Medicare Advantage Shakeup: UnitedHealth Struggles, Humana Holds Strong

Summary

Becker’s Healthcare Podcast Summary

Episode Title: Medicare Advantage Shakeup: UnitedHealth Struggles, Humana Holds Strong
Host: Scott Becker
Guest: Jacob [Last Name Not Provided]
Release Date: July 30, 2025

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Introduction

In this episode of the Becker’s Healthcare Podcast, host Scott Becker engages with Jacob, a knowledgeable analyst specializing in the payer market, to discuss recent developments in the Medicare Advantage sector. The conversation delves into the contrasting performances of two major players: UnitedHealth and Humana.

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Current Landscape of the Payer Market

Jacob begins by setting the stage with recent earnings reports from leading Medicare Advantage insurers, highlighting that the sector has been grappling with significant headwinds over the past 18 to 24 months. He notes:

“[UnitedHealth] is struggling a lot with internal turmoil, very candid about the struggles that almost every piece of the company seems to be facing... [Humana] actually improved their earnings outlook for 2025” (00:58).

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Humana’s Strong Performance

Shifting focus to Humana, Jacob provides a detailed analysis of the company's current standing:

• Business Focus: Predominantly operates in Medicare Advantage with additional Medicaid contracts and a care delivery segment.
• Financial Health: Reported a profit of $545 million in the most recent quarter, a slight decrease from the previous year but surpassing Wall Street expectations.
• Earnings Guidance: Updated fiscal year-end earnings per share to $17, up from $16.25, indicating positive momentum despite anticipating a decline of 500,000 members due to strategic withdrawals from unprofitable markets.
• Leadership: Recent appointment of Jim Recton as CEO from Envision Healthcare, signaling a strategic shift towards stabilizing and growing the company.

Jacob emphasized Humana’s resilience in a challenging environment:

“Humana seems to be doing the best at this point” (03:00).

Scott Becker adds perspective by comparing Humana's performance to other payers:

“Humana is going against the trend... [while] Oscar Health, which had been doing great, seemed to have regressed” (05:20).

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UnitedHealth’s Struggles

Turning to UnitedHealth, Jacob outlines a starkly different scenario:

• Financial Performance: Reported a profit of $3.4 billion for the second quarter but significantly cut earnings guidance for the year, leading to a sharp decline in stock performance.
• Leadership Changes: Departure of CEO Andrew Witty in May and appointment of Stephen Hemsley, who openly discussed the company’s challenges during the earnings call.
• Operational Challenges:
  • Risk Adjustment Changes: New CMS risk adjustment models introduced in 2024 led to tighter reimbursements and increased scrutiny, which UnitedHealth failed to anticipate adequately.
  • Medical Cost Growth: Unanticipated rise in care costs across various services, including outpatient, inpatient, physician services, behavioral health, and home health.
  • Segment Performance: While the PBM division remains profitable, it faces headwinds due to GLP1 medications. Optum Health is encountering an $11 billion headwind over three years, exacerbated by non-standardized management approaches and increased complexity in patient care.

Jacob highlights the depth of UnitedHealth’s issues:

“They just missed the mark entirely... leadership was very candid with investors about everything that is going wrong” (05:47).

Scott Becker reflects on the broader implications of UnitedHealth’s challenges:

“Their sprawling enterprise with around 2,700 subsidiaries makes it hard to nail down every single thing” (09:19).

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Leadership and Organizational Complexity

The discussion underscores the impact of leadership turnover and organizational complexity on company performance:

• Scott Becker: Points out that managing a $420 billion business with numerous moving parts complicates oversight and strategic execution.

  “Leadership matters and they've had lots of leadership turnover... it's harder and harder to get to be in that spot” (09:20).

• Jacob: Agrees, noting that despite awareness of internal issues, the sheer size and complexity of UnitedHealth impede effective turnaround efforts.

  “They are expecting six and a half billion dollars more in medical costs than they originally anticipated” (10:26).

