UnitedHealth surprised investors with what its CEO said was an "unusual and unacceptable" quarterly earnings miss, and it lowered its outlook for the full year due to higher-than-expected medical costs, sparking a 18% selloff in shares that reverberated across the sector.

The forecast cut also dragged down shares of health insurers, Humana down 7%; CVS Health and Elevance down over 6%; Centene down 4%.

The company's earnings and bleak forecast sent investors to the exits as they were expecting the insurer to maintain its profit outlook on expectations that demand for medical services would be similar to 2024's demand level.

UnitedHealth reported revenue of $109.6 billion for the quarter, short of expectations for $111.6 billion, and earnings of $7.20 per share, also short of expectations.

"UnitedHealth Group grew to serve more people more comprehensively but did not perform up to our expectations, and we are aggressively addressing those challenges to position us well for the years ahead," CEO Andrew Witty said in a statement, calling the performance

The health insurance industry has been grappling with increased costs since mid-2023 due to a surge in demand for healthcare services under government-backed Medicare plans for older adults or individuals with disabilities.

UnitedHealth said patient care costs in its Medicare Advantage business rose more than expected late in the quarter, led by physician and outpatient services. Its Optum Health unit also faced pressure from a sicker patient profile and the continued effect of Medicare rate cuts under the Biden Administration.

"Nobody was expecting this level of a miss or cut to guidance," said Kevin Gade, chief operating officer of Bahl & Gaynor, which owns UnitedHealth's stock.

The company now expects 2025 adjusted profit per share to be between $26 and $26.50 per share, compared with its prior forecast of $29.50 to $30 per share. Analysts were expecting a profit of $29.73 per share for 2025, according to data compiled by LSEG.

Health insurance stocks had a rough 2024, hurt by lower government payments, elevated medical costs and public backlash against the sector after the murder of a UnitedHealth insurance unit head, Brian Thompson, late last year.

Thompson's fatal shooting also unleashed a social media storm of patient dissatisfaction and ire over the health insurance industry's practices, adding to the company's woes.

However, insurer stocks have performed better in the past months despite a market rout triggered by escalating worries over President Donald Trump's trade tariffs.

"This was a stock that was a safe haven for so many among tariffs and policy uncertainty," Gade said.