UnitedHealth Group Q3 2025 Earnings Conference Call
Key Takeaways (AI-Generated)
Financial Performance
- Q3 adjusted earnings per share of $2.92, slightly exceeding expectations
- Revenue surpassed $113 billion, reflecting 12% year-over-year growth driven by membership expansion
- Medical care ratio rose to 89.9% from 85.2% in the prior year
- Robust cash flows at 2.3 times net income, with a stable debt-to-capital ratio
Business Highlights
- 80% of Optum Health members enrolled in Medicare plans rated 4 stars or higher
- 95% of claims processed automatically, with 90% of calls answered within 30 seconds
- Launched AI-driven products, including OptumReal for real-time claims processing
- Completed exits for 200,000 lives, with over 90% of value-based payer contracts finalized
Financial Guidance
- Comfortable with the current 2026 analyst consensus as the baseline for projections
- Medicare Advantage membership projected to decline by approximately 1 million members in 2026
- Optum Health value-based care membership expected to decrease by 10% in 2026 before growth resumes
- Commercial business margins anticipated to be 150 basis points below the target range in 2026
Opportunities
- Market expansion focused on suitable geographies for the value-based care model
- Accelerating AI applications across processes with new product launches
- Implementing narrower, integrated provider networks to enhance operational efficiency
- Establishing strategic partnerships through payer contract negotiations to mitigate regulatory headwinds
Risks
- Industry-wide Medicare cuts nearing $50 billion are creating significant headwinds for enterprises.
- V28 regulatory changes represent a negative impact exceeding $6 billion.
- Elevated medical cost trends of approximately 7.5% in Medicare Advantage.
- State Medicaid funding is not aligned with actual cost trends.
Full Transcript (AI-Generated)
Operator
As a reminder, this call is being recorded. Here is some important introductory information. This call contains forward-looking statements under U.S. Federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings.
This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amounts is available in the Financial and Earnings Report section of the Company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated October 28th, 2025, which may be accessed from the Investor Relations page of the company's website.
I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Steven Hensley.
Steven Hensley
Good morning. Thank you for joining us today. Our enterprise continues to advance along the improvement paths first discussed with you in July. We have been introducing new leaders, strengthening underperforming businesses, identifying both opportunities and inefficiencies, and, importantly, recommitting to the mission and culture of this company.
We are addressing the core issues of underperformance with fresh perspectives, intent on positioning our organization as a positive and innovative leader, helping to advance healthcare next year. A keen sense of urgency in this effort is consistent throughout the enterprise. At the same time, recognizing that the pace of progress varies across our businesses depending on their specific challenges and opportunities.
Some efforts will require more time and investment, while others will show more immediate progress. Repricing within UnitedHealthcare is on track to drive solid operating earnings growth from margin improvements within that business by 2026. In our less mature businesses, such as Optum Health and Optum Insight, our efforts to improve operations and make necessary investments will show more measured progress in 2026 and will take more time to fully bear fruit.
As Patrick Conway will discuss, our belief in the need for the impact of value-based care remains intact, as does our confidence in returning to expected performance standards. Throughout the company, we will ensure that we focus on activities aligned with our long-term future and remain very disciplined about moving on from those that do not.
We are committed to returning to consistent enterprise-wide performance levels that you should expect from us. Within Optum Health, the team has taken concrete steps that will refocus the business back to its original mission—actions that will narrow networks with greater emphasis on appropriately aligned physicians, geographies, clinical services, and benefit offerings for the members we serve.
We are also maintaining a sharp focus on the continued competitiveness of UnitedHealthcare, as evidenced by our recent Medicare STAR scores showing year-over-year improvement. That work remains intense. Looking ahead to the payment year 2028 STARs performance, we will consistently emphasize the fundamental execution discipline that has long been a key trait of this company.
I am gratified to see the quick and enthusiastic response to this enterprise-wide emphasis from our leadership team. External challenges will remain, including continued headwinds in 2026 from the third year of nearly $50 billion in industry-wide Medicare cuts implemented by the previous administration, as well as ongoing Medicare and Medicaid funding and program pressures.
