Brokerage firm TD Cowen downgraded the recently under-fire UnitedHealth to a “hold” rating.
The research firm also slashed the price target to $308 from $520.
Why did the analysts downgrade UnitedHealth’s stock
TD Cowen’s analyst, Ryan Langston, said the new V28 Medicare advantage model affects the company more than its competitors.
UnitedHealth’s higher risk adjustment factor (RAF) compared to its peers is a concern for the brokerage.
RAF is a way to calculate a patient’s healthcare costs compared to the average.
This is used to find out how much payment an insurer would get from the Centres for Medicare & Medicaid Services (CMS).
So, a patient having a higher RAF would mean there would be a higher payment to Medicare Advantage.
Normally, the government pays the insurers more for covering patients with more complex illnesses.
Medicare Advantage is UnitedHealth’s biggest business, where it makes more than $100 billion a year.
Since UnitedHealth had higher RAF scores, they used to get higher payments from CMS.
With the V28 advantage model, the RAF score would be lowered, and hence, the payments UnitedHealth would get will be lower.
Since the V28 model will be fully implemented by 2025, the analyst sees risk for the company in 2026 as well.
The analyst also said the increasing medicare advantage cost trend, along with recent regulatory investigations, adds pressure to the company.
Recent woes of UnitedHealth
Last week, a WSJ report said that the Justice Department’s criminal healthcare fraud unit is investigating the company’s Medicare Advantage business practices.
Previously, it was also reported that the Justice Department is investigating the company’s Medicare billing practices.
Before that, the company’s CEO, Andrew Witty, resigned suddenly. The company also suspended its 2025 earnings guidance due to increasing medical costs.
In its first quarter earnings, the company missed the street’s expectations. It also reduced the full year’s earnings forecast.
It had predicted adjusted earnings of $26 to $26.50 per share this year. This was down from December’s prediction of $29.50 to $30.00.
Its medicare ratio increased to 84.8%, a slight increase from 84.3% in the previous year.
The Medicare ratio is the amount the company spends compared to what it earns. The total medical costs also increased to $7.3 billion from $6.6 billion in the previous year.
This was all after Brian Thompson, the company’s insurance division CEO, was murdered in December 2024.
All these events had a massive effect on the stock price as the company’s shares have slid 42% in the year so far.
Insiders are buying the UNH stock
The company’s stock had surged over 6% on Friday, giving it a temporary relief after company insiders bought some of the stock.
UnitedHealth’s director, Kristen Gi, bought 3,700 shares of the company at $271.17 per share.
Timothy Flynn, another company director, bought 1,533 shares at an average price of $320.80.
Investors seemed to buy into the relief rally as the stock was up 3.61% to $302.44 on Monday
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