UnitedHealth Group (NYSE: UNH) is central to the trillion-dollar U.S. healthcare industry. It's a behemoth that generates over $400 billion in annual revenue with insurance, pharmacy, care services, and technology operations, affecting millions of patients.
The company's remarkable ascent has made the stock a life-changing investment, returning over 260,000% over its lifetime.
But now, UnitedHealth Group suddenly faces scandal and uncertainty. The CEO of UnitedHealthcare, the company's insurance arm, was slain in New York City in December 2024. Since then, additional reports have alleged serious problems at UnitedHealth Group.
The stock is down over 50% from its all-time high earlier this year. The stock's past performance makes this a tempting buy-the-dip opportunity, on the assumption these storm clouds will pass. But before doing so, here is one thing you need to know.
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UnitedHealth Group's problems look serious
The U.S. healthcare industry generates an estimated $1.6 trillion in annual revenue. It has long been a political lightning rod, and critics have accused healthcare companies of prioritizing profits over patient health. The tragic and wrongful killing (violence is never the answer) of UnitedHealthcare's CEO turned a political spotlight on the industry's largest (by revenue) corporation.
Now, recent reports signal more potential trouble coming for UnitedHealth Group.
The Wall Street Journal reported that the Department of Justice is investigating the company for possible fraud in its Medicare business. Meanwhile, The Guardian reported allegations that UnitedHealth Group has secretly paid nursing homes and care facilities to avoid sending patients to hospitals to reduce costs, even stationing corporate medical staff in facilities who intervened to prevent transfers.
UnitedHealth Group's CEO abruptly resigned a couple of weeks ago, which never looks good with these sorts of allegations coming out, and the company withdrew its 2025 guidance. If these allegations prove true, it wouldn't be the first time a corporation has acted shadily, but investors should be wary of how deep the rot may be.
The potential rot within UnitedHealth Group could mean 3 things for the stock moving forward
1. Investors may not be able to trust the company's past performance
Many will look at the company's past and assume it will return to excellence once the controversy passes. However, that can be a dangerous assumption. What if UnitedHealth Group's success was at least partly due to illegal or immoral tactics?
There is so much information coming out that it's impossible to know whether UnitedHealth Group is guilty of these allegations, whether there is more that's not public, or how much these factors might have contributed to the company's top and bottom line.
2. Government intervention could be coming
UnitedHealth Group is a colossal business, one of the most powerful corporations in any industry. So, I'm not saying that UnitedHealth Group can't still grow profitably.
Despite the political scrutiny healthcare gets, it seems like the industry never changes. However, the noise from the CEO's murder and the ongoing scandals could finally push the U.S. government to either impose stricter regulations or move to break up these powerful corporations.
Shortly following the murder, a couple of U.S. Senators introduced a bill that would force UnitedHealth Group to divest its pharmacy benefit manager (PBM) business. PBMs negotiate prescription drug benefits with payers, such as insurers or employers, on behalf of patients. One can imagine how an insurance company and PBM operating under the same ownership may not work in a patient's best interests.
Any government action restricting or unwinding some of these dynamics could effectively reduce UnitedHealth Group's power and business performance.
3. UnitedHealth Group could carry a stigma for a long time
It has become clear that the stock may be radioactive for a while. Even if everything eventually blows over, it may take months, even years, to investigate and let the dust settle. Then, the business must prove itself again. Remember, 2025 guidance is off the table now.
The more issues there are, the longer this could take. It's been over six years since Boeing first grounded its 737 MAX planes worldwide due to safety issues, and the company is still dealing with the fallout. Its stock is still down over 50% from its all-time high in 2019.
Time will tell what happens to UnitedHealth Group, but the numerous developments over the past month alone aren't a great sign. If you decide to buy and wait things out, be sure you know the risks.
