'What UnitedHealth's Stock Drop Reveals About Medicare Advantage'

 UnitedHealth Group's (UHG) share price recently plummeted by more than 22%

opens in a new tab or window, its steepest 1-day drop in more than a quarter century. At its core, the culprit wasn't a scandal or a market-wide collapse. It was something far more revealing: patients started using more healthcare.

Increased care utilization among Medicare Advantage members led to a worse-than-expected first quarter for UHG and cuts to its 2025 forecast. During a company earnings call, CEO Andrew Witty called the financial performance "unusual and unacceptable" and argued the problem was fixableopens in a new tab or window. That should raise alarm bells.

His word choice says everything. When you break it down, he seems to imply that patients accessing care is a problem -- a cost that hinders company performance. Witty indirectly acknowledged what we all know but is antithetical to making America healthy again: insurers are rewarded when care is avoided, delayed, or denied. When customers visit the doctor, undergo diagnostic tests, or access specialist care, insurers get worried because their profitability begins to decline.

The Structure That Drives the Incentive

Medicare Advantage is marketed as a private alternative to traditional Medicare. At its core, however, it is a redirection of tax dollars allocated to Medicare to private insurance companies for the management of Medicare beneficiaries.

Insurers receive a fixed monthly payment per patient known as the per-member-per-month (PMPM) rate. That money is meant to cover the same medical expenses for the individual that Medicare would traditionally cover, and sometimes more.

If the insurer spends less than the PMPM, they keep the difference as profit. If they spend more, they absorb the loss. That is what happened to UHG.

In other words, as Medicare Advantage is structured, UHG and other participating insurers have an incentive to reduce the amount of care delivered. The only constraining factor is the need to avoid breaching federal quality and access requirements. While Medicare Advantage's program goals are to contain costs and improve access, research suggestsopens in a new tab or window it may negatively impact care quality by making networks too narrow, reducing accessopens in a new tab or window to specialty care servicesopens in a new tab or window, and eroding patient satisfaction.

Utilization As a Liability

Normally we think of utilization control restricting access to preventive care and chronic disease management and trying to reduce avoidable ED visits.

But that is not where most cost savings come from. In reality, many of the most common leversopens in a new tab or window for limiting utilization are administrativeopens in a new tab or window, not clinical. They are:

• Prior authorizations that delay or deny services;
• Narrowing provider networks that limit where patients can receive care;
• Call center delays that create friction for patients seeking answers;
• Denial and appeal processes that are opaque and time-intensive; and
• Contract disputes that suddenly remove in-network access.

These barriers are not accidental. They are business strategies. And like all such mechanisms, they have only the best interest of the company and its shareholders in mind.

Despite potential lingering effects from the Change Healthcare cyberattack in 2024, UHG still reported $6.3 billion in profitopens in a new tab or window in the first quarter of 2025, in large part from growth in its Medicare Advantageopens in a new tab or window line of business. As I noted earlier, this revenue boost was funded by the U.S. taxpayer.

If more patients use more care and that cuts into margins, what is it exactly that Witty wants to "fix"? Access? Volume? Demand? Perhaps it is all of the above.

This tension is at the heart of Medicare Advantage. While insurers tout extra benefits beyond traditional Medicare, such as gym membershipsopens in a new tab or window and care coordinationopens in a new tab or window, the financial model only works when care utilization stays within predefined boundaries. The moment patients stray beyond them to access more services, healthcare ceases to make financial sense for the insurer.

Insurers then face a choice: eat the cost or introduce new layers of control. And because these companies are publicly traded and beholden to shareholders, it is no surprise they usually choose the latter.

Why UnitedHealthcare Is Exposed

To be fair, UHG is not the only company in this situation. Humanaopens in a new tab or window and CVS Healthopens in a new tab or window, which owns Aetna, have also seen profits decline with rising utilization rates in their respective Medicare Advantage programs.

These companies also are dealing with:

• Policy changes: The Centers for Medicare and Medicaid Services (CMS) recently recalibrated how Medicare Advantage star ratings are calculated. The changes mean companies are likely to receive lower ratings and earn less money. (However, several legal cases have challenged the new star rating approach, meaning the long-term effects are unclear.)
• Inflationary pressures: Costs for labor, hospital services, and pharmaceuticals have climbed steadily, further shrinking already thin margins.

UnitedHealthcare is particularly vulnerable for several key reasons, including its significant Medicare Advantage footprint in the country. The company acquired or created more than 250 subsidiariesopens in a new tab or window in 2024 and, in the process, picked up thousands of new members who were sicker, older, and more likely to need care.

What Comes Next?

The Trump administration's decision to increase Medicare Advantage payments by 5.06%opens in a new tab or window, on average, for 2026 adds another $25 billion to the potopens in a new tab or window of taxpayer money that could be transferred to private insurance companies. That windfall may temporarily ease financial pressures on insurers, but it does not change the underlying problem. It also does not change the fact that more taxpayer money will be siphoned toward private profit.

When the provision of care is viewed as a business threat and patients are treated as cost centers, the purpose of healthcare itself shifts. The danger is not that UHG's stock fell. The problem is that it is possible that the company could respond by making it even harder for Americans to receive the care they need.

Leaders in Washington must be honest about what that moment on that earnings call revealed. If a system punishes insurers for increased utilization, then patients are most at risk of being sacrificed. And if the "less is more" approach remains the most profitable path forward, expect other insurers to follow suit.

While it is true that healthy people consume fewer resources, to stay healthy, they need access to preventive care and other services. They also need cutting-edge research into new services and treatments, all of which the administration seems intent on cutting. Those preventive care services and incentives should start in utero and continue through childhood and adulthood. Let's not forget, however, that Medicare serves those who are primarily 65 and over, when the most impactful preventative measures are less beneficial.

The question now is stark: do we want a healthcare system that treats care as a service? Or as a cost to be managed?

N. Adam Brown is a practicing emergency physician, entrepreneur, and healthcare executive. He is the founder of ABIG Health, a healthcare growth strategy firm, and a professor at the University of North Carolina's Kenan-Flagler Business School.

https://www.medpagetoday.com/opinion/prescriptionsforabrokensystem/115336