UnitedHealth’s Reckoning: Wall Street Isn’t Buying the Blame Game

UnitedHealth Group's full-year net profits fell an eye-popping 36%, from $22.4 billion in 2023 to $14.4 billion in 2024.

UnitedHealth executives made a valiant attempt yesterday to persuade investors that they have figured out how to improve customer service and keep Congress and the incoming Trump administration from passing laws that could shrink the company’s profit margins – and maybe even the company itself – but Wall Street wasn’t buying.

During their first call with investors since the murder of UnitedHealthcare CEO Brian Thompson, the company's top brass pointed the finger of blame for rising health care costs everywhere but at themselves – primarily at hospitals and pharmaceutical companies – and made statements that simply were not true. Investors clearly did not find their comments reassuring or credible. By the end of the day shares of UnitedHealth’s stock were down more than 6% to $510.59. That marked a continuation of a slide that began after the stock price peaked at $630.73 on November 11 – a decline of almost 20%. In a little more than two months, the company has lost an astonishing $110 billion in market capitalization, and shareholders have lost an enormous amount of the money they invested in UnitedHealth. 

Earlier yesterday morning, the company released fourth-quarter and full-year 2024 earnings, which were slightly higher on a per share basis than Wall Street financial analysts had expected: $6.81 per share in the fourth quarter compared to analysts’ consensus estimate of $6.73 for the quarter. But the company posted lower revenue during the last three months of 2024 than analysts had expected. While revenue was up 7% over the same quarter in 2023, to $100.8 billion, analysts had expected revenue to grow to $101.6 billion.

And on a full-year basis, the company’s net profits fell an eye-popping 36%, from $22.4 billion in 2023 to $14.4 billion last year.

Bottom line: the company, which until last year had grown rapidly, actually shrank in some respects, especially in the division that operates the company’s health plans. UnitedHealthcare, which Thompson led, saw its revenue increase slightly but its profits fall. The other big division, Optum, which among other things owns and operates numerous physician practices and clinics and one of the country’s largest pharmacy benefit managers (PBMs), fared much better.

While Optum’s 2024 revenue was lower than UnitedHealthcare’s ($253 billion and $298 respectively), it made far more in profits on an operating basis ($16.7 billion and $15.6 respectively).

Optum’s operating profit margin was 6.6% while UnitedHealthcare’s was 5.2%.

The company’s executives blamed higher health care utilization, especially by people enrolled in its Medicare Advantage plans, for the decline in profits.

Witty and CFO John Rex pointed the finger of blame at hospitals and drug companies for rising medical prices. And they obscured the huge amounts of money the company’s PBM, Optum Rx, extracts from the pharmacy supply chain. While the company chose not to break out exactly how much of Optum’s revenues of $298 billion came from Optum Rx, it appears that more than half of it was contributed by the PBM. The company did note that Optum Rx revenues increased 15% during 2024.

Nevertheless, Witty and Rex blamed drug makers for high prices.

They also said that they would be changing the PBM’s business practices to pass through rebate discounts from drug makers to its customers, claiming that it already passes through 98% of them and will reach 100% by 2028. That clearly was a talking point aimed at Washington, where there is significant bipartisan support for legislation that would require all PBMs to do so. Despite UnitedHealth’s claim, there is no external verification to back up that they are passing 98% of rebates back to customers.

Another claim the executives made that is not true is that the Medicare Advantage program saves taxpayers money. Numerous government reports have shown the opposite, that the federal government spends considerably more on people enrolled in Medicare Advantage plans than those enrolled in the traditional Medicare program. Reports have estimated that UnitedHealthcare, which is the largest Medicare Advantage company, and other MA plans are overpaid between $80 billion and $140 billion a year.

There is also growing bipartisan support to reform the Medicare Advantage program to reduce both the overpayments and the excessive denials of care at UnitedHealthcare and other MA insurers.

While company executives might be hoping that their fortunes will improve during the second Trump administration, Trump recently joined some Republican members of Congress, like Rep. Buddy Carter of Georgia, who are calling for significant reforms, especially to pharmacy benefit managers. 

At a news conference last month, Trump promised to “knock out” those middlemen in the pharmacy supply chain.  

“We are paying far too much, because we are paying far more than other countries,” he said. “We have laws that make it impossible to reduce [drug costs] and we have a thing called a ‘middleman’ … that makes more money than the drug companies, and they don’t do anything except they’re middlemen. We are going to knock out the middleman.”