UnitedHealth's Crown Jewel At Risk: Analyst Warns Optum Health Could Be 'Structurally Impaired' By Medicare Rule Changes

A leading Managed Care Analyst at Baird, Michael Ha, has a warning against UnitedHealth Group Inc.’s UNH prized Optum Health division, which he believes could see headwinds as a result of recent government changes to Medicare Advantage risk coding.Optum Health Could Be ‘Structurally Impaired’Speaking on The Real Eisman Playbook podcast, with host Steve Eisman on Tuesday, Ha said the company's issues go beyond cyclical cost pressures or recent public relations setbacks.According to Ha, at the core of UnitedHealth’s problems is the V28 risk adjustment model revisions introduced by the Centers for Medicare & Medicaid Services (CMS). These revisions are being phased in over three years and are designed to tighten how Medicare Advantage plans code for patient conditions.He said that under the old regime, UnitedHealth had been more aggressive than its peers in using diagnostic codes to justify higher risk scores and thus higher payments. The new model eliminates thousands of coding categories, thus making it harder to game.“The impact alone from V28… It's $11 billion over three years,” Ha says, adding that “It could structurally impair Optum Health,” which is UnitedHealth’s healthcare services subsidiary. Optum Health was once projected to double UnitedHealth's enterprise earnings over the next decade, Ha said, by managing Medicare Advantage patients in-house through value-based care clinics. But its long-term margin guidance has been slashed from 8–10% down to 6–8%, and he says, the actual value-based care margins are now hovering near “1%.”Beyond operations, Ha flagged troubling accounting practices. “They were including [gain on sale of assets] basically as part of the operating earnings of the company,” he said, pointing to $3.3 billion in 2024 gains and a similar figure embedded in 2025 guidance.“Right now, you have an underperform on it,” host Steve Eisman said. Ha agreed and said, “We think there’s going to be more issues and things could get worse.”Stock Down 45% From Its 52-Week HighShares of UnitedHealth Group are currently down 45% from their 52-week high of $630.73 per share, after the company found itself in the center of several storms this past year, beginning with the assassination of its CEO Brian Thompson in December last year.This was then followed by the abrupt resignation of another CEO, Andrew Witty in May, and the current CEO, Stephen Hemsley’s decision to suspend its full-year guidance. Things have since turned around for the stock, after Warren Buffett-led Berkshire Hathaway Inc. BRK BRK and renowned investor Michael Burry revealed a stake in the company last month, leading to a surge in the stock. UnitedHealth shares were up 1.87% on Tuesday, closing at $347.69, and are up another 0.64% overnight. The stock scores low on Momentum, and is fairly low on most other metrics in Benzinga’s Edge Stock Rankings, but it has a favorable price trend in the short and medium terms. Click here for deeper insights into the stock. $100 Invested In UnitedHealth Group 15 Years Ago Would Be Worth This Much Today Photo courtesy: Poetra.RH on Shutterstock.com