Even so, I am confident that we will return to solid earnings growth next year, given our operational rigor and more prudent pricing. While we are still finalizing our 2026 plans and intend to provide full guidance in January, the current analyst consensus reflects a likely starting point for next year.
We intend to balance our earnings growth ambitions for 2026 with investments and actions that will drive higher and sustainable double-digit growth beginning in 2027 and advancing from there. This is the perspective we are keeping front of mind. Our longer-term outlook will be refreshed as we continue to execute over the next year.
As we have been doing over the past few months, we will continue to actively engage with both investors and the broader stakeholder community. We also plan to convene our investor conference in the second half of 2026 this morning. Tim Noel and Patrick Connolly will provide updates on the progress of United Healthcare and Optum, respectively.
Our Chief Financial Officer, Wayne Devite, will review the third-quarter results. I am pleased to welcome Wayne to our leadership team. He brings the right experience, values, and expertise to help guide UnitedHealth Group at this stage of our development, and he has already made a strong start. With that, Tim, please take it.
Tim Noel
Thank you, Steve. For the current year, overall UnitedHealthcare performance remains consistent with the expectations we communicated in the second quarter. Medical cost trends remain historically high but are in line with our second-quarter guidance, and we expect this trend to persist through the remainder of 2025.
Turning to our efforts for 2026, a critical component has been our pricing strategy. Since our last update with you, we have repriced the vast majority of our UHC risk businesses, including Medicare Advantage, as well as, to varying degrees, our commercial fully insured and residual ACA offerings.
The trend experience in the third quarter continues to validate the actuarial forecasts supporting our 2026 pricing actions. Taken together, these measures position each of our businesses on a clear path toward margin growth in 2026. With the exception of Medicaid, which I will discuss shortly, our Medicare business continues to perform in line with the expectations we shared last quarter.
This holds true for care activity and medical cost trends, and importantly, for the mix of clinical activity and utilization across physician outpatient and inpatient services. We forecast a full-year 2025 trend of approximately 7.5% in Medicare Advantage, consistent with our previous expectations.
As we shared with you last quarter, trends remain elevated across Medicare overall. Our Med Stop offerings continue to see medical cost trends exceeding 11% in individual Medicare Advantage. We continue to believe that an anticipated 10% medical cost trend for 2026 positions us appropriately.
This trend assumption reflects the continuation of elevated care activity levels observed in 2025, known impacts from fee schedule changes, and the ongoing expansion of aggressive provider coding and billing practices. We have adopted a similarly prudent approach across all our Medicare product offerings for 2026, including Medicare Supplement, Group MA, and standalone Part D for Medicare Advantage.
We are now about two weeks into the annual enrollment period, and early results align with our strategic positioning for 2026. Our plan for next year reflects a conservative path focused on margin growth. We made significant adjustments to benefits and executed targeted plan exits and network reductions to offset elevated medical trends and government funding decreases.
As a result of our planned actions, as well as competitive market dynamics, we anticipate a total membership contraction of approximately 1,000,000 members in Medicare Advantage, including both individual and group markets. We expect these measures will drive margin improvements in 2026, with the potential for further advancements in 2027, positioning us to reach the upper half of our targeted margin range of 2% to 4%, all supported by strong STARS results.
As Steve mentioned earlier, we have already shifted our focus to the next STARS performance, including incremental investments made in the fourth quarter. Turning to the commercial segment, we are concentrating on pricing and cost management efforts to support margin recovery in 2026.
At this stage, approximately 60% of our group commercial insured offerings have been priced for next year. Our commercial pricing reflects the elevated cost levels observed this year, which we expect to persist into 2026. While we anticipate that our group fully insured business will contract in line with broader market trends, we continue to see robust traction for our self-funded offerings.
We expect the vast majority of our employer insurance businesses to be repriced for 2026 and to return to our normal margin range in 2027. Moving to ACA markets, we have submitted rate filings in nearly all 30 states where we participate, reflecting 2025 morbidity and experience.
These include average rate increases of over 25%. In cases where we are unable to reach agreements on sustainable rates, we are implementing targeted service area reductions. We believe these actions will establish a sustainable premium base while likely reducing our ACA enrollment by approximately two-thirds.
