By JEFF GOLDSMITH

A Forty Year Growth Saga is Coming to an End
After market close Wednesday April 16, UnitedHealth Group reported its First Quarter 2025 earnings. UNH missed their expected 1Q earnings by 9 cents a share, but the firm also lowered its full year 2025 earnings estimate by 12%. On Thursday opening, investors reacted with an unbridled fury, and stripped UNH of more than a hundred billion in market capitalization in a matter of hours. In the glare of hindsight, UNH was priced for perfection at a pre-crash trailing Price Earnings ratio of 38, six points higher than Amazon and eight points higher than Microsoft, which might account for the savagery of the correction.
Definitive answers to the question–what is happening to United’s sprawling mass of businesses–are impossible because the company is an $400 billion black box. The main United businesses–health insurance, care delivery, pharmacy benefits management and business intelligence/services–are so intertwined with one another that only United CFO John Rex and a few other senior managers actually know from whence United’s earnings actually flow. What follows is some speculation on the root causes of United’s earnings problem.
First, a major driver of the last two decades of United’s earnings growth has been using a big chunk of its astonishing monthly cash flow (which was approaching $3 billion a month) buying other companies. This party might be over. United has historically spent about half their accumulated wealth on dividends and share buybacks, that is, paying off shareholders to remain shareholders.
However, a big and undisclosed contributor to UNH earnings growth has been acquisitions, which have occurred in a nearly unbroken string for forty years. From 2019 to 2023, United spent an astonishing $118 billion buying other companies, nearly all of which ended up in Optum. Thanks to great discipline by UNH Executive Chair Stephen Hemsley and CFO-now-President John Rex, United almost invariably bought profitable firms in transactions that were accretive to earnings.
United appears to be running out of accretive transactions. With the dearth of major new transactions, United’s $81+ billion horde of cash and short term investments (larger than Exxon Mobil) is likely to plump up yet more. This will cause folks to wonder why United is raising their rates to employers or shaking down providers for deeper discounts when they are sitting on a growing mountain of cash.
United cannot buy more health insurers (both CIGNA and Humana been for sale for years) because federal antitrust enforcers will stop them. There are no more accretive risk-bearing physician group deals. Hospitals presently employ more than a third of practicing physicians in the US (a very unhappy state affairs for both parties). But these hospital acquisitions have limited the universe of available physician transactions for United.
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