The Sad Saga of Medicare Advantage and Managed Medicaid Programs: How To Make A Silk Purse From A Sow's Ear (Health Insurance Version) (Part Two)
Pandemics kill people; insurance companies make more money. A corporate data breach disables healthcare nationwide; investors ignore what happened. Is there something wrong with this picture?
—Cartoon courtesy of ChatGPT
This is the second part of a series of blogs detailing the meltdown in managed care with a focus on United HealthCare Group and others, what the problems are, and how we got here in the first place. Part One was posted yesterday (link here), and Part Three will be published Monday.
There is nothing wrong with an insurance company making a profit. I am a capitalist; I have benefitted from investing in companies and working with start-ups. I believe in the profit motive.
But I have a problem: When it comes to providing socially necessary services, sometimes providing the service properly may not meet the expectation of doing everything possible to preserve a profit. Social good should trump profit margins.
Silly me to believe that these health insurers really have much belief in that philosophy. And investors want to see profits, increasing profit margins, and when it comes to health insurance companies, low medical loss ratios (MLR).
For those who don’t live in this world, MLR is the amount of money the company pays on medical care. The lower the number, the “better” the company is managed. The problem today is those MLRs are increasing, meaning the insurance companies are spending more money to pay for the care required for their insureds.
It has always fascinated me what causes the value of a health insurance company to rise and fall.
I used to think that one of the measures should be the value the company brings to the care delivered.
Years ago, I learned an interesting lesson:
A major health insurance company received a poor quality of care report from an oversight organization.
The stock didn’t budge.
A couple of months later, during a quarterly financial report to investors, the same company reported a declining profit.
Yowzah!!!!!! Down went the stock price, instantaneously. Profits trumped quality. Surprise!!!!
You don’t have to be a rocket scientist to figure out what counts: Show me the money! Money talks, everything else walks.
With that brief background, let me educate you further on a similar story with a focus on what is happening currently in the managed care industry.
To do that, I am going to take you through three stock charts. Each chart shows the value of one share of stock in a company over the course of a stated period. Those ups and downs tell a story about how the investing world looks at a company and sets a value for that company in the marketplace.
Promise, these charts are instructive, and they do tell a story.
First, the beleaguered Kahuna, United Healthcare:
--Courtesy CNBC.com. Accessed July 9, 2025
This is a stock chart for United Healthcare for the past 5 years. It graphs the daily price of a single share of United Health over that period.
The chart begins with a share price of $306 on 7/19/20. It continued to rise throughout the pandemic, reaching a value of $551.24 on October 30, 2022, when the pandemic was definitely waning. By May 2023 when the pandemic was declared over as a public health problem, the share price was around $500.
Typically, spending for healthcare was going up about 5% a year prior to the pandemic. That would be the expectation when the insurance companies set their premiums—before the pandemic was even a “thing.”
That means if the actual amounts spent by the insurance companies for medical care was LESS than that projected 5% increase, profits would rise.
Like everyone else, United didn’t expect a worldwide pandemic, but that’s what happened. And if you look at the stock price chart, you will see a steady climb in the share price beginning in 2020 and continued into 2022 (Keep in mind that payments can lag actual expenses, meaning the timelines for delivery of care and payment for care don’t necessarily coincide with payment significantly lagging when the service was provided.).
The Bureau of Labor Statistics reported in November 2023 there had been a decrease of .3% in health care expenditures in 2020 during the peak of the pandemic compared to 2019 prior to the onset of the pandemic. Through 2021 things had begun to settle down, and the annual increase in expenditures for health care returned to its more typical 5% increase for 2021 compared to 2020. However, something else was happening, as described below further below.
Here is the chart and a summary from that report:
—Chart from Bureau of Labor Statistics “By The Numbers”, November 2023. Accessed July 9, 2025
“Overall, healthcare expenditures decreased 0.3 percent in 2020, before rising 5.3 percent in 2021 (5.0 percent higher than in 2019)…
The lower volatility of healthcare expenditures may be due to the necessity of some healthcare expenditures in the face of a crisis. That is, while some healthcare expenditures can be avoided in a crisis like a pandemic (like an annual physical exam for a young person who has enjoyed good health), others cannot, whether for conditions that are acute (like an ear infection) or chronic (like severe arthritis).”
The pandemic turned out to be a profit win for the Kahuna until 2021 showed up and expenses for medical services—which had decreased 12.2% in 2020 compared to 2019— increased dramatically by 23.8% in 2021 compared to 2020.
The rubber band had snapped back with a vengeance.
The stock continued to go up through the early months of 2022 and then leveled off within a narrow range in 2022, possibly related to those increased medical expenses in 2021. It could also reflect the delays that can occur when paying for health care services (although a process called “revenue management” has done a lot to get bills to the insurers in a timelier manner).
Denials, delays and appeals can also delay payments, however, especially when expensive, complex hospital stays are involved.
Hospital bills can involve a myriad of medical services, all of which are subject to scrutiny before payment depending on the contract between the hospital and the insurance company. No matter: A simple question from the insurance company asking about the validity of a charge or service can hold up payment for weeks or even longer until it works its way through a byzantine system that is more like a dance of the seven veils than timely payment for health services.
In the finance world, the longer you hold on to the money the more you can earn.
Delaying payments to anyone in business can be a small but consistent income item which doesn’t show up as a line on the financial ledger—especially when you are dealing with substantial amounts of cash (think Treasury bonds and money market funds earning interest).