These actions should drive margin improvement in our employer and individual segments in 2026, although margins will still remain below our targeted range of 7% to 9%. In Medicaid, the path to recovery will be more challenging. States have not funded in line with actual cost trends, resulting in insufficient funding levels to cover the health needs of state enrollees.
While we are making steady progress in bridging this gap with states, the mismatch between rate adequacy and member acuity is likely to persist through 2026. To date, we have received 2026 draft rates for nearly half of our contracts, which follow a January 1st rate cycle, and we continue to advocate for rate updates that better reflect our ongoing experience with elevated trends.
Our team is focused on addressing challenges unique to these markets, particularly behavioral health, and will continue to push for appropriate funding. As I stated last quarter, wherever states support responsible funding for Medicaid, we remain committed to serving individuals through this program and view it as integral to our mission.
As we indicated in July, we anticipate Medicare margins will break even in 2025. Looking ahead to 2026, we expect margins to decline further as existing cost trends persist and the current rate environment remains unchanged.
Looking at United Healthcare overall, the underlying business continues to perform well in serving consumers, plans, and program sponsors. To provide some examples of how we are enhancing the experience for these groups, nearly 85% of member inquiries are now handled digitally.
When members call the US, 90% of calls are answered within 30 seconds, and 95% of members' questions are resolved during the first interaction. Approximately 95% of our claims are automatically processed immediately. We are delivering greater value, ease, simplicity, and guidance throughout the UHC member experience.
We are also aggressively scaling AI and machine learning capabilities to enhance these experiences and optimize core performance. While 2025 remains a transition year, the pressure we are experiencing is largely due to mispricing and suboptimal market positioning.
We remain humbled by the challenges of this environment and the lessons we have had to relearn, but we are confident that we are on solid footing to recapture our performance potential. With that, I will turn it over to Patrick Conway, CEO of Optum.
Patrick Conway
Thank you, Tim. I will spend the majority of my time today updating you on our efforts to restore health to its original intent around value-based care, which experience continues to show us is the optimal model for delivering the right care at the right time and in the right setting for the best outcomes at the lowest cost to the people we serve.
Particularly in light of current cost trends and the market dominance of large health systems over the past few years. During a period of rapid expansion, Optum Health's strategy around value-based care deviated from the initial intent of the model. Three critical issues emerged.
First, the provider network grew too large. Second, the rapid pace of expansion and slower pace of integration resulted in operational inconsistencies, exacerbated by over-reliance on affiliated positions or those less aligned with core BBC policies. Lastly, Optum Health was accepting risks in products and services less suited for a clinically oriented, value-based model.
Understanding these issues has helped us better pursue the steps needed to return to the original intent of Optum Health and value-based care. Over the past six months, we have made significant leadership changes to better drive an integrated BBC provider model.
Under the leadership of Krista Nelson, our Chief Operating Officer, we are focusing our efforts on three key interconnected areas to drive improved performance. First, returning to the original intended clinical framework that best supports BBC. Second, moving toward a narrower, more integrated, and dedicated value-based care provider model and network.
And third, focusing on appropriate managed benefit products and patient bases. Within this framework, our team has made solid progress, particularly in bringing greater discipline to how we approach risk. These arrangements will benefit the business in 2026.
This includes collaborating with payers on benefit modifications and appropriate rates to align with the risk profile and demographic mix of the populations we serve. At this stage, we are nearing completion, with over 90% of our value-based payer contracts for the upcoming year finalized, positioning us well to achieve our goal of offsetting approximately half of the 2026 B28 headwinds through payer negotiations.
We are also pursuing market exits and product discontinuations, particularly from underperforming PPO contracts. As communicated in the previous quarter, we have completed exits for 200,000 lives in 2026, the majority of which involve PPO plans. Although still early in the Medicare annual enrollment period, we anticipate that total Optimum Health value-based care membership will decline by approximately 10% in 2026 before resuming growth in 2027.
We are also deliberately reshaping our care provider network to prioritize high-performing partners who exhibit strong patient engagement and consistently positive outcomes. Wherever feasible, we are transitioning to employed or contractually dedicated positions. We are disengaging from providers who are less aligned with the BBC model.
