Here is why Warren Buffett bought UnitedHealth!

UnitedHealth Group Investment Case!

UnitedHealth Group has experienced an absolutely stratospheric growth in the last 10 years, becoming one of the largest healthcare companies, not only in the US but also in the whole world!

From 2010 to 2023, the company saw its revenues almost 4x, from $92B to $372B!

At the same time, net income grew by 383% to $22.4B and the company returned close to $100B to shareholders in the form of dividends and stock buybacks.

Understandably, such financial performance was rewarded by the stock market, as the stock rose by over 1,600% from 2010 to Q3 2024, reaching a market cap of $565B! However, all that came to an end, as the stock collapsed by over 60% from the all-time high, as issue after issue punished the company.

Then, this week, news broke that the Oracle of Omaha himself, Warren Buffett, acquired a $1.6B stake in UnitedHealth, sending the stock up 12% in a single day!

So, what happened, was the fall deserved? Has the situation changed? What is Mr. Buffett seeing in this company?

In this article, I will answer these questions.

1. The Backstory

2. Here is why Buffett bought it

3. Valuation

4. Conclusion

1. The Backstory

In the last year, the company has seen 4 large, somewhat unconnected setbacks that each punished the stock heavily:

• The murder of one of their key executives, Brian Thompson.

• The Department of Justice opened a Criminal investigation into the company.

• Trump’s One Big Beautiful Bill.

• Cost issues caused profits to plummet.

Let’s expand on each of the situations.

The Murder of Brian Thompson

On December 4, 2024, Brian Thompson was murdered when leaving a hotel in Manhattan, New York City. He was the CEO of UNH’s health insurance subsidiary.

This was not one of those crime-related shootings of a random bystander that occur regularly in New York City. Rather, this was a premeditated assassination of a well-known and important executive of a $400B company to make a political statement.

The nature of this killing shocked the business community. But the political message of the killer and the subsequent public reaction is what really hurt the company.

3 discharged bullet casings found at the scene were inscribed with the words "delay," "deny," and "depose," a phrase that is often used to criticize the tactics of insurance companies.

When it became clear that this killing was intended to make a statement, many in the public reacted in support of the assassin!

Stories flooded the media of people telling their sad stories about UNH delaying coverage or refusing to pay for treatment. The reaction from the public caused significant concern from the investor base, believing that the government would be forced to do something about it. Many worried that investigations, bad press, or loss of customers would damage the company.

Even the CEO of the UNH group was forced to admit that the US healthcare system “does not work as well as it should".

Imagine a situation where an employee of your company gets assassinated, but instead of public support, you receive increased pressure from the media, government, and the public to answer tough questions and deal with the implications that this murder may have been deserved.

Over the next 3 months, the stock fell 24% as a result!

DOJ Investigation

In May of 2025, The Wall Street Journal reported that UNH is under investigation by the US Department of Justice for allegedly overcharging Medicare Advantage plans. The company then later confirmed in a regulatory filing to the SEC that they are indeed under investigation and are cooperating.

Medicare Advantage is a health insurance scheme for the elderly, subsidized by the US government.

Governments take an incredibly long time to conduct these investigations, so it is safe to say that this is unrelated to the murder of the executive!

The key acquisition is that UNH instructed doctors to misclassify healthcare procedures and outcomes in order to charge the government a higher price.

Anyone who has ever Googled their symptoms knows that there are a lot of different conditions that can cause a particular symptom. This gives some leeway to the doctors to classify conditions as more severe. Understandably, a more serious illness requires more tests, more medicines, and thus costs more for the government.

For example, a 72-year-old patient with high blood pressure and occasional leg swelling could be diagnosed with peripheral artery disease instead of simple hypertension. Peripheral artery disease requires specialist visits and medications costing $100+ a month. Whilst hypertension can be treated by cutting down on salt and medications costing as little as $10 a month.

A single misclassification such as this can cost the government an extra $3,000-$5,000 a year, across thousands of patients, this can grow into billions!

Some estimates suggest that in 2021 alone, these misclassifications could have caused the government to be overcharged by $8.7B. Of course, the company denies all allegations and says that all its practices comply with the law.

Within a few days after the story broke, UNH stock had fallen another 23%!

Trump’s One Big Beautiful Bill

On July 4, 2025, Donald Trump signed into law a massive and sweeping tax bill called the One Big Beautiful Bill Act. (BBB)

The BBB contains a lot of changes that will cost the US taxpayer multiple trillions and will significantly increase the US deficit in the next decade.

I’m not going to break down the whole bill, just how it affects UNH.

• Medicaid and Medicare cuts

• Expiration of enhanced ACA subsidies

• End of Auto-enrolment

• Stricter income employment requirements

• Additional integrity rules

Medicaid is a government program providing healthcare services to the poor, while Medicare provides healthcare services to the elderly. It is estimated that the BBB will lead to 10-12M poor, sick, and old people losing healthcare.