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Strategic Decisions and Future Outlook

Jacob delves into UnitedHealth’s strategic responses:

• Medicare Advantage Plans: Planning to discontinue plans serving over 600,000 members in non-profitable markets, primarily focusing on PPO plans.
• Commercial Business: Anticipates declining membership due to rising costs in outpatient and inpatient care, orthopedic spending, pharmacy infusions, and potential subsidy expirations in 2025.
• Optum Health: Facing significant cost growth and integration challenges with the new CMS C model (V28), leading to operational inefficiencies.

He also mentions ongoing efforts to acquire Medicis despite regulatory hurdles, indicating UnitedHealth’s commitment to expansion amidst internal challenges.

“The company gave too much control locally to some of clinics... they want to bring that back closer to home” (13:30).

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Conclusion

In summary, the podcast episode provides a comprehensive analysis of the contrasting fortunes of Humana and UnitedHealth within the Medicare Advantage landscape. While Humana demonstrates resilience and strategic growth under new leadership, UnitedHealth faces significant internal and operational challenges that have led to financial setbacks and strategic realignments. The discussion highlights the critical role of leadership and organizational structure in navigating the complexities of the healthcare insurance market.

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Notable Quotes:

• Jacob: “Humana seems to be doing the best at this point” (03:00).
• Jacob: “They just missed the mark entirely... leadership was very candid with investors about everything that is going wrong” (05:47).
• Scott Becker: “Their sprawling enterprise with around 2,700 subsidiaries makes it hard to nail down every single thing” (09:19).
• Jacob: “They are expecting six and a half billion dollars more in medical costs than they originally anticipated” (10:26).
• Jacob: “The company gave too much control locally to some of clinics... they want to bring that back closer to home” (13:30).

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This episode offers valuable insights for healthcare professionals and stakeholders seeking to understand the dynamic shifts within the Medicare Advantage market and the strategic maneuvers of leading insurers.

Transcript

[Becker's Healthcare]

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[Scott Becker]

This is Scott Becker with the Becker's Healthcare Podcast. We're thrilled today to be joined by the brightest person I know that covers the payer market and one of the brightest people I know overall. Jacob, did you do me a favor bring us up to date on what's going on in the payer market currently. We love hearing your thoughts and what you're covering and watching.

[Jacob]

Yeah. Hey Scott, I really appreciate that intro. So we've gotten earnings reports this week from some of the biggest insurers and from some of the biggest Medicare Advantage insurers, which of course has been the market that has been facing a lot of headwinds these last 18 to 24 months. So it's giving us some insights into how the big players are doing and how the market overall is doing and how they're responding to it. But what's interesting, and I'm talking about UnitedHealth and Humana both reporting their second quarter earnings this week. And what's really fascinating is I think probably for the first time ever or certainly in a long time, United is the one who, who really is struggling a lot of internal turmoil that we're hearing directly from the executives themselves, very candid about the, the struggles that almost every piece of the company seems to be facing at this point from a lot of, for a lot of different reasons, you know, and across different markets. So I'll dive into that. And then Humana this on on July 30, reporting their earnings as well for the quarter and they, they actually improved their, their earnings outlook for 2025. So they're actually, they think they're going to be making more money than they originally expected at the start of this year. And, and again that compares to United which cut its earnings. You know, they originally suspended their earnings earlier this year and then they cut their 2025 earnings this week because they're not going to make as much as they thought given given all those internal issues. So, you know, let me know which one you want to tackle first Humana or United and what we're hearing from, from some of the leadership.

[Scott Becker]

Yeah, no, let's talk about Humana first. United I saw, you know, I just was watching a little bit of this centene United getting crushed in the stock market. United most recently based on the medical loss ratios going up. But let's turn to Humana a little bit. I feel like we've not talked about Humana in a while. United have been front and center for a little bit.

[Jacob]