The targeted network actions taken over the past 60 days will result in a reduced number of providers within our networks starting in 2026. Across our markets and their associated networks, we are working toward greater integration of our clinical practices to ensure more consistent performance.
The team is refining our portfolio and accelerating the development of a consistent national operating model for regionally led, high-performing Optum health practices. This model aims to reduce fixed costs, drive purchasing efficiencies, align technology, and, most importantly, ensure the continued delivery of high-quality care.
These actions bolster our confidence in achieving the RV28 cost reduction targets for 2026 and strengthen our operational foundation for the long term. Additionally, our engagements and clinical initiatives at Optum continue to align with our expectations for significantly reducing medical cost trends. In 2025, we are engaging with over 85% of our high-risk members, which accounts for the remaining B28 pressure offsets in 2026.
In summary, returning to the fundamentals of our BBC model will benefit both the populations we serve and our business. For reference, our 2026 CMS star rating projections indicate that 80% of Optimal at Home members and nearly 100% of our ISNP members will be enrolled in four-plus star plans.
The quality of our care is evidenced by an impressive MPs score of 90 at our highest-performing facilities. For the third quarter, Optum Health’s performance was consistent with our expectations, reflecting the natural seasonality of our business and the acceleration of certain investments.
Within this context, we expect to conclude 2025 with margins just under 3%, including value-based care margins below 1%. Despite the third consecutive year of Medicare funding cuts, we anticipate margin improvements across all of Optimum Health in 2026.
We believe these efforts will drive further acceleration in 2027 toward our long-term margin targets of 6% to 8%. Turning to Optum Health fee-based care services, as previously discussed, these operations are not performing to their potential. We are implementing more consistent and rigorous processes to better manage these practices for sustainable growth and appropriate profitability.
We are beginning to see early results in our Eastern region, which serves nearly 5 million patients, where we have achieved a 3% quarter-over-quarter productivity increase per visit. This improvement has been driven by targeted enhancements in scheduling, workflow efficiency, and patient acquisition. Similar initiatives are currently underway in our Southern and Western regions.
Regarding Optimum Insight, we continue to perform solidly, though not yet at the level of its full potential. Under the leadership of Sandeep Dudlani, we are now witnessing the alignment of our end-to-end technology and AI innovation efforts taking shape.
We will make the necessary investments to accelerate the development of this distinctive platform, which serves the entirety of the healthcare system. We are confident that our plan will drive top-line revenue and operating earnings in line with our long-term growth objectives.
At Optum RX, we continue to perform well, with double-digit revenue growth in our pharmacies and a strong selling season for our pharmacy offerings. Our products are gaining traction in the market, supported by stronger customer retention and new customer acquisition.
At this stage, we anticipate that new membership growth in 2026 will be more than offset by expected membership attrition from the United Healthcare business. Importantly, our team remains disciplined in maintaining pricing transparency and delivering quality outcomes for our customers, particularly as the pharmaceutical industry continues to drive costs higher.
Currently, we offer full rebate pass-through arrangements to all of our customers, with nearly 85% of them participating. We were the first in our industry to announce this arrangement earlier this year, and we expect 95% of our customers to be enrolled in these arrangements by 2027, with the remainder adopting full rebate pass-through by 2028.
Additionally, as part of our commitment to a balanced pricing approach, we have increased payments on branded drugs to over 14,000 independent retail pharmacies. Thank you for your time today. I will now turn it over to Wayne Divide.
Wayne Divide
Good morning, everyone. I would like to begin by expressing my sincere appreciation to Steve, Tim, Patrick, and all my colleagues at UnitedHealth Group for their warm welcome. It is truly an honor to be part of this team and to contribute to our shared mission.
Today, I would like to cover three important topics. First, I will provide an overview of our quarterly performance and how it informs our outlook for the rest of the year. I will then discuss our capital and liquidity framework as we look ahead to 2026, particularly regarding resuming share buybacks and strategic acquisition activities.
And finally, I will provide some insights into our expectations for 2026. For the quarter, we reported adjusted earnings per share of $2.92, which was slightly above our expectations. These results demonstrate consistent execution as we advance through our long-term improvement initiatives.
