Old school: why Buffett and Soros bought UnitedHealth stock

Shares of health insurance giant UnitedHealth Group lost about 60% of their value between April and August 2025. Falling financial indicators, change of CEOs (one was killed, the other resigned), investigation of suspicions of fraud against the background of the insurer's ambiguous reputation all converged at one point. And yet Warren Buffett spent $1.6 billion to buy UnitedHealth shares. Should we follow his example?

On August 14, after the close of trading, it became known that Berkshire Hathaway company of billionaire Warren Buffett (10th place in the Bloomberg Billionaires Index with a fortune of $143.1 billion) acquired more than 5 million shares of health insurance company UnitedHealth for $1.6 billion.

The purchase was unexpected, and the next trading day UnitedHealth shares rose by 12.2%. The news interrupted the fall of quotations of the largest health insurance company in the United States, the only one from this sector included in the Dow Jones index. Investors actually turned away from it in April 2025, and the company's shares fell from levels around $600 to $240 in August, meaning they lost about 60% in value.

The catalyst for the collapse was the results of the first quarter of 2025. The company lowered its forecast for adjusted net income per share (EPS). In December 2024, the company had forecasted 2025 EPS of $29.5 to $30. But after the first quarter 2025 results, the company cut its 2025 forecast to $26 - $26.5. And then at the end of the second quarter and at all to $16, that is twice of the initial one. In 2024, UnitedHealth reported earnings of $27.66 per share.

Management at the analyst conference attributed the lower earnings forecasts to two things. The first is an increase in insured people seeking medical care. Patients began to see doctors more often under the government's Medicare Advantage program for those over 65. The medical expense ratio - medical care ratio, which shows how much of the money a company received was spent on paying for medical care - rose from 84.3 percent in 2024 to 89.5 percent in the second quarter of 2025.

The second problem was the financial performance of UnitedHealth's medical division, Optum Health. It experienced a decline in the number of customers, and in addition, the prices and benefits of physician services did not match the costs of medical care. Investors may have been frightened by the perception that the company's management was not in control of the company's business processes.

All of this came to light against the backdrop of UnitedHealth's image problems and its mixed reputation. In May 2025, The Guardian published an investigation alleging that UnitedHealth was secretly paying nursing homes bonuses to reduce patient transfers to hospitals in order to cut reimbursements. And at the same time encouraged them to enroll in the Medicare Advantage program to get more reimbursements from the government. And this happened for several years in a row.

In May 2025, UnitedHealth Group President Andrew Whitty unexpectedly resigned, citing only personal reasons in an official statement, without further details. And the U.S. Department of Justice became interested in the company. Senators Ron Wyden and Elizabeth Warren initiated an investigation into UnitedHealth over the allegations.

Even earlier, in December 2024, Brian Thompson, the chief executive of the group's insurance arm, UnitedHealthcare, was shot dead in New York. This murder shook the whole of America and showed the attitude towards UnitedHealth as a company that often denies treatment or insurance payments. The 26-year-old Luigi Mangione, who was arrested a few days later on suspicion of murder, was hailed as a hero, and there was much gloating commentary about the slain Thompson.

UnitedHealth Group is made up of two parts: UnitedHealthcare, which sells insurance, and Optum, which provides health care services. For example, their programs for both employers and individuals had 29.7 million members in 2024.

In addition, UnitedHealthcare is a Medicare Advantage operator. The company will serve 7.8 million people in 2024.

The company receives monthly payments from the Centers for Medicare & Medicaid Services for the number of elderly patients with Medicare benefits assigned to it. This is the federal agency that administers the Medicare (for the elderly) and Medicaid (for the poor) programs. And it was these payments that The Guardian believes the company was fraudulent.

The total revenue of the entire group including insurance and medical care is reported to be $400 billion in 2024, of which about 75% is UnitedHealthcare's insurance revenues. Of the insurance premiums, 46% is from the Medicare & Retirement segment. Some of these premiums are used to pay for medical payments to customers in the group's medical division, Optum. At the same time, Optum also earns money itself by providing medical services to other insurance companies or individuals. Optum's third-party revenue - from payments by other users - is about $100 billion.

The business, barring unexpected events at the end of 2024 and 2025, is low margin, but very stable and predictable. Based on the reports, the insurance division's operating margin for 2022-2024 is 5.2 - 5.8% and the medical division's operating margin is 6.6 - 7.7%. And it should be said that the 2024 margins are lower than previous years, which should have alerted investors earlier this year.

It was in the midst of all this turmoil that Warren Buffett's Berkshire Hathaway bought 5.04 million shares for $1.57 billion - a stake in a company that has been called nothing short of a "falling knife" since April 2025. Courses for novice investors warn that catching them is a dangerous occupation.

But MarketWatch calls the deal a "classic Buffett move."

"He [Buffett] likes high-quality companies that look like damaged goods," explained Mike O'Rourke, chief strategist at JonesTrading.

Indeed, despite the circumstances, UnitedHealth is a first-tier company, a member of the Dow Jones index for 13 years, and its fundamental value, MarketWatch writes, is unquestionable.

The business is stable, and there is an opportunity to get dividends by buying shares at half the price. Buffett favors companies that pay dividends, and at current prices, UnitedHealth stock has a dividend yield of 2.91%, while the implied dividend yield for the S&P 500 index is 1.21%, O'Rourke says. And he adds that Buffett also prefers to invest in companies he understands, and his Berkshire Hathaway is the parent company for several insurance firms, including GEICO, United States Liability Insurance Group and Berkshire Hathaway Direct Insurance Co.

In other words, Buffett bought UnitedHealth precisely because there was an opportunity to buy a "highly-rated company at a discounted price," earn a stable dividend, and benefit from its future recovery.

The general consensus of analysts, according to Seeking Alpha, is "buy." Supporting this recommendation is the interest that has been generated around UnitedHealth shares not only by Buffett. Billionaire David Tepper's hedge fund, whose Appaloosa Management increased its stake by 2.3 million shares, is among those who bought the stock in the second quarter, according to data compiled by Bloomberg. And billionaire George Soros's investment firm and BlueCrest Capital Management of billionaire Michael Platt also increased their stakes in UnitedHealth last quarter. Michael Burry, the prototypical character from the movie "The Downward Game," also invested in them.

But according to Bank of America analyst Kevin Fishback, investors looking to follow Buffett should consider the risks.

"Berkshire Hathaway's investment is a positive sign, but it really just confirms the widespread belief of many investors that UnitedHealth's earnings are [now] undervalued. If you can forecast the situation five years out, it's probably going to be fine," Fishback said.

The question, he said, is not whether UnitedHealth has growth potential, but when it will be realized.

This article was AI-translated and verified by a human editor