Yeah, no, absolutely. And I think, you know, just so are all of our listeners are aware Humana really at this point is operating almost entirely in the Medicare Advantage space. And then they also do Medicaid contracts with some of the states. They, of course they have their care delivery side of the business center, well which is, you know, care delivery is clinics and things like that. But for the most part Humana is a, is a Medicare company with, with some Medicaid revenues and they, they did pretty well this quarter and they did better than I think Wall street expected them to do. Given that we've seen them struggle a little bit in, in, in years past reporting some major losses especially last year. So, so as of this most recent quarter, you know, they're reporting a profit of $545 million and that is down just a bit compared to the same time last year. But I think the important part here and what I mentioned earlier is that they, they updated their, their fiscal year end guidance and they're now estimating full year earnings per share of $17, which is up from their previous estimate of $16.25 which you know, again in this, in this current environment, in the Medicare Advantaged business, that, that's really good news for, for Humana. It's, it shows that, that they're, they're on the right track. Things are being running, running well they've priced correctly at least last year and, and you know, hopefully for, for this year as well. They submitted months ago and, and of course they got a new CEO pretty recently, within the last year. Jim Recton, who came from Envision Healthcare. I've met with him personally and he's a really interesting person in terms of, you can tell he, he, he wants to get the company on the right track. And so that, that seems, at least in this most recent quarter that seems to be what's happening. I should note, you know, they, they are still anticipating a decline of about 500,000 members. And, and that's because they're pulling out of markets that they don't think are going to be profitable. So, you know, they are seeing, you know, some membership decline, but it's, it is purposeful. So yeah, I think just, just an interesting earnings report compared to the rest of the industry which has pulled guidance for the year, which has certainly struggled in Medicare Advantage. Humana seems to be doing the best at this point.

[Scott Becker]

Oh, amazing actually. And that is that you're exactly right. That's going against the trend of the different payers. CVS is having a good year. A lot of that's outside of their Aetna business. And then, then, and then also Oscar Health, which had been, you know, against the grain, doing great. It seemed to have regressed where everybody else is at, but mana hopefully moving in the right direction. And tell us about United and what you're seeing there.

[Jacob]

Yeah, I mean, so they, they, they posted their second quarter earnings as well, posting a, a profit of 3.4 billion and then cutting their earnings guidance for the year pretty significantly after originally pulling that guidance just a few months ago. Which, you know, of course it really, it sent their stock soaring down. And this is, you know, it's, this isn't just happening. That's not the only thing happened in this company. Of course, you know, we saw what happened late last year with the CEO. We saw the departure at UnitedHealthcare, we saw the departure of UnitedHealth Group CEO Andrew Witty in May. The care costs are just rising at an unexpected rate internally. And it seems like the company has really been struggling with some new risk adjustment changes from CMS that started in 2024. And you know, there are three. It's a three year process. They're going through this year and through 2026 as well. But it's really just a tightening of reimbursement and a lot more scrutiny of how these insurers code for Medicare Advantage claims. But I think what's just so interesting is in theory, United has some of the best actuaries and risk modeler in the world when it comes to health insurance. And what we're hearing from their leadership yesterday on the earnings call is that they just completely missed the mark entirely. They just did not exceed what was coming down the pipeline in terms of the impact on their business from this new risk model from cms. They didn't anticipate the increases in care use across a variety of services. Outpatient, inpatient care, physician services, behavioral health, home health. It's just, it seems a bit odd that the company did not see any of this coming. And so yesterday on the earnings call that the new CEO, Stephen Hemsley was very candid with investors and I, I think it seemed almost as if, you know, I'm sure not entirely, but they really did open the books up more than usual with investors and really with the public of everything that is going wrong with the company right now. And it is not just within the Medicare Advantage, United Healthcare in general. It's, it seems to be in almost every part of the company, in Optum and across all of Optum's divisions, especially in the care delivery division. The PBM is, is making a lot of money and has a great profit margin, but is also facing its own headwinds because of GLP1s. So, you know, I can dive into a little bit more details by, by, by each, you know, company segment. But I think what, what surprised me and what I've been seeing a lot of other industry analysts saying online is just, it's very fascinating that United did not catch what was going to be affecting its business.

[Scott Becker]

Yes, no, it is fascinating, but it also speaks to so many different things. The biggest, for all practical versions, the provider business, the biggest insurance business. And both businesses nationally are facing lots of headwinds and challenges. And for years their strength and critical mass made them feel immune to all those problems. Now it seems like those problems are very much catching up to them. And I think what happens is when they were doing so well in some of their areas, they were sort of thought of juniors. We're going out optimum. Their insurance business is going great. It probably hit a lot of different challenges throughout the country. You had mentioned in last week's podcast that they have something like 2700 subsidiaries.

[Jacob]

Yep.

