UNH Q1 Earnings: Misses Expectations as Medicare Trends Weigh on Outlook
Health insurance company UnitedHealth (NYSE:UNH) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 9.8% year on year to $109.6 billion. Its non-GAAP profit of $7.20 per share was 1.3% below analysts’ consensus estimates.
Revenue: $109.6 billion vs analyst estimates of $111.5 billion (9.8% year-on-year growth, 1.7% miss)
Adjusted EPS: $7.20 vs analyst expectations of $7.29 (1.3% miss)
Adjusted EBITDA: $10.18 billion vs analyst estimates of $10.55 billion (9.3% margin, 3.5% miss)
Adjusted EPS guidance for the full year is $26.25 at the midpoint, missing analyst estimates by 11.7%
Operating Margin: 8.3%, in line with the same quarter last year
Free Cash Flow Margin: 4.2%, up from 0.4% in the same quarter last year
Customers: 54.12 million, up from 53.73 million in the previous quarter
Market Capitalization: $388.8 billion
UnitedHealth faced a challenging first quarter, with management highlighting two main factors behind the results: a sharp rise in care activity in the Medicare Advantage business and unexpected shifts in member profiles, especially at Optum Health. CEO Andrew Witty described the performance as “unusual and unacceptable,” citing that increased physician and outpatient service utilization, along with the unique needs of new members from exiting plans, drove costs higher than anticipated. Management also acknowledged that adapting to changes in the CMS risk model proved more complex than planned, affecting revenue recognition and operational execution.
Looking forward, UnitedHealth revised its adjusted earnings per share guidance downward, with management attributing this move to ongoing elevated care activity and persistent Medicare funding pressures. The company’s outlook is also shaped by the expectation that these care utilization trends will persist throughout the year and into next, as well as continued operational adjustments tied to the CMS risk model transition. CFO John Rex expressed disappointment in the revised outlook, but emphasized that UnitedHealth is taking steps to address these challenges, particularly in engaging higher-risk members and improving clinical workflows.
UnitedHealth’s management spent significant time explaining the primary drivers behind the quarter’s underperformance and the actions being taken to address these issues. They identified both near-term operational challenges and longer-term industry trends that could influence the business trajectory in the coming quarters.
Medicare Advantage care spike: The company observed care activity in its Medicare Advantage business rising at twice the rate seen last year, driven mainly by increased physician and outpatient visits. This trend was not present in commercial or Medicaid segments.
Optum Health patient profile shift: Optum Health added a large number of new Medicare patients, some from plans exiting certain markets. Many of these new members had lower engagement in the prior year, leading to lower initial reimbursement and complicating risk adjustment processes.
CMS risk model transition complications: Management acknowledged that shifting to the new CMS risk model was more operationally complex than expected. The company is investing in improved clinical workflows and data processes to better adjust to the new environment.
Growth in value-based care: Despite the challenges, UnitedHealth reported ongoing expansion in value-based care arrangements, targeting 650,000 new patients this year. The company remains committed to this care delivery model, believing it will support improved outcomes and cost management over time.
Optum Rx and digital engagement advances: The Optum Rx pharmacy benefit manager unit saw strong customer retention and new wins, while digital tools for senior members increased engagement and promoted earlier wellness visits, which could help manage long-term costs.
Management’s outlook for the remainder of the year is cautious, with full-year non-GAAP adjusted EPS guidance at $26 to $26.50, reflecting persistent care utilization trends and ongoing Medicare funding pressures.
Continued elevated care utilization: UnitedHealth expects higher-than-anticipated care activity in Medicare Advantage to persist through 2025 and into 2026, shaping both pricing and operational planning for next year.
Operational improvements and engagement: Management is focused on increasing patient engagement, especially among high-risk and newly added Medicare populations, and investing in clinical workflow improvements to address operational shortcomings identified in the quarter.
Regulatory and funding adjustments: The future performance will also depend on the pace and effectiveness of the company’s adaptation to CMS risk model changes and on potential policy shifts, including Medicare funding rates and pharmacy benefit manager regulations.
Justin Lake (Wolfe Research): Asked about the specifics of the Medicare Advantage care trend assumptions and how much first-quarter experience will shape the outlook. Management responded that care activity was roughly double expectations and will be assumed to persist into 2026.
Josh Raskin (Nephron Research): Queried why Optum Health, which manages primary care, is still seeing downstream cost pressure. Management explained that new patient profiles and engagement challenges, not primary care itself, are driving the issue.
A.J. Rice (UBS): Sought clarity on whether group Medicare plans or benefit design changes were behind the cost spike. Management confirmed group plans saw disproportionate utilization increases, mainly due to premium changes from funding cuts.
Lisa Gill (JPMorgan): Asked about the path back to UnitedHealth’s long-term EPS growth target and the role of upcoming rate changes. Management said much of this year’s challenges are addressable and expects performance to improve as the environment stabilizes.
Stephen Baxter (Wells Fargo): Questioned whether Medicare Advantage margins will remain within long-term targets after this year’s headwinds. Management stated that margins for 2025 remain within the targeted range and expects a return to historical levels in 2026 if trends are incorporated into pricing.
Looking ahead, the StockStory team will be monitoring (1) how UnitedHealth executes on operational improvements to manage care utilization in Medicare Advantage, (2) the progress of patient engagement and clinical workflow enhancements at Optum Health, and (3) any regulatory developments related to Medicare funding rates or pharmacy benefit management reforms. The speed at which UnitedHealth adapts to the CMS risk model transition will also serve as a key indicator of future margin stability.
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