TLDR
- UnitedHealth expects 78% of Medicare members to be in 4-star or higher rated plans for 2026, meeting company expectations
- Stock rose 4.1% to $333.29 in premarket trading following the Medicare enrollment news
- Company faces Justice Department probe into Medicare Advantage practices but says it’s complying with all requests
- Earnings fell sharply with adjusted EPS dropping to $4.08 from $6.80 year-over-year due to underestimating healthcare costs
- Medical care ratio expected to exceed 89% this year, up from earlier 86% forecast, pressuring profitability
UnitedHealth Group delivered some welcome news to investors Tuesday morning. The healthcare giant announced it expects enrollment in top-rated Medicare plans to align with company projections.
The company filed documents stating that roughly 78% of its Medicare members will be enrolled in 4-star or higher rated plans. These ratings come from the Centers for Medicare and Medicaid Services and carry weight with both consumers and the company’s bottom line.
Star ratings influence which plans seniors choose during enrollment periods. They also determine how much the government reimburses UnitedHealth for covering Medicare patients.
The market responded positively to this news. UnitedHealth shares jumped 4.1% to $333.29 in premarket trading Tuesday.
However, this bright spot comes after months of turbulence for the nation’s largest health insurer. The company has been dealing with multiple headwinds that have sent its stock tumbling.
Federal Probe Adds Pressure
The Justice Department launched an investigation into UnitedHealth’s Medicare Advantage practices earlier this year. The probe has created uncertainty around the company’s largest business segment.
UnitedHealth has stated it’s cooperating fully with all government requests. The company also pointed to its track record, noting that a decade-long civil challenge found no evidence of wrongdoing.
Still, federal investigations can drag on for extended periods. This overhang continues to weigh on investor sentiment.
The company’s stock has been cut roughly in half from its April highs. Shares peaked above $630 earlier this year but have traded as low as $234.60.
Earnings Miss Highlights Cost Pressures
UnitedHealth’s second-quarter results painted a troubling picture of rising healthcare costs. The company admitted it underestimated how much patients would use medical services.
Adjusted earnings per share plunged to $4.08 from $6.80 in the same quarter last year. This massive decline caught both management and investors off guard.
The company’s medical care ratio tells the story of these cost pressures. This metric measures how much premium revenue gets spent on patient claims.
UnitedHealth now expects this ratio to top 89% for the full year. That’s up from an earlier forecast of around 86%.
Regulatory Requirements Add Context
The Affordable Care Act requires health insurers to spend at least 80% to 85% of premiums on patient care. UnitedHealth’s current ratio sits well above these minimums.
While this shows the company is fulfilling its obligation to patients, it squeezes profit margins. Higher ratios mean less money left over after paying medical bills.
UnitedHealth has outlined plans to address these cost pressures. The company is exiting certain unprofitable plans and raising premiums where possible.
Management is also deploying artificial intelligence tools to streamline operations. These technology investments aim to reduce administrative costs over time.
The company’s market position provides some advantages in this turnaround effort. UnitedHealth operates both insurance and healthcare service businesses, creating a comprehensive ecosystem that competitors struggle to match.
UnitedHealth’s current valuation reflects these challenges. The stock trades at 19 times forward earnings estimates, down from over 32 times in April.
The 2026 star ratings data from CMS hasn’t been released yet, but UnitedHealth appears confident in its Medicare plan quality scores.
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