Radar on Medicare Advantage

After a disappointing quarter that sent the company’s stock tumbling and led shareholders to seek a class action, UnitedHealth Group on May 13 unveiled the abrupt departure of CEO Andrew Witty and immediate appointment of former CEO Stephen Hemsley. UnitedHealth's stock price fell 18% that day and continued to decline as the Wall Street Journal reported that the Dept. of Justice is looking into "possible criminal Medicare fraud" related to the insurer's Medicare Advantage business practices. 

"We have not been notified by the Department of Justice of the supposed criminal investigation reported, without official attribution, in the Wall Street Journal today," said UnitedHealth in a statement posted to its website. "The WSJ’s reporting is deeply irresponsible, as even it admits that the “exact nature of the potential criminal allegations is unclear.” 

UnitedHealth added, "We stand by the integrity of our Medicare Advantage program."

News that the Dept. of Justice joined a whistleblower lawsuit alleging a massive kickback scheme between three major insurers and three large broker organizations sent shock waves through the industry and stock prices downward. But to those with experience selling health insurance, the allegations aren’t terribly shocking and bring to light deeply misaligned incentives across the industry.

A major question going forward, insiders say, is whether the lawsuit will lead to regulations that properly address these incentives and weed out the so-called “bad actors” or whether the status quo will be allowed to continue.

As Medicare Advantage overpayments and coding practices face increasing scrutiny from the Medicare Payment Advisory Commission (MedPAC) and other stakeholders, the Washington Post editorial board recently called for the U.S. government to look closely at MA for potential reforms, prompting a letter to the editor from the CEOs of AHIP and the Better Medicare Alliance. MedPAC has long held that MA organizations work to enroll the healthiest seniors and subject them to “upcoding,” a practice condemned by Sens. Elizabeth Warren (D-Mass.) and Ron Wyden (D-Ore.), among others, in a May 7 letter to Congressional leadership. But two recent studies suggest that MA is actually more attractive to lower-income and other at-risk beneficiaries than original, fee-for-service (FFS) Medicare.

After months of legal battles, negotiations and political wrangling over contracts serving elderly and disabled Medicaid enrollees, the Arizona Health Care Cost Containment System (AHCCCS) reached agreements with four managed care organizations for a start date of Oct. 1, 2025. That’s one year later than previously awarded contracts to serve the Arizona Long Term Care System-Elderly and/or Physically Disabled (ALTCS-EPD) program were slated to begin, and the revised agreements now include two incumbent plans that had lost the original bid, filed protests and took legal action.

A third protesting bidder, Blue Cross Blue Shield of Arizona, was not one of the settling parties, although AHCCCS says the insurer participated in mediation discussions. “Our hope was to work toward a common-sense solution, but the settlement fails to address the problems in the RFP process that the Administrative Law Judge [ALJ] found,” said the Arizona Blues insurer in a May 1 statement.

After UnitedHealth Group reported disappointing first-quarter financial results reflecting higher-than-expected Medicare Advantage utilization, investors feared a potential repeat of unexpected utilization levels that began in 2023 and depressed insurers’ earnings last year. But UnitedHealth’s struggles — which set off a downward spiral of events that culminated in the abrupt departure of CEO Andrew Witty — appeared to be isolated to UnitedHealth, as most other major publicly traded insurers reported improving medical cost trends and raised their earnings outlook for the year.

Although the insurer’s medical loss ratio of 84.8% was strong by comparison to its large insurer peers and lower (better) than Wall Street’s projected 85.7%, its heavy exposure in MA across its UnitedHealthcare and Optum Health divisions led the company to reduce its MLR and adjusted earnings per share (EPS) guidance for the year. The company now expects full-year 2025 adjusted EPS in the range of $26.00 to $26.50, down from the previous range of $29.50 to $30.00, and an MLR between 87% and 88%, which is significantly higher (worse) than its 2024 MLR of 85.5% and 100 basis points above its previous guidance.