UNH is heavily involved in these areas, so naturally will see their TAM decrease in the next decade.

Furthermore, the bill has significant negative consequences for the ACA. ACA, better known as Obamacare, is a government-subsidized health insurance scheme offering affordable healthcare to low-income and middle-class families.

Cuts to Medicare and Medicaid programs could have adverse indirect effects. More poorer, older, and sicker patients will move to the ACA marketplace, leading to higher costs across the health insurance industry. Also, without government subsidies, many of these patients will default on their hospital bills. Increasing losses in the broader health care industry.

Another crucial change is the expiration of the enhanced ACA tax credit subsidies. During the pandemic, the Biden administration passed the American Rescue Plan and the Inflation Reduction Act, which enabled more people to access healthcare during the pandemic. The provisions were set to expire by December 31, 2025, but there was some hope that they would be extended if Democrats remained in power.

As we all know, Trump destroyed Harris in the election, so it was obvious that these provisions would not get extended, but the BBB confirmed it. The BBB also ended automatic reenrollment. Now, people need to re-enroll each year to join these subsidized programs. This creates an additional administrative burden for people as they need to prove eligibility and submit paperwork.

This change is in addition to stricter income and employment requirements. Subsidy recipients must provide proof regarding household income, residence, household composition, and more. Additionally, people must remain employed and provide extra evidence of that.

These additional requirements sound reasonable in theory, but they create an additional administrative burden both for the people and the state regulators. This will likely lead to people losing health insurance who miss deadlines, especially in the first year, if they are not properly informed of the changes in the process.

Overall, the Congressional Budget Office (CBO) estimates that in the next decade, up to 8.2M people could lose ACA subsidized health insurance!

In summary, Trump’s One, Big, Beautiful Bill could create a more challenging operating environment for UNH by reducing the number of insured individuals, increasing administrative complexities, and promoting alternative healthcare models that bypass traditional insurance. (ICHRA)

Cost Issues

If all of these problems weren’t enough, UNH is also experiencing severe cost issues.

In 2024, net income fell 36%, and in 2025, analysts expect only a modest 3% recovery.

This happened as in 2024, UNH reported an $8.3B loss from divesting their Brazilian and other South American businesses. As this was a temporary hit, many analysts expected a swift recovery in 2025, but that didn’t happen as the company reported significant increases in the medical loss ratio, from 85.5% in 2024 to 89.25% in 2025.

In health insurance, the medical loss ratio measures the share of collected policy premiums that is spent on paying for medical treatment. On $400B in revenues, even small increases can have multibillion-dollar hits to earnings.

Other insurer stocks have suffered as well, such as Centene, down 64%, and Elevance, down 43%. This is a clear indication that this is not solely a UNH problem, but rather an industry-wide issue.

The main drivers of higher-than-expected medical losses include:

• Medical cost inflation

• Higher utilization

• Sicker patients

• Sicker risk pool

Somewhat high and persistent inflation in healthcare costs is affecting the health insurance industry. The consensus opinion was that inflation would reduce, but that wasn’t the case, leading insurance companies to underprice their plans.

Additionally, insured patients are using more services than were expected. This higher utilization means that insurance companies modeled fewer procedures than were actually done, leading to higher losses.

Most crucially, many of these patients were much sicker than expected. This means that patients were requiring more severe procedures and medicines, which further increases costs.

Additionally, Sicker patients in the risk pool reduce profits for the entire ACA marketplace.

Some analysts believe that these issues are largely caused by Covid pushing healthcare demand forward. During the pandemic, many patients didn’t seek medical care as they were afraid to go to hospitals and clinics out of fear of getting Covid. Additionally, government resources were diverted to fighting the pandemic.

Now that Covid is a few years behind us, many of these patients are seeking help, but their conditions have deteriorated.

To counter these issues, UNH is increasing prices!

Price increases will depend on the region and could be quite significant, around 10-15%, and even more in some cases.

2. Here is why Mr. Buffett bought it

Seems like a terrible situation, so why did the Oracle of Omaha invest in UNH?

I think the answer is quite simple.

"Be fearful when others are greedy, and greedy when others are fearful." Warren Buffett

The stock was down 60% from the highs, so the market was clearly fearful, but were these fears warranted? Buffett clearly thinks that they are more than priced in.

Let’s look at each of the 4 issues weighing on the stock I identified and whether they are likely to cause a fundamental deterioration in the company’s ability to generate earnings for its shareholders.

Firstly, the assassination of Brian Thompson. The fear was that the negative public reaction would 1) push the government to do significant reforms in the healthcare industry, and 2) that UNH could see a large drop in users.

Neither of these fears have materialised.

The government didn’t implement any large-scale reforms to help the average citizen, in fact, they did the opposite with BBB. The health insurance industry is now even more convoluted and complicated than it was before. On the user front, the UNH Insurance arm continues to see a steady growth in the number of individuals served.

