Artificial intelligence (AI) has the potential to transform several different areas of the healthcare industry.
When it comes to popular healthcare stocks, investors have recently attracted much attention on Elirily and Novonordisk, as well as the potential for blockbuster weight management treatments such as Munjaro, Zepbound, Ozempic and Wegovy. These drugs can lead to billions of income, but Lily and Novo don't rely solely on these drugs to grow their business.
The companies are also investigating the possibilities that AI can bring to their businesses. Accounting and consulting firm PWC estimates that the overall addressable market (TAM) for AI in healthcare could reach $868 billion by 2030. One obvious application that AI has in healthcare is driving pharmaceutical companies in clinical trials and drug discovery.
While such use cases are exciting, we see another pocket in the healthcare industry that could be actively confused by AI: Insurance. Explore the reasons for UnitedHealth Group (UNH) 0.92%)) Because of the intersection of healthcare and AI, it could be a growth opportunity under the radar.
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2025 has been a challenging year for UnitedHealth Group…
In April, UnitedHealth greatly disappointed investors after the company issued revised financial guidance offering a lower than expected earnings outlook for the remainder of the year. Management condemned two key factors for declining profitability. First, the company's Medicare Advantage program utilization exceeded internal forecasts, which hit the company's cost structure. Second, the reimbursement for our pharmacy benefit management (PBM) platform, Optum RX, was negatively affected by reduced Medicare funding and several changes in patient demographic profiles in this segment of the business.
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In a short order, stock prices have plummeted, showing no signs of a recovery so far. With stock prices falling 40% in 2025, this year UnitedHealth is the least performant stock at Dow Jones Industrial Average.
But before writing down UnitedHealth as a broken business, let's look at the possibilities that AI can support the health insurance industry and how UnitedHealth can specifically implement this technology and improve it over time.
… AI has the potential to transform your business
The underlying issues surrounding the current UnitedHealth challenges are related to forecasting. There is nothing fundamentally broken in business. Rather, unexpected changes in the macroeconomic environment led to a different reality than management had previously modeled. Ultimately, it led to higher costs and reduced profit margins.
Using machine learning, UnitedHealth can train AI models on claims data and then integrate these feeds into an electronic health record (EHR) to predict more accurate utilization trends. A more efficient data feed will help UnitedHealth hone its pricing strategy and hone its better plan for cost spikes.
Furthermore, AI has the ability to build predictive models that can more accurately assess patient risk profiles. In theory, this is related to engagement rates and risk profiles, and therefore could be analysed more in-depth details on different segments of patient data. This will help you improve your Optum business's refund forecast.
Finally, you can also use Natural Language Processing (NLP) to create a scenario model by simulating how business will be affected based on changes in the regulatory environment. An example of a company specializing in this area of AI training is finance. This will help UnitedHealth plan more strategically, as it relates to budgeting decisions during periods of political uncertainty.
Are you buying UnitedHealth Group stock now?
UnitedHealth shares trade with other large health insurers at a small premium based on forward revenue multiples, but the bigger point from the trend below is that the stock has hovered for nearly five years.
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While the operational challenges at UnitedHealth will not be fixed overnight, it is important to remember that management believes the company is right throughout the second half of this year and is in a better position by 2026.
It is still unclear whether UnitedHealth will move to AI-powered services. Investors with long term periods may want to consider holding stocks as the ideas explored above are presented, as it shows that AI can become a game-changing advancement in the health insurance industry over time.
Seeing another way, UnitedHealth has been able to transform its business in the coming years by making a cognitive investment in this technology. Nevertheless, inventory appears to be cheap to get dirty right now, but I think patient investors will be rewarded as the company turns things around over the next few quarters.
Editor's Note: This article has been revised. The Pharmacy Benefits Manager at UnitedHealth is called Optum Rx.
Financial Notes is a transcription service used by Motley Fool. Adam Spatacco has positions as Eli Lilly and Novo Nordisk. Motley Fool recommends Novo Nordisk and UnitedHealth Group. Motley Fools have a disclosure policy.