[Scott Becker]

And when you get to the spot of every 27, and that was news to me and really informative. When you start to get to that sprawling an enterprise, what happens is you could have all the analysts in the world and they can analyze all the stuff they want to analyze in the world, but there are so many moving parts that is hard to really nail down every single thing and where they're at. And on top of it, there are so many industry trends touching so many different parts of the business that make it, you know, very hard to really, you get to be a 420 billion dollar business in a very complex business. It's hard and hard to really know your business. And that is one of the great challenges. We always say the best business people really know their business and it feels like it just has grown out of control. So it's harder and harder to get to be in that spot. And leadership matters and They've had lots of leadership turnover and you, you need a brilliant person running Optum, you need a brilliant person running insurance, you need a brilliant person person running the entire company. And so leadership is really important, particularly the more complex and the bigger company you get.

[Jacob]

Yeah, no, I totally, I totally agree with everything you're saying and I think, yeah, perhaps even if they did catch some of these things internally previously, you know, it's a big ship and it's hard to turn, turn things around even if you know things are going in the wrong direction. But to your point, yeah, there's been, there's been a lot of leadership changes that we knew were happening. They've said that these are, things are happening a lot of leadership changes pretty much in every major division. At it end the insurance division ended Optum but just in terms of numbers that they, because again they were being very, very specific yesterday on their earnings call which is, is a departure from previous calls with investors. And you know, they're expecting six and a half billion dollars more in medical costs than they originally anticipated by the end of this year, which is of course that's a massive number within the Medicare Advantage business. Specifically it's physician and outpatient care costs that are really composing the biggest, the majority of the headwinds that they' and because of that they're planning to discontinue Medicare Advantage plans. They currently serve more than 600,000 people across the country, primarily PPO plans because they just don't feel they can be profitable with, with those plans. So that's a major decline in MA membership. Definitely would still keep them as the largest MA business but you know, that is a decline. The commercial part of the business, UnitedHealthcare, higher than expected costs in outpatient, inpatient care, orthopedic spending, pharmacy infusions and they're expect membership to decline there as well. And then they're expecting growth within their level funded and self funded products. In the ACA business. They are planning as of now to stay in 30 of their current state markets. But they, they said that they will exit certain states if they can't achieve the rates needed to improve market morbidity, which is what you mentioned earlier. That's some of the issues that Centene and Oscar are also facing is just, you know, the sickness of the member pool overall is getting worse and making care costs go up and they're, they're worried about the, the subsidies expiring of 2025 because that will also cause membership declines in that part of the business. They're seeing headwinds in the Medicaid business. And of course they operate in a lot of of states with Medicaid and then with Optum Health, the care delivery arm, they said they're just seeing more complex patients. The medical cost growth is really just growing in a way they didn't anticipate, especially with Medicare and Medicaid members. And then I mentioned that they've been having that issue with fully integrating the new C model, the V28. And so Optum Health alone is facing an $11 billion headwind over the next three years. And I think what's the CEO of Optum, Dr. Patrick Conway said something really interesting on the call that a large part of the misexecution addressing some of the federal funding cuts was because of non standardized and overly localized management approaches with Optum's care delivery arm. So basically the company gave too much control locally to some of clinics, it sounds like, and its medical groups. And it sounds like they want to bring that back closer to home, closer to Minnesota so that they can have more control over, over coding, pricing, how things are, how care is being delivered. So that was a really interesting quote that we heard. And then two, two last little things, Scott, is that on the PBM side with OptumRx GLP1s this year alone represents $160 million headwind for the PBM them, which I thought was really interesting. And then the company is still planning to move ahead with its purchase of the home health company A Medicis, which, you know, that was announced all the way back in 2023 over over two years ago. And that's gotten mucked up with a lot of, you know, DOJ investigations and, and certain promises they've been making the government in terms of sales so they can, you know, pass antitrust reviews. So they're still moving full steam ahead with that. But just a lot of candidness that we heard from the leadership up yesterday.

[Scott Becker]

No, absolutely fascinating. I want to thank you as always, Jacob, for joining us on the Beckers Healthcare podcast. It's always great to visit with you. I always learn a lot. Thank you for joining us today. Just fantastic.

[Jacob]

Thank you, Scott.