UnitedHealth Group’s “unusual and unacceptable” first-quarter results have led the company’s top executives to change their tone regarding CMS’ Medicare Advantage V28 risk adjustment model.
The V28 model is a phased-in change that began in 2024 and will continue through next year. The adjustments are intended to more accurately reflect the health status of Medicare beneficiaries, but it was met with heavy resistance from insurers who described the change as a funding cut.
In November 2023, UnitedHealth CEO, Andrew Witty, expressed optimism about the change, framing it as an opportunity to drive internal innovation and efficiency.
“The stimulus rate notice has been an incredibly positive and healthy event for UnitedHealth Group,” he said at the time. “Not because it gave us more money. It didn’t. But because it gave us the stimulus to rechallenge ourselves on how we do things even more effectively going forward.”
“We took the time to plan out a three-year response strategy to that,” Mr. Witty informed investors in May 2024. “We’re in year one of the three year response strategy, and it’s playing out the way we planned.”
But in its first quarter earnings for 2025, the company was caught off guard by care utilization rates twice as high as expected among its Medicare Advantage membership, especially for outpatient and physician services. A significant driver of the increase came from the company’s group MA business, particularly within its public sector retiree plans.
The rise in costs led the company to cut its earnings guidance for 2025, sending its share price down 20% on the morning of April 17.
“We’ve really never seen this dynamic before in the group MA business,” UnitedHealthcare CEO Tim Knoll told investors. “We’re seeing it because of the pressures related to the Medicare funding cuts that are really driving up premiums in the group retiree business like they really never have before.”
“The ongoing execution to the new CMS risk model, while complicated given the multiyear phase in, has not been to our operational standards,” UnitedHealth CFO John Rex told investors. “Transitioning to a new model and concurrently running two distinct versions has been more operationally complex than anticipated. But no question, we need to execute better, and we will.”
Additionally, Optum Health, the company’s care delivery division that serves Medicare enrollees under value-based care models, faced challenges as new members from other MA plans, which had exited markets last year due to the V28 changes, came on board. Mr. Witty explained that many of these members had not been as engaged with their prior plans, which complicated Optum’s ability to assess their health needs and reimburse services accurately.
“We’re almost certainly taking a bigger fraction of the pressure because of our market leadership position here,” he said. “We feel like we’re very much getting through this. This year, we have picked up the two or three, second-order derivative effects, which we’re going to do a much better job of anticipating and managing for as we go into 2026.”
The company’s leaders said they are prioritizing improving engagement with complex patients moving forward, particularly those most impacted by the new risk adjustment model. Additionally, UnitedHealth said it is focused on updating the health status of new patients, especially those at high risk, and enhancing physician clinical workflows to better manage their care.
“The 2026 rate notice begins to reflect the accelerating care cost trends we have experienced for some time,” Mr. Witty noted, referencing CMS’ move to boost MA payment rates by 5.06% next year.
