The Medicare Advantage Divide: Why Elevance’s Steady Hand Outshines UnitedHealth’s Woes

The healthcare sector’s latest earnings season has exposed a stark divide between two of its giants: UnitedHealth Group (UNH) and Elevance Health (ELV). While UnitedHealth slashed its financial outlook, citing surging medical costs and operational hurdles, Elevance reported a resilient quarter, defying industry headwinds. The contrast raises critical questions for investors: Is UnitedHealth’s stumble a temporary stumble or a sign of deeper vulnerabilities? And can Elevance sustain its outperformance in a sector grappling with Medicare funding cuts and regulatory uncertainty?

The UnitedHealth Wobble: Costs and Complexity

UnitedHealth’s Q1 2025 earnings revealed a company buckling under unexpected pressures. The insurer lowered its full-year adjusted EPS guidance to $26–$26.50, a sharp drop from earlier projections. The primary culprit? Heightened care activity in Medicare Advantage, where utilization of physician and outpatient services doubled compared to 2024. This surge, combined with lower-than-expected Medicare reimbursements due to shifts in beneficiary profiles, created a perfect storm. Compounding these issues was the rollout of the new CMS risk model, which disrupted operational execution and exacerbated financial strain.

Even so, UnitedHealth’s revenue engine remains robust. The company reaffirmed its $450–$455 billion revenue target, with divisions like Optum Rx shining—reporting a 14% revenue jump to over $35 billion in Q1, driven by strong customer retention and new business wins. CEO Andrew Witty insists these challenges are “highly addressable,” pointing to operational adjustments and improved pricing assumptions to restore long-term growth of 13–16% by 2026.

But markets were unimpressed. UnitedHealth’s shares plummeted 23% post-earnings, reflecting investor skepticism about the timeline for recovery.

Elevance’s Resilience: A Recipe for Stability

While UnitedHealth faltered, Elevance—a smaller but nimbler Medicare-focused rival—demonstrated surprising strength. The company beat its own guidance, posting an adjusted Q1 EPS of $11.97, well above its $11.62 target and analyst estimates. Elevance credited stable medical cost trends in Medicare Advantage, which aligned with its pricing strategies. The insurer reaffirmed its full-year EPS guidance of $34.15–$34.85 and aims to grow Medicare Advantage membership by 7%, targeting 2.2–2.25 million members by year-end.

Key to Elevance’s performance is its focus on member engagement and actuarial precision. Unlike UnitedHealth, Elevance has avoided the reimbursement drag tied to shifting Medicare beneficiary profiles. Its profitability held steady at $5.98 billion in 2024, and its membership base grew to 45.7 million across all lines of business. CEO Kevin Counihan emphasized that Elevance’s “tight cost discipline” and localized care networks provide a buffer against industry-wide pressures like tariffs on pharmaceuticals and Medicare funding cuts.

The Broader Sector Shift: Winners and Losers

The contrasting performances of UNH and ELV have ripple effects across the sector. Competitors like Humana (HUM) and CVS Health (CVS) saw their stocks dip alongside UnitedHealth, signaling broader investor anxiety about Medicare Advantage’s profitability. The sector’s challenges are clear: rising utilization rates, regulatory uncertainty, and the transition to new risk models are testing even the most seasoned players.

Yet Elevance’s outperformance suggests that smaller insurers with laser-focused strategies may thrive in this environment. The company’s 2025 Medicare membership target—7% growth—compares favorably to UnitedHealth’s 800,000-member goal, which remains achievable despite the current headwinds. Meanwhile, UnitedHealth’s Optum divisions (excluding Rx) face scrutiny, as their operating earnings projections ($6.2–$6.4 billion for Optum Health) lag behind expectations.

Conclusion: Navigating the Medicare Crossroads

Investors must weigh two paths forward. UnitedHealth’s scale and diversified portfolio—spanning insurance, pharmacy, and health tech—still hold long-term appeal. Its Optum Rx division’s 14% revenue growth and membership targets remain solid markers of resilience. But the company’s near-term struggles highlight vulnerabilities in its Medicare Advantage business and its ability to navigate complex regulatory changes.

Elevance, by contrast, offers a model of focused execution. Its ability to manage medical costs and stabilize profitability in a turbulent environment positions it as a safer bet for investors prioritizing stability over size. With a 2026 EPS target of $34.85, Elevance’s valuation—currently trading at 15.4x forward earnings—appears reasonable compared to UnitedHealth’s 13.8x multiple, especially if it can sustain its outperformance.

The takeaway? The Medicare Advantage sector is undergoing a reckoning. Companies that prioritize actuarial rigor, localized care networks, and agility in regulatory shifts will lead the recovery. For now, Elevance’s steady hand—and UnitedHealth’s stumble—signal that the sector’s winners are being reshaped, one quarter at a time.

Final Note: Investors should monitor CMS’s risk model rollout timeline and the outcome of pending Medicare funding negotiations. Both could determine whether UnitedHealth’s 2026 growth targets are realistic or merely aspirational.