The problem with health insurance is that it gets blamed for all the issues in the US healthcare system, because it is the last step of the chain, and it handles the money. But the issues are broader. You can find horror stories about all health insurance companies. Patients only need to deal with them in their worst situations. It can be extremely difficult to deal with bureaucracy and money matters when your loved one is suffering.

Secondly, the DOJ investigation is ongoing, but it’s unlikely to cause huge problems in the long run. The government has a history of “forgiving” large and important companies for any misgivings. It is simply unlikely that the government will punish the country's most important healthcare company too much, especially under the current presidential administration.

Mr. Buffett probably thinks that this investigation will end with a slap on the wrist and a small few billion-dollar fine!

Thirdly, the One Big Beautiful Bill. While the bill is massive, we have yet to see the effects once it is fully implemented. It could be that states will pick up some of the “slack” left by the government. Also, the bill seems more damaging to people than insurance companies. Health insurance companies will simply increase prices and cut costs to see their margins go back where they were.

The truth is that people will continue needing healthcare services, despite a loss of government subsidies. So many low-income people will be forced to cough up the difference, as they won’t simply let their family members suffer.

I think Mr. Buffett sees that in the long term, this bill will not have as dire an effect on UNH as many analysts believe!

Fourth, the cost issues are an industry-wide problem. UNH already confirmed that they are increasing prices by upwards of 25%. These price increases will enable the company to lower its medical loss ratio to the previous level. Furthermore, as medical cost inflation slows down and utilization goes back to previous levels, UNH could even see its medical loss ratio reach new records.

Overall, it is a temporary problem that is likely to reverse!

So, it seems that all the problems that are causing the stock to be depressed should reverse in a few years’ time, enabling UNH stock to reach previous levels. But in addition to that, it seems that future growth trends look favorable as well.

• The US population growth is steady, meaning that there will be more people needing health insurance in the future.

• Boomers are aging, requiring more healthcare.

• Healthcare spending is resilient, even during bad economies.

• AI automations are poised to reduce administrative costs, enabling higher earnings.

Most importantly, the valuation is very affordable!

3. Valuation

After falling 47% in the past year, UNH trades for an attractive P/E of just 13.

Furthermore, Wall Street analysts expect the company to grow revenues from 2024 levels by 24% by 2027 and earnings by 28.4%.

I believe this attractive valuation is what ultimately convinced Warren Buffett to buy the stock!

To see what kind of results he and other UNH investors could see, I built a simple valuation model.

5% revenue CAGR till 2030 could lead to revenues of $572B!

Furthermore, I model UNH slowly improving its margins, matching its 2023 margins by 2030. This assumes that there are no new structural changes that would change their profitability, and the company achieves its goals.

A 6% net margin in 2030 could lead to earnings of $34.4B, an increase of 138% from the 2024 level, a CAGR of 16%.

Notice that this growth is significantly higher than the top-line growth. This is why recovery plays have the potential to be incredibly attractive. If a company fixes its cost issues, a return to its previous margin levels could result in significant growth in earnings even in cases with modest top-line growth.

Assuming a modest 0.5% yearly decrease in shares outstanding and an exit multiple of 20, similar to what UNH traded before, we could be looking at a $773 per share company in 2030.

This would be an increase of 153.6%, a CAGR of 16.8%!

Let’s not forget that currently, the company has a buyback yield of 4.2% and pays a 2.9% dividend. Also, it is possible for the company to grow at a faster pace than 5%. This means that the returns could actually end up being much greater.

If I change the revenue CAGR to 8% and dilution to -1% per year, the potential upside increases to 200%.

There are a few places where Buffett could have deployed $1.6B to get a similar upside, with the same risk.

4. Conclusion

I am in no way defending UNH or its practices. I am merely recognizing the reality, the way I see it. And in short, in my opinion, it is unlikely that this company doesn’t return to previous margin levels.

Despite the public anger toward health insurance companies.

Despite the DOJ investigation.

Despite the problems created by Trump’s Big Beautiful Bill.

Despite cost issues.

I believe this is why Mr. Buffett bought the company. The truth is that health insurance companies are crucial pieces of the US health care industry, and that is unlikely to change. Furthermore, I doubt that UNH receives heavy punishment from the DOJ, whether they are guilty or not. A slap on the wrist few billion-dollar fine is the most likely outcome.

Most importantly, as the valuation analysis shows, UNH seems to be trading for quite a cheap price. If they grow revenues by a modest 5% per year and repeat 2023 margin levels, UNH investors could be looking at a 153.6% gain by 2030.

However, I would like to stress that Warren Buffett is not always right, and it is possible that he is wrong this time. Let’s not forget that he manages hundreds of billions of dollars. His options for deployment are limited, but yours are not.

There are smaller companies that could deliver more upside, with fewer moral dilemmas. Please don’t buy UNH just because Mr. Buffett did. I am sure he would agree with that.

While I find the stock affordable and its recovery likely, I am not buying it as there are plenty of companies that I believe are higher quality and offer more upside in the long term.

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