The Going Gets Tough for UnitedHealth Group

But when the going gets tough, can the tough get going?

Update 12/20: I was shocked and saddened to learn, just minutes after initially publishing this post at the conclusion of United’s investor day, of the assassination of UnitedHealthcare executive Brian Thompson. Across friends and colleagues in the healthcare ecosystem, it was a difficult week processing this tragedy, and I unpublished this post immediately. Considering the outsized impact of UnitedHealth Group on the U.S. healthcare ecosystem, I am now reprising this content solely as commentary on the business. To Mr. Thompson’s friends, family, and colleagues, I extend my deepest condolences for this profound loss.

In today’s somewhat sobering annual investor day, UnitedHealth Group (UNH) CEO Andrew Witty described the company as grappling with unprecedented challenges. Yet paradoxically, UNH is still commanding respect on Wall Street, with a share price up ~15.5% YTD. What could be driving this disconnect?

Witty shared that the business is facing more challenges than it has perhaps ever seen before. He attributed this to Medicare Advantage price cuts, Part D reform, and post-pandemic utilization trends. Conspicuously absent from this litany were the 2024 Change Healthcare hack, regulatory scrutiny of UNH's PBM, and bad press on its care practices. Continuing the narrative from the company’s Q3 earnings, Witty reiterated lower earnings guidance for 2025.

Despite these headwinds, UNH's stock has surged from $539 at the start of the year to $623 this morning just after the investor day concluded. Is this just a case of irrational exuberance? If not, the answer could lie in UNH's unparalleled scale, its continued emphasis on value-based care (VBC), and potential regulatory tailwinds for both of these under the incoming Republican administration.

UNH Share Price YTD as of 12/4/24 (~9:30 AM)

With 4.7 million lives now in VBC arrangements – up from 4 million as of Q4 2023 earnings – UNH is doubling down on this model. Management repeatedly referenced CMS’s march towards VBC over the last 20 years, and the WSJ opined the day after the U.S. Presidential election that UNH’s Medicare Advantage business – which has been strained by regulation that came out under the Biden administration – could significantly benefit from regulations expected under the Trump administration.

Witty also emphasized that the company’s scale positions it uniquely to weather storms and capitalize on opportunities such as leveraging data and technology. UNH’s scale brings not just market power but also business diversification and the (theoretical) ability to serve member needs more comprehensively and roll out new approaches to care with greater impact than many healthcare companies can. While the Justice Department this year has sought to block UNH’s continued expansion via its attempted acquisition of Amedisys, under a new administration these types of restrictions could potentially ease up and create additional business tailwinds.

On the tech side, UNH boasts 16,000 engineers (~4% of its ~400,000 employees) and new AI and automation initiatives. While some of these initiatives sound rather basic – like having access to unified health data for its VBC populations – at scale they could add up to real improvements in the company’s care outcomes and efficiency.

Yet questions linger. How will Medicare Advantage and M&A actually fare in an increasingly unpredictable regulatory environment? And is UNH's ongoing drive for operational efficiencies enough to offset reimbursement and care utilization pressures?

Witty closed his initial remarks channeling his inner coach, stating, "When the going gets tough, the tough get going.” As the investor day event was unfortunately cut short just an hour in due to a medical emergency, one thing was clear – despite investor enthusiasm, the going is currently tough for UNH, and it remains to be seen how the company will cope over the next few years.