UnitedHealth Stock Pulls Back as Revenue Misses Expectations

UnitedHealth Group (UNH) shares fell 5.2% in premarket trading Thursday after the company reported fourth-quarter results that missed analysts' expectations. The healthcare giant's revenue grew 6.8% year-over-year to $100.8 billion, below the Visible Alpha consensus estimate of $101.6 billion. Earnings of $5.54 billion, or $5.98 per share, also missed analysts' estimates. Adjusted earnings per share (EPS) of $6.81 topped expectations.

The company affirmed its 2025 outlook, calling for revenue between $450 billion and $455 billion, EPS of $28.15 to $28.65, and adjusted EPS of $29.50 to $30.00. However, the broad pressure on the sector remains, and higher loss ratios offer reason for investors to be cautious.

UnitedHealth's medical loss ratio (MLR) was 87.6%, higher than the consensus estimate of 86.1%. This means that a larger proportion of premiums collected were spent on medical care, which negatively impacted earnings. The MLR is calculated by comparing claims paid to the amount of premiums collected, and insurers typically aim to stay on the lower end of the range required by the Affordable Care Act (ACA), which is between 80% and 85%. The higher MLR indicates that the company spent more on medical care than expected, which contributed to a miss on revenue and a decline in the stock price.

Morgan Stanley analysts noted that while the MLR miss was larger than expected, the company's 2025 outlook should be the focus for investors. The company's CEO, Andrew Witty, addressed the public outrage targeting the company and the healthcare industry, particularly regarding rejected claims. He stated that less than 1% of claims are rejected for medical reasons and that the company is committed to reducing the number of claims rejected for process-related reasons. Witty believes that better real-time tools, including the use of artificial intelligence, could help reduce these rejections by 85% or more.

However, UnitedHealth is currently facing a class-action lawsuit over the use of its AI algorithm by its NaviHealth subsidiary. The company has denied allegations that it used its AI tool to automatically determine claims. Despite this, Witty expressed a commitment to improving the claims process and making it easier for patients to engage with the healthcare system.

In summary, UnitedHealth's revenue miss and higher-than-expected medical loss ratio contributed to a decline in the company's stock price. The company's 2025 outlook addresses investor concerns by setting reasonably prudent targets for the coming year. The company also acknowledges the public's frustration with the claims process and is committed to improving it through the use of technology and better communication. However, the company faces ongoing challenges, including a class-action lawsuit over its use of AI in the claims process.