Its polite name is “cash management”: Make sure every dollar earns every penny possible before you hand it over to someone else. Pennies add up. Really. The longer you hold the money, the more pennies you earn. Warren Buffett is a master at extolling the virtues of Treasury bills to park massive amounts of cash to keep it ready for when you need it.
Whether that happened here is not known to me.
You can also see that United’s stock values start to level-off in the early months of 2022 as would be expected when premiums, services, and payments begin to fall into a more typical balance.
The stock continued to mosey along with some ups and downs until July 2024.
Remember United’s massive data breach affecting millions of people in February 2024?No matter: the stock really didn’t take much of a dive as a result.
In comparison, other companies who have had serious computer/data problems (think Crowdstrike in July 2024 when the world of airline travel shut down because of a faulty computer program update) weren’t so lucky.
This what should happen to your stock when your company screws the world:
—Crowdstrike stock chart courtesy of CNBC. Accessed 7/10/25
United even saw an increase in its stock price that July after it released its quarterly earnings report and after one of the most incredibly negative events that ever happened to healthcare delivery in this nation that left everyone scrambling to get cash to meet expenses and payrolls.
How could that be? In the immortal words of our granddaughter when she was very young, “I dunno…”
Give them another “Yowzah!” for that one: screw the country and make more money. Makes perfect sense doesn’t it?
In real numbers: The stock price was $488 on July 7, 2024, and $565 two weeks later July 21, 2024. That’s a gain of $77, or close to 16%.
That’s remarkable. How is that even possible????? Didn’t people believe what was happening, or didn’t they trust their lyin’ eyes? This company’s bad behavior affected the health and privacy of millions of people. And they get rewarded?
But storm clouds started to gather later in the year. Time would show that now United couldn’t escape reality. Even the investor community started to take notice.
The tragic “delay and deny” murder occurred on December 4, 2024.
That event did something the data breach couldn’t accomplish: It got the attention of the investor community. The share price declined dramatically from $610 just before the murder to about $500 two weeks later when details started to emerge, especially how the public reacted in a quite unexpected manner with sympathy for the killer.
Turned out anger about deny and delay ran deeper than anyone thought possible. The insensitivity of the public and their support for the perpetrator surprised a lot of folks. People even sent him money to pay for his defense.
More storm clouds started to gather after that murder. There were reports emerging about the same time as the tragic shooting that United may have problems more intrinsic to how the company earned some of their record profits.
Here is a list of news reports and investigations that appeared in the Wall Street Journal and Barron’s from December 6, 2024, through February 25, 2025 (the list is in reverse date order):
—From Wall Street Journal. Accessed July 9, 2025
Despite those reports, the stock continued to remain steady at the lower value for the next several months.
United was a company with some bad press, the murder of a senior executive, the announcement of government inquiries. While the stock was depressed from prior levels, nothing further happened despite what was going on with the company as reported in those articles above.
On April 7, 2025, after the Centers for Medicaid and Medicare services announced a 5.06% increase in payments to United and other Medicare Advantage insurers to begin January, 2026, the stock rallied once again, rising close to that magic $600 a share.
Is United Healthcare golden or what?
The other description that comes to mind is “Teflon”, where bad news just slides off their back.
No matter: Life is good again! Hey, kids, let’s dance! It’s Pony Time!!!!! (Thanks, Chubby Checker).
But life wasn’t so golden, after all:
The investment community started asking more questions. Profit outlooks became murkier. The stock began a downward fall just after that dramatic increase following the CMS announcement. Someone was getting the idea that maybe things weren’t so good after all, the promised increase in payment for Medicare patients notwithstanding.
Now the company and its board decided it was time to make some changes. Apparently someone in authority began to sense that maybe there really was a problem with the way the company operated.
Voila! Wake up time!!!!
Out goes the CEO “for personal reasons” on May 13. United Healthcare also announced the same day that it was “pulling” its financial profit predictions for 2025 that same day. (You can read my reaction to Mr. Witty’s resignation here. I thought it should have happened earlier. He didn’t cause the data breach, but it was on his watch, his culture. He should have owned it. It was that bad in my opinion.)
By May 15, our share of stock is now worth $274.
Didn’t take very long, did it? The value of the company was now less than half what it was a couple of weeks previously. That is some serious money, folks! We are talking billions. Gone! Poof! Evaporation! You can’t even scrape the ashes of the missing dollars off the floor.
The reasons? The surging costs to provide medical care as well as burgeoning federal investigations and continuing adverse media coverage. More recently, the budget bill hasn’t helped.
Those problems persist, and on July 9 the Wall Street Journal reported an exclusive follow-up on the burgeoning investigation by the Department of Justice. They are talking to employees and former employees about what United did to juice the diagnoses of patients in their care to get more money from CMS.
It turns out United Healthcare is not alone in feeling the pinch of the current surge in medical spending.
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That’s it for today.
Please come back Monday for Part 3 when I compare United Healthcare to other companies in the same space and provide a novel theory how we got to this moment through the“delay and deny” model for medical care. Not exactly the hoped for equitable model of value and quality for healthcare envisioned by health policy innovators who promoted this system of managed care a couple of decades ago.
Those chickens that came home to roost recently are clucking loudly. They miss their feed and they want their dollars back!!!!