UnitedHealth Group’s stock dropped sharply on Thursday after the insurance giant slashed its earnings outlook for 2025.

The announcement led to a broad drop in the Dow Jones Industrial Average, which fell 527 points or 1.3 percent?

The reason: people enrolled in its Medicare plans needed more care than anticipated.  

For an insurance company, the less it pays out for its enrollees to get care, the more profit it makes.  

“We all have to contend with the stubborn fact that health care costs more in the U.S. than it should, even beyond the widely recognized disparities in drug prices,” UnitedHealth CEO Andrew Witty said during an analyst call Thursday. 

Witty did not downplay the results. He said the company’s first quarter performance was “unusual and unacceptable” and he would move aggressively to fix it. CFO John Rex similarly said he was “extremely disappointed” in the company’s outlook.  

High utilization has impacted the entire health insurance industry over the past year, as more older adults are getting care they put off during the COVID-19 pandemic. But until Thursday it hadn’t been seen as a significant issue for UnitedHealth. 

Specifically, UnitedHealth pointed to patients’ use of physician and hospital outpatient services. Use of medical care in its Medicare Advantage plans increased twice as much as in 2024, and the trend did not become apparent until late in the quarter. 

Executives noted there were a lot more people seeing physicians for wellness visits than anticipated, which then drove up specialty and outpatient utilization for follow-up care. 

“We are consistently engaging with members in their homes and in post-discharge settings. Engagement remains the key,” Witty said. 

Medicare Advantage plans are also set to receive a major pay bump next year, which Witty said will help the company recoup its losses. 

The plans, which are privately run but reimbursed with taxpayer money, will see payments increase by 5.1 percent under a final Trump administration rule; about a $30 billion increase. 

The Biden administration slightly cut Medicare Advantage payments in 2024 and 2025, but only after giving the plans major increases in 2023.  

Still, Witty said the “funding cuts in recent years” forced the company to significantly raise premiums and cut benefits. But that premium increase also likely drove utilization. Because people are paying more, they’re getting more care.  

Another, more significant problem for the company was the federal government’s new system for paying Medicare Advantage plans. Under the “risk adjustment” system, plans get paid based on how sick enrollees are, so companies get more money for covering people with more conditions. 

UnitedHealth is reportedly facing a federal civil fraud investigation into its aggressive coding practices that allegedly resulted in billions of dollars in extra money from taxpayers.

The Biden administration attempted to cut down on companies, specifically UnitedHealth, misusing certain codes by removing them from the system.