UnitedHealth Group has had its fair value estimate cut to $473 per share from $530 due to increased scrutiny of the company’s Medicare Advantage and other business practices.
The Centers for Medicare and Medicaid Services plans to regulate the Medicare Advantage market more closely, which could result in a significant clawback of overpayments made to private insurers like UnitedHealth. The Office of Inspector General estimates that $3.7 billion was paid in excess in 2023, with potential losses of up to $20 billion if all years from 2018 to 2024 are affected.
This increased uncertainty has led Morningstar to lower its estimate and downgrade the company’s Capital Allocation Rating to Standard. The firm also recognizes that UnitedHealth may have been too aggressive in maximizing profits, which could have permanently impaired shareholder value.
The impact of potential changes to Medicaid spending and pharmacy benefit management business models is still being assessed by Morningstar, but it estimates this could cut into UnitedHealth’s fair value by a mid-single-digit percentage.
Source: https://www.morningstar.com/stocks/unitedhealth-cutting-fair-value-estimate-medicare-advantage-other-practices-questioned