UnitedHealth to Reduce Medicare Advantage Expenses: Is a Profit Increase Coming?

UnitedHealth Group’s New CEO Addresses Earnings Misstep

UnitedHealth Group’s new CEO, Steve Hemsley, has made his return to leadership by offering a rare apology to investors after the company reported its first earnings shortfall in nearly two decades. The drop in earnings for the first quarter of 2025 mainly resulted from unexpectedly high healthcare costs in the Medicare Advantage sector. As a result, the company has decided to suspend its full-year guidance. Hemsley has assured shareholders that he will work to regain their trust and address the rising costs associated with nursing care.

In the first quarter of 2025, the healthcare ratio climbed to 84.8%, up from 84.3% the previous year, with expectations that it will rise to 87.8% for the entire year. This is a significant increase from 85.5% in 2024. Following a 9.2% increase in 2024, health costs surged by 11.7% just in the first quarter. Medical expenses are anticipated to rise more than 16% in 2025.

Additionally, the Wall Street Journal has indicated that the Department of Justice is probing billing practices related to UnitedHealth’s Medicare Advantage services. Hemsley has committed to incorporating expected higher care costs into future pricing strategies, emphasizing the need for transparency and effective cost management to rebuild confidence in the market.

Hemsley, who previously led UnitedHealth from 2006 to 2017, brings valuable experience to the role. He has already started an extensive review of the company’s operations, focusing on Medicare Advantage Risk Adjustment and Pharmacy Benefit Manager policies. This review may involve external experts and aims to bring about significant reforms. Despite these challenges, membership in Medicare Advantage is projected to increase by 6.3% in the first quarter and by 9.2% over the course of 2025.

Two major rivals in the healthcare plan market, Humana Inc. and Elevance Health, are also facing similar challenges with rising benefits costs. Humana’s expenses increased by 13.9% year-on-year in 2024 and rose by 5.6% in the first quarter of 2025. Conversely, Elevance’s expenses climbed by 2.6% in 2024, with a notable jump of 15.6% in the first quarter of 2025.

Humana’s Medicare Advantage membership saw a 6% decline in the first quarter and is expected to continue decreasing throughout the year. In contrast, Elevance’s Medicare Advantage membership grew by 11.8% in the first quarter, and is anticipated to increase by 8.8% annually.