UnitedHealth Group, the parent company of UnitedHealthcare, saw a 20% dip in stock values on Thursday. It blamed higher-than-forecast medical spending in its private Medicare offerings.
The health insurance company also diminished its guidance for the full year to a range of $26 to $26.50 a share in adjusted earnings. In December and then reaffirmed in January, the guidance was determined to be $29.50 to $30 a share for adjusted earnings.
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There were declines in stock value across the insurance industry. Humana shares dropped by more than 8%, and CVS Health dipped by about 6%.
The dip in profits comes as the use of medical care in its Medicare plans rose to twice the level the company had initially anticipated. The rise in Medicare care costs comes as more senior citizens seek treatment for procedures delayed due to the COVID-19 pandemic.
TD Cowen analyst Ryan Langston noted that UnitedHealth’s first quarter results reveal “ominous signs” of rising medical costs in Medicare Advantage businesses. The company had “correctly foreshadowed” the accelerating medical expenses in 2023.
Last year, Humana stopped providing Medicare Advantage in 13 markets due to a drop in federal reimbursements and a hike in medical costs.
UnitedHealth CEO Andrew Witty called the performance “unusual and unacceptable” in a call with analysts, saying the company was moving to address the issues.
“We must and will execute to better anticipate and address these factors,” Witty said.
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UnitedHealth is also dealing with a federal investigation over its Medicare billing practices.
Meanwhile, the Trump administration announced in April that it would increase reimbursement rates for Medicare Advantage insurers.