
Hemsley has taken care in investor call remarks to emphasize a commitment to transparency "wherever we serve the public healthcare interests."
The company, meanwhile, brought on a new chief financial officer, Wayne DeVeydt, in September, and shuffled leadership in the Optum division. Tim Noel, the new CEO of the insurance business, has been in place since January 2025, following the murder of UnitedHealthcare chief executive Brian Thompson.
On the third-quarter earnings call in October, Noel said the company's Medicare Advantage enrollment would contract this year as it significantly adjusted benefits and exited some markets, part of the strategy to improve margins.
When asked by an analyst about the forthcoming Medicare rate announcement, still a few months away at that point, Noel said he was "very encouraged of the receptivity" of the Trump administration to discuss "ways to modernize and ways to improve" the program. He called it a "direct contrast" to what the company experienced with the previous administration.
But on Tuesday, once the rate proposal was unveiled, Noel described it as "disappointing." Managed care companies and their investors found themselves facing a new reality -- and one that is complicating UnitedHealth's comeback.
Write to Catherine Dunn at catherine.dunn@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 04, 2026 11:30 ET (16:30 GMT)
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