UnitedHealth’s guidance cut may mean trouble for more insurers

UnitedHealth Group‘s stock sank 20% on Thursday after the company slashed its annual profit forecast, citing higher-than-expected medical costs in its privately run Medicare plans. 

Those bleak results from a health-care giant seen as the insurance industry’s bellwether could be a warning sign for other companies with so-called Medicare Advantage plans, according to some Wall Street analysts. It comes after a turbulent 2024 for health insurers, hurt by lower government payments, soaring medical costs and public backlash after the murder of UnitedHealthcare’s top executive, Brian Thompson.

UnitedHealthcare, the insurance arm of UnitedHealth Group, is the nation’s largest provider of those plans. Shares of competitor Humana fell 5%, while Elevance Health dropped more than 1% and CVS tumbled 2%. Cigna has no Medicare Advantage business. Its stock was up almost 1% on Thursday.

UnitedHealth’s first-quarter results reveal “ominous signs” of accelerating medical costs in Medicare Advantage businesses, TD Cowen analyst Ryan Langston said in a note Thursday. He added that the company “correctly foreshadowed” increasing medical costs back in 2023, so Thursday’s comments “will call into question” the full-year outlooks for every insurer. 

Higher medical costs have dogged the entire insurance industry over the past year as more seniors return to hospitals to undergo procedures they had delayed during the Covid-19 pandemic, such as joint and hip replacements. But the issue had previously not been as significant at UnitedHealthcare.

Barclays analyst Andrew Mok said UnitedHealth’s problems may be less of an issue for companies that made “significant” exits from some Medicare Advantage markets, including Humana and CVS, according to a note Thursday. Many insurers last year exited unprofitable Medicare Advantage markets due to higher medical costs and lower reimbursement rates from the federal government. 

Meanwhile, the issue could be a bigger deal for companies that gained greater market share in Medicare Advantage, such as Elevance Health and Alignment Health, according to Mok.

UnitedHealth said the rise in care use, or utilization, in its Medicare Advantage business came in far above what the company planned for the year, which was for care activity to increase at a rate consistent with what it saw in 2024. But trends that became apparent toward the end of the first quarter suggest that care activity increased “at twice” that level, UnitedHealth Group CEO Andrew Witty said during an earnings call on Thursday. 

The jump was particularly notable in doctor and outpatient services, which do not involve overnight hospital stays, he added. 

“It’s very, very unusual,” Lance Wilkes, Bernstein senior equity analyst, told CNBC’s “Squawk Box” on Thursday. He said rising utilization is “really surprising” coming off the high level of care activity that the industry saw over the past year.

Wilkes added that UnitedHealth and the broader industry may be “pulling back” the…