A year ago, the stock performance of UnitedHealth Group (UNH) was nothing short of disastrous. Due to higher-than-expected costs related to members, the company missed analyst expectations for the first time since the 2008-2009 financial crisis, causing its stock price to drop sharply.
UnitedHealth Group is a company that provides health insurance and healthcare services. Its UnitedHealthcare segment sells health insurance products, while its Optum segment offers healthcare services. Today, UnitedHealth’s stock price is approaching its 52-week high. The federal government’s announced Medicare Advantage reimbursement rates were better than expected, and profit margins have improved, with the stock rising 23% since the beginning of this year.
Despite this, UnitedHealth’s stock price is still down more than 34% from two years ago. Does this stock have further room to rise, or is it a good time for investors to take profits?
The company’s failure to meet expectations in the first quarter of 2025 triggered the previous decline, making its recent performance noteworthy. Quarterly revenue was $111.72 billion, a 2% increase year-over-year, and more importantly, it exceeded analysts’ expectations of $109.57 billion. Adjusted earnings per share were $7.23, higher than the analysts’ forecast of $6.57.
The company reported that its medical care ratio (reflecting the proportion of revenue spent on medical costs) decreased by 90 basis points to 83.9%. UnitedHealth also scaled back its Medicare Advantage plans in several states to improve its financial position. The company reported serving 7.55 million Medicare Advantage patients in the first quarter, down from 8.45 million in the same period last year. Even so, revenue from the UnitedHealthcare Medicare and Retirement segment, which includes the Medicare Advantage business, still increased by 1% year-over-year.
Government business is a vital part of UnitedHealth, with approximately 44% of the company’s revenue coming from the U.S. Centers for Medicare and Medicaid Services.
UnitedHealthcare CEO Tim Noel said: “Given persistently high growth trends and underfunding, we expect continued member attrition and negative profit margins in 2026, with modest margin improvement beginning in 2027.”
Currently, UnitedHealth faces two major driving forces, but only one of them is truly within the company’s control. UnitedHealth has launched a generative AI chatbot named Avery, which coordinates healthcare experiences for members and learns from them. This spring, 6.5 million members already had access to Avery, and the company plans to expand the service to more than 20 million members by the end of the year.
The other driving force depends entirely on the federal government. In April of this year, the government announced that Medicare Advantage payment rates for 2027 would increase by 2.48%, far higher than the previously considered meager increase of 0.09%. Higher payment rates will improve UnitedHealth’s profitability, especially in 2027, which is why investors are bullish. However, such benefits may be short-lived, as Medicare Advantage payment rates could slow again in subsequent years.
The artificial intelligence initiative is crucial to UnitedHealth’s future, but the company’s reliance on federal Medicare and Medicaid is concerning. As long as the government continues to raise payment rates, UnitedHealth can maintain acceptable profit margins and remain a top-tier health insurance stock. But if the government lowers payment rates again, as initially proposed for 2027, UnitedHealth’s profit margins will come under pressure.
While AI innovation offers long-term growth potential, investors need to be vigilant about the potential impact of policy changes on profit margins. The current stock price remains significantly lower than two years ago, and whether it can continue to rise largely depends on the future direction of government payment policies.
