Yahoo Finance

Shares of United Health Group sinking today, after announcing that Chief Executive Officer Andrew Witty has stepped down from his role for personal reasons. Former CEO Stephen Hemsley will step into that position. The company also announcing its suspending its 2025 guidance. For more on what's next for United Health, let's welcome in Whit Mayo, Leering Partner Senior Research Analyst. Whit, thank you so much for being here. Obviously, this is a complex uh situation for the company, and it's been a rough uh period of time for the stock um and the company's fundamentals. Um, what do you think Hemsley needs to do to get things back on track, and how long do you think he's going to serve in this role?

Well, they've got two primary issues here, where they've got a revenue uh challenge within their Optum uh business from the implementation of a new uh risk model uh change that uh CMS implemented uh starting last year. So, that's a challenge to uh invest into some of the technology and the coding um things they need to do. And second, they're seeing uh elevated care activity with a a number of their high chronic Medicare Advantage members. I think primarily the dual um the decent population dual eligibles, and probably some of the special need plans. So, they can reprice for this. It'll take a little bit of time. Uh certainly, um there's a trust and sentiment issue here that has to be resolved. And I think that's the primary reason why they made the CEO change.

Um and what, when you talk about the Optum business, I'm also curious if there is a more sort of existential threat to it and other um pharmacy benefit management businesses, sort of politically right now because they've come under the microscope and sort of been blamed for some of the the high pharmaceutical costs.

Yeah, we're in the midst of some additional PBM scrutiny right now. Um, the industry's usually transitioned fairly well through a lot of these political uh challenges. I'm sure they'll find a way to make an appropriate margin on it, but nonetheless, you do raise an interesting point that there is, you know, heightened government scrutiny right now.

Whit, the company says it expects a return to growth in in 2026. What do you think?

Uh remains to be seen, and I think that's why we're seeing the stock action today. I mean to see uh the stock lose $70 of value today, you'd probably have to believe that there's another $5 of earnings risk next year. So, um the the biggest challenge is, again, that's the revenue issue that they have with the Optum business and whether or not they can overcome the final transition into what's known as V28. Uh I do think that they will have the ability to grow the insurance subsidiary. Um there's tailwind certainly with Medicaid getting um actuarially sound rates moving into 2026. Uh they should be able to price uh accordingly for some of the elevated care activity utilization they're seeing with Medicare uh advantage. So, um they have the ability to price their way through some of this.

With um it's my understanding you have, or at least had an outperform rating on this one. Are you still pretty optimistic or are there other insurers in the space that you think are better bets right now?

Well, I mean, I think that this the the stock action, while I understand it, I think is exaggerated versus what the the actual earnings uh headwinds would probably be next year. So, we do continue to have an an outperform uh rating on it.

In terms of Hemsley, uh Whit, I'm just curious. I mean, is he the right man? Is he the right executive for for this task, this challenge?

I mean, he's got a tremendous track record um navigating this organization through prior cycles of of challenge. He's been um heavily engaged as an active chairman for a period of time, probably less so on the operating side. Uh I think he is probably the best uh fit uh executive to transition into this into this role right now.

Um Whit, to just zoom out for a minute, um I I mentioned what's going on politically here right now, and I am curious at this moment in time, what do you think is happening from policy perspective that is the most relevant to your coverage that investors need to be paying the most attention to?

Well, we're knee deep in reconciliation right now, and so I think we're staring at what appears to be a softer landing with the outcome of the Energy and Commerce Committees uh reductions to funding and cuts to providers and payers. So, I think that was certainly a a well-received update, um I guess on Monday. Um we continue to be in just an environment for Medicare Advantage where I've called it the deep deep cleansing, whether it's the Biden administration implementing a number of stealth cuts changes to star ratings. You can't have 50% of the senior population inside of the Medicare Advantage program without uh expecting to see some heightened uh integrity around how the program operates. And I would expect even under this administration that we're going to continue to see a series of changes that um may not um be that easy for the the plans to navigate.