By JEFF GOLDSMITH
In mid-April 2025, UnitedHealth Group (UNH) reported its 1Q25 operating results, including a modest shortfall in expected earnings and lowered its 2025 earnings forecast by 12%. The company blamed accelerating medical costs and federal policy changes for their most profitable service line, Medicare Advantage. Market reaction was swift and savage. UNH stock lost more than 22% in a single day. In May, United fired its CEO, Sir Andrew Witty and withdrew its earnings guidance for 2025, with the stock declining another 15%. Witty was followed out the door two months later by President and CFO John Rex, heir-apparent to longtime Chairman Stephen Hemsley.
Turns out, UNH’s market capitalization trajectory presaged the collapse in UNH’s 2025 cashflow. UNH’s projected cashflow from operations is now expected fall to be half of its 2025 forecast- a breathtaking $16 billion shortfall. In multiple investor calls, the new/old CEO Stephen Hemsley and his new crew have not come remotely close to explaining where the $16 billion went. Struggling UnitedHealth Group is one gigantic smoking black box.
2024 was a nightmare year for the company, beginning with the massive Change Healthcare cyberattack in February and concluding with the brutal killing of their senior health insurance executive, Brian Thompson, in November. It is clear in hindsight that business fundamentals for UNH’s health insurance and care delivery businesses deteriorated sharply during 2024, and its senior leadership were scrambling to repair the damage.
Health insurers across the country are experiencing record operating challenges. However, UNH’s business model enhanced their vulnerability. UNH had spent $118 billion in just five years (2019-2023) buying profitable smaller companies, almost all of which ended up inside of their enormous Optum subsidiary. These acquisitions included: multi-specialty physician groups, ambulatory surgery and urgent care, business intelligence/business process outsourcing and claims management companies.
These businesses are closely intertwined with United’s legacy health insurance business. In order to reach estimated $445 billion in total 2025 UNH revenues, one has to eliminate $165 billion in intercompany revenue flows (Examples- purchases of services by Optum Health from its consulting arm, OptumInsight, or purchase of health services from Optum Health by United Healthcare, UNH’s insurance business).
The company’s nearly fifty year old health insurance business had been a reliable 5.5-6% operating margin generator. However, in 2025, it will produce only a 3% operating margin. However, UNH’s incremental revenues and earnings growth for the past decade have not come from health insurance, but have been produced by Optum, whose revenues were growing much faster than its health insurance business.
Several pieces of Optum have also been far more profitable than United Healthcare itself. Optum Health grew into a $100 billion business (before eliminations), and used to earn an 10% operating margin. In 2025, that margin will be more like 2.5%. Optum Insight, a $19 billion business (before eliminations), which used to earn a sizzling 28% operating margin will be lucky to earn 8% in 2025. The complex interpenetration of Optum and United Healthcare’s businesses makes it impossible to gauge the seriousness of the company’s operating problems.
Optum Health appears to be a major source of the smoke, but it is impossible to tell from the skimpy disclosures where exactly the fire is.
In its October 28 conference call, Patrick Conway, the new CEO of Optum, said that Optum Health is $6 billion below expected earnings for 2025, the largest single acknowledged culprit in the big earnings miss.
Optum Health was constructed over twenty years out of acquisitions of large sophisticated regional multispecialty physician groups like Health Care Partners, Everett Clinic, Atrius, Reliant and Kelsey Seybold. These groups had extensive experience with managing capitated risk. These acquisitions had brought UNH what was in 2024 $23 billion in “premiums”, e.g. capitated revenue – from insurance competitors with United (like Blue Shield of California, Blue Cross of Massachusetts, etc.). It looks like “premium” revenues to Optum Health from these United competitors fell by almost $3 billion in 2025.
As Optum Health’s labor and costs rose, these contracts were likely not renewed at rates which covered the rising expense of the large practices. Since many of these elite managed care actors have been at the game for thirty years, they have probably run out of “efficiencies” such as reducing hospitalization rates or shifting surgery to ambulatory settings to lower their costs.
Other issues have arisen with the huge network of private practicing physicians that wrap around Optum’s employed groups. Perhaps 80 thousand of the 90 thousand physicians United bragged about “controlling” are not actually employed by Optum. There were signals in the October 28 conference call about shrinking the non-employed part of the Optum Health networks, presumably to get better control over physician behavior. This shrinkage could affect network adequacy and raise patient access concerns if those physicians do not wish to be directly employed by Optum and cease contracting with the company.
Optum Insight’s problems almost certainly stem from the disastrous multi-hundred billion dollar AlphV cyberattack in February, 2024, which not only shook partner confidence in Change’s management but likely cost far more than the $3 billion in direct costs United acknowledged as part of its 2024 financial disclosures. Integrating the dozens of IT service applications acquired in the big Change/Equian/naviHealth rollup into a secure and coherent business was easily a five year project had the company not been experiencing the organizational chaos stemming from the attack itself.
Change’s security failure cost it not only United cash and credibility but likely dozens of customers who found they could work with competitors like Waystar or Cotiviti with less hassle and fewer security concerns. Optum Insight’s other major growth business, Optum 360, its business process outsourcing service, lost a major customer during early 2024 (St. Louis-based SSM Healthcare) and has reportedly had great difficulty delivering a coherent product to other customers.
UNH’s October 28 investor call also raised questions about the core health Insurance business’s challenges. United underestimated medical cost growth in its contracts by $6 billion in 2025. Millions of “unprofitable” United subscribers are going to find themselves looking for other carriers. How the company will manage a 10% reduction in its industry-leading 10 million person Medicare Advantage enrollment is not clear. A lot of seniors who bought in to United’s MA offerings through its long collaboration with AARP are going to find themselves on the street, facing fewer choices. higher premiums and fewer perks.
United apparently will also be exiting a number of state Medicaid programs, as the OBBBA federal Medicaid “reforms” continue shrinking their Medicaid enrollment. They also told investors in October to expect a 2/3 reduction in United’s Health Exchange enrollment in 2026. One suspects that United will try to blame hospitals for some of these evictions. But because sterling health systems like Mayo Clinic, Johns Hopkinsand the Mass General have shown UNH’s Medicare Advantage individual plans the door, it is going to be hard to shrug off the “second class networks” label.
The nearly 14% decline in UNH’s stock price since its October 28 call reveals a lot of investor skepticism about the company’s prospects. The company’s biggest problems may not be operational or political, but rather an absence of transparency.
What would help:
– Disclosures of MLRs for each of their major insurance market segments (MA, Managed Medicaid, Exchange and Commercial), as well as the utilization trends that drive them.
– How much Optum or health insurance profits are generated by intercompany charges as opposed to contracts with external actors (including United competitors).
– How much of UNH’s earnings are due to acquisitions or sales of businesses that are accretive to earnings vs the result of operations.
– Details on UNH overhead, which is extensive given its 400 thousand employees, and is presently intermingled with intercompany eliminations.
Absent far more operating details, calls to break up the company will likely grow louder. How long it will take Hemsley and his new crew to put out all the fires as well as address demands for transparent disclosure of its operating problems remains to be seen.
.Jeff Goldsmith is a veteran health care futurist, President of Health Futures Inc and regular THCB Contributor. This comes from his personal substack
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