UnitedHealth Group (UNH) shares plummeted 21.46% on Thursday after the healthcare giant reported disappointing first-quarter earnings and significantly lowered its full-year profit forecast, citing unexpectedly high medical costs in its Medicare Advantage business.

The company reported adjusted earnings per share of $7.20 for the first quarter, falling short of analysts' expectations of $7.29. Revenue came in at $109.58 billion, also missing the forecast of $111.60 billion. However, the most significant blow to investor confidence came from UnitedHealth's dramatic cut to its 2025 earnings guidance. The company now expects adjusted earnings of $26 to $26.50 per share, down sharply from its previous forecast of $29.50 to $30 per share.

UnitedHealth CEO Andrew Witty called the company's performance "unusual and unacceptable," stating that the surge in care activity within its Medicare Advantage business became apparent only as the quarter closed. The company reported that medical care activity for Medicare Advantage plans increased at twice the rate seen in 2024, with particularly high utilization in physician and outpatient services. This unexpected rise in healthcare demand has put significant pressure on UnitedHealth's profitability, despite recent increases in Medicare reimbursement rates.

The news sent shockwaves through the health insurance sector, with competitors such as Humana, CVS Health, and Elevance Health seeing their shares fall by 8.5%, 6.2%, and 6.2% respectively. Analysts expressed surprise at the magnitude of UnitedHealth's earnings miss and guidance cut, with Kevin Gade of Bahl & Gaynor noting, "Nobody was expecting this level of a miss or cut to guidance." The sharp decline in UnitedHealth's stock price, which had been viewed as a safe haven amid recent market volatility, has raised concerns about the broader health insurance industry's ability to manage rising medical costs.

Looking ahead, UnitedHealth management emphasized that they consider the Medicare Advantage challenges to be "highly addressable" and are committed to improving performance for the remainder of 2025 and into 2026. However, investors and analysts will be closely watching for signs of stabilization in medical costs and any potential long-term impacts on the company's business model. As the largest U.S. health insurer and a bellwether for the industry, UnitedHealth's struggles may signal broader challenges for the healthcare sector in managing the post-pandemic surge in medical services utilization.