UnitedHealth Shares Slump Again. Double Headwinds Hit, Where Can the Insurance Giant Find Relief?

TradingKey - The Centers for Medicare & Medicaid Services (CMS) announced on Monday that Medicare Advantage payment rates for 2027 will increase by only 0.09%, far below analysts' expectations of up to 6%.

Meanwhile, UnitedHealth, in its 2026 outlook, stated that it plans to reduce the number of people it insures by more than 2 million and expects this year's revenue to decline by 2% to $439 billion.

Following this double blow, UnitedHealth (UNH) shares plummeted 19.61% on Tuesday, marking its second-largest drop since going public. Approximately $60 billion in market value evaporated in a single day, significantly weighing down the Dow Jones Industrial Average.

Revenue Outlook Sees First Drop in a Decade; Market Confidence Shaken

Earnings results were mixed: fourth-quarter adjusted earnings per share were $2.11, slightly above the market expectation of $2.10; full-year adjusted earnings per share were $16.35, which also beat consensus expectations.

However, the company's guidance for 2026 projects full-year revenue of just over $439 billion, significantly lower than the $447.6 billion in 2025, marking UnitedHealth's first annual revenue decline in over a decade.

Analysts at investment bank Oppenheimer & Co. Inc. noted: "Insurers are facing a harsh political environment, which is uncommon during Republican administrations. Inflation has exceeded historical levels for several consecutive years, yet Medicare rate adjustments have significantly lagged behind inflationary trends."

UnitedHealth also disclosed that the U.S. Department of Justice is launching a criminal investigation into the company's Medicare billing practices.

After the negative news is fully absorbed, will UnitedHealth investors see hope?

From management's perspective, this sharp pullback is more of a strategic adjustment of "taking a step back to move forward." The company expects 2026 revenue to exceed $439 billion, down about 2% from 2025, marking the first negative revenue growth in over a decade.

Regarding this, CFO John Rex stated clearly that this change does not represent a weakening of the core business, but is rather the result of proactive structural optimization.

Notably, UnitedHealth has chosen a path of "proactively shrinking scale to prioritize margin recovery." The company has clearly shifted its 2026 operational focus from pursuing membership size to improving the quality of earnings.

Management expects Medicare Advantage membership to decrease by approximately 1.3 million to 1.4 million, while Medicaid membership is expected to decline by about 565,000 to 715,000.

CEO Hemsley stated directly during the earnings call that the company is conducting a comprehensive review of its business portfolio and will focus more on "markets and products that can generate returns" in the future.

While revenue is under pressure, profit guidance has emerged as one of the few signals to reassure the market. The company expects 2026 adjusted earnings per share to exceed $17.75, representing at least 8.6% growth over 2025, which is also higher than Wall Street's original consensus estimate of approximately $17.61.

Meanwhile, the medical care ratio is expected to improve to 88.8% (plus or minus 50 basis points), while the operating cost ratio remains stable at approximately 12.8%.

At the operational level, management plans to save nearly $1 billion in operating costs over the next year through large-scale AI implementation, while investing approximately $1.5 billion in technological system upgrades. Profit margins for Optum's various business segments are also expected to expand by 20 to 90 basis points within the next year.

From this perspective, UnitedHealth has not provided a "conservative recession guidance," but rather a restructuring blueprint with clear trade-offs: sacrificing short-term scale for a recovery in medium-term profitability and the quality of capital returns.

Additionally, it is worth noting for investors that 13F filings show several institutions, including Warren Buffett, Michael Burry's Scion Asset Management, and Soros Fund Management, "bought the dip" in UnitedHealth during the second quarter of 2025.

UnitedHealth's prudent management approach of sacrificing size for survival may lead to a turnaround in its stock price in 2026.