UNH stock fell 19% after UnitedHealth’s Q4 2025 earnings. Learn why Medicare Advantage rate cuts, rising medical costs, and margin pressure triggered the sell-off.
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UNH Stock: Why Did the Healthcare Giant Stumble?
What Happened to UnitedHealth Group (UNH)?
UnitedHealth Group (NYSE: UNH), the largest healthcare company in the United States, shocked investors after releasing its Q4 2025 earnings. While earnings per share (EPS) met expectations at $2.11, revenue came in slightly below forecasts at $113.2 billion versus $113.7 billion expected. The real damage, however, came from policy and cost pressures rather than the headline numbers. Following the announcement, UNH stock plunged nearly 19% in a single session.
When and Where Did the Trouble Begin?
The sell-off occurred immediately after earnings were released, as markets reacted to new guidance and regulatory signals. The biggest catalyst was the Centers for Medicare & Medicaid Services (CMS) proposal for Medicare Advantage reimbursement rates for 2027, which suggested a near-flat increase of just 0.09%. Analysts had been expecting a 4%–6% increase, making the proposal a major negative surprise for insurers heavily exposed to Medicare Advantage, including UnitedHealth.
Why Did UNH Stock Fall So Sharply?
The core issue lies in rising medical costs and shrinking margins. UnitedHealth reported an adjusted medical care ratio (MCR) of 88.9%, meaning the company paid out nearly $0.89 of every premium dollar in medical claims. This is a sharp jump from 85.5% in 2024, representing a 340 basis point year-over-year increase.
CEO Tim Noel admitted that pricing assumptions for 2025 were “significantly lower than actual medical costs.” As a result, the company absorbed an additional $3.6 billion in expenses, largely driven by 7.5% growth in Medicare Advantage medical costs that pricing failed to offset.
How Sustainable Is the Medicare Advantage Model?
Sustainability is now the key concern. For 2026, management guided for an MCR of 88.8% (±50 basis points)—only a marginal improvement. Looking further ahead, pressures may intensify due to:
The proposed near-zero Medicare rate increase for 2027
A new CMS policy removing 1.53 percentage points from diagnoses not tied to in-person visits, effectively cracking down on “upcoding”
Together, these changes point to continued margin compression, especially in government-sponsored plans.
Why Is Revenue Expected to Decline?
Despite full-year 2025 revenue of $447.6 billion (up 12%), UnitedHealth expects 2026 revenue to fall below $439 billion, a 2% decline. This would mark the company’s first annual revenue drop since 1989.
Management describes this as “right-sizing across the enterprise.” In practical terms, UNH plans to exit unprofitable Medicare Advantage markets, potentially losing around 1 million members in 2026. In 2025, the company served 49.8 million people, so the move prioritizes profitability over scale.
What About Profitability and Cash Flow?
Profitability took a hit in the short term:
Q4 2025 adjusted EPS: $2.11 (down 65% year-over-year)
Full-year 2025 adjusted EPS: $16.35
2026 EPS guidance: >$17.75 (8.6% growth)
Operating margin fell to 2.7% in 2025, but management expects a rebound to 5.5% in 2026. Cash flow remains solid at $19.7 billion, although results were impacted by a $1.6 billion restructuring charge and a $799 million revenue loss tied to the Change Healthcare cyberattack.
Takeaway
UnitedHealth’s stumble wasn’t about weak demand—it was about regulatory risk, cost inflation, and margin pressure. While the company remains financially strong, the Medicare Advantage reset has forced a painful repricing of expectations, reminding investors that even healthcare giants are not immune to policy-driven shocks.