Health insurers’ efforts to raise premiums and cut benefits this year to recoup margins are bearing fruit, with all major publicly traded payers exceeding Wall Street expectations in the first quarter — with one notable exception.
UnitedHealth, the parent company of the largest private insurer in the U.S., significantly underperformed analyst forecasts and cut its guidance for 2025 after elevated utilization caught the insurer off guard and UnitedHealth’s value-based care business struggled to adjust to policy and membership changes.
Rare misfire from UnitedHealth as payer profitability improves
UnitedHealth was hit with a double whammy in the quarter: unexpectedly high medical spending in Medicare Advantage and cost pressure in its care delivery arm Optum Health, which is still adjusting to changes from the Biden administration dictating how it adjusts for its members’ health risk.
Optum Health also brought on new members in the quarter that were saddled with higher medical costs that hadn’t been adequately accounted for by their previous insurers, according to UnitedHealth executives.
The results cast a pallor over the rest of the earnings season, given UnitedHealth is the first managed care operator to report. Since releasing earnings in mid-April, UnitedHealth’s stock has fallen 31%, erasing more than $150 billion in market value.
“To say this was disappointing might be an understatement,” J.P. Morgan analyst Lisa Gill wrote in a note following the results.
However, other payers told investors that medical costs, though elevated, were adequately covered by premiums in the quarter. And UnitedHealth’s core health insurance business UnitedHealthcare still increased its operating profit in the quarter compared to the same time last year, joining other insurers that enjoyed improving profitability off the back of a tough year.
Elevance was the only major publicly traded payer to see a year-over-year decline in profit from offering insurance
Health insurers’ unadjusted operating income, Q1 2024 vs. Q1 2025
Humana’s health benefits division and CVS’ health insurer Aetna saw the most dramatic improvements. Humana reported a 75% increase in operating income, from $898 million to $1.6 billion, while Aetna’s operating income jumped almost four times from $428 million to $1.7 billion year over year.
The two insurers, both of which operate major MA plans, were perhaps the hardest hit in 2024 from rising costs of caring for seniors in the privatized Medicare plans. Both plotted major downgrades to their plans this year, with the goal of losing unprofitable members — efforts that have since panned out, with Humana losing about 420,000 members and CVS losing almost 230,000 since the end of 2024.
There were concerns heading into the earnings results that “Aetna’s progress could be at risk” following UnitedHealth’s forecast of rising costs, Bank of America analyst Allen Lutz wrote in a research note earlier this month.
But Aetna’s profit was “better than expected due in part to the rationalization of members in 2025 including the reduction of members in weaker geographies in the Medicare Advantage business,” Lutz said.
Utilization and other uncertainties
Still, it’s early in the year, and utilization trends could shift. Executives at many insurers warned investors that the tide could turn against them — prudent caution, analysts said, especially given UnitedHealth has a reputation of more accurately forecasting utilization trends compared to its peers. The Minnesota-based company was the first to flag the start of rising spending in 2023.
In the first quarter, care activity grew at twice the rate that UnitedHealth had expected. The increase was focused in outpatient services, particularly for preventative and elective care, and for some members was spurred by the higher premiums UnitedHealth started charging this year, CFO John Rex said on a call with investors.
Though other insurers said costs were growing at an expected rate, they did flag higher utilization, including in long-term supports and services, expensive drugs and behavioral health, along with more spending on seasonal illnesses like the flu. Cigna, which covers the majority of its members in employer-sponsored insurance, continued to experience higher stop-loss costs, too.
“We came into the year very respectful of the environment and had planned — and are seeing — an elevated season but feel that we’ve accounted for that, and feel quite frankly that we’re going to continue to monitor the situation,” Elevance CEO Gail Boudreaux said on the payer’s first quarter call, summarizing sentiments also expressed by a number of her peers.
Along with the worry that utilization could continuing ramping over the rest of 2025, policy turbulence emanating from Washington is also creating uncertainty for insurers.
Payers are operating amid “sector volatility that is unmatched in recent history,” Centene CEO Sarah London said on the insurer’s call.
That includes potential cuts to Medicaid from Republicans in Congress and disruption in the health insurance exchanges set up by the Affordable Care Act.
Payers already expect ACA enrollment to slide over the rest of the year due to program integrity measures, even after some, like Centene and Molina, significantly grew their ACA membership for 2025.
Those membership losses could be exacerbated by a recent rule proposed by the Trump administration that, if finalized, would cause ACA enrollment to plummet, according to experts. More generous subsidies for ACA plans that have caused enrollment to skyrocket could also run out at the end of this year, absent action from Congress.
The uncertainty has led some insurers to trim their exchange membership. CVS’ Aetna is electing to exit the exchanges entirely, after projecting hundreds of millions of dollars in losses from the business this year.
“We are disappointed by the continued underperformance from our individual exchange products and have recently determined there is not a near- or long-term pathway for Aetna to materially improve its position,” CVS CEO David Joyner told investors on the insurer’s call.