We have struck a balance between immediate performance and strategic investments that will underpin our future growth and organic diversification. Some highlights for the quarter include revenues exceeding $113 billion, reflecting a 12% year-over-year growth driven by domestic membership expansion of over 780,000 lives year to date.
We concluded the third quarter with total domestic membership surpassing 50 million. Our medical care ratio for the quarter was 89.9%, compared to 85.2% in the same period last year, with the full-year trend moving toward the lower end of the projections we provided last quarter.
As Tim mentioned, while medical cost trends remain historically high, they are consistent with our outlook for 2025 and aligned with our pricing strategies for 2026. The operating cost ratio of 13.5% this quarter reflects greater investments in technology and personnel than initially anticipated when guidance was established in Q2.
Specifically, we invested more than $450 million in broad-based employee incentives and contributions to the United Health Foundation, both of which are critically important for strengthening our relationships with our workforce and with local communities across the broader health system. These investments were proportionally higher in Optum Health and Optum Insight.
Finally, our earnings were bolstered by robust cash flows at 2.3 times net income and an overall increase in days claims payable of 1.7 days sequentially. Turning to our capital and liquidity framework, as previously announced, we have paused our strategic acquisitions and share repurchases as we focus on returning to a long-term debt-to-capital ratio around 40% and interest coverage ratios consistent with historical levels.
In the third quarter, our debt-to-capital ratio remained stable at 44.1%, reflecting ongoing efforts to enhance cash efficiency, offset by the completion of the Emeticist transaction late in the third quarter, which resulted in a net cash outflow of $3.4 billion.
We expect our debt-to-capital ratio to trend closer to 40% in the second half of 2026. Accordingly, while we have not finalized plans for 2026, we anticipate being in a position to reinstate our historical capital deployment practices later in the year.
Finally, we generated operating cash flow from operations of $5.9 billion. We still anticipate closing this year with $16 billion in operating cash flow, or 1.1 times net income. Looking ahead to 2026, as Steve noted, we will issue formal guidance alongside our fourth-quarter results in January.
We are comfortable with the current consensus. Within that, we are making the necessary investments to accelerate our returns in 2026 and position our company for significantly stronger growth in 2027 and beyond.
We are optimistic about our ability to execute on our 2026 plans, but there are remaining headwinds we will need to overcome. Notably, we are entering the final year of V28, which represents a headwind exceeding $6 billion for the overall enterprise.
As you heard from Tim and Patrick, we have taken numerous actions related to benefit design, cost control, and member engagement to substantially offset this impact. Further investment in Optum Health and Optum Insight is necessary, and we are accelerating some of those investments.
As noted in our third quarter results, we are also accelerating the pace of AI applications to fundamentally enhance a broad spectrum of processes and capabilities, which we expect will structurally improve our enterprise performance.
Our effective tax rate is expected to return to a more normalized level in 2026 compared to 2025. Additionally, investment income is anticipated to continue declining as interest rates decrease. From a tailwind perspective, our repricing efforts will serve as a catalyst for earnings growth as we begin returning to our long-term target margins, with particularly robust year-over-year results expected in our commercial and Medicare businesses.
We also anticipate stability and a measured return to growth in our Optum operations, with portions of that growth being reinvested into the business, specifically in Optum Health and Optum Insight. While these investments may slow 2026 growth, they are expected to accelerate growth in 2027, aligning more closely with historical expectations.
We will be reducing debt and identifying opportunities to further lower our interest expenses due to the declining interest rate environment. Finally, we are taking an aggressive approach on affordability initiatives, which should improve overall medical trend relative to our pricing.
While we have several moving parts to manage for the remainder of this year, we also have concrete plans in place to execute on all the items discussed this morning, positioning us for the type of growth you have come to expect from UnitedHealth Group.
Thank you for your time this morning. I will now turn it back to Steve.
Steven Hensley
Thanks, Wayne. As I hope you clearly heard, this team and our 400,000 colleagues are focused on delivering across all fronts for the people we are privileged to serve and for our shareholders. As I stated at the outset, we are maintaining a very disciplined approach.
This is evident on a day-to-day basis as this management team acknowledges the necessity of managing our costs in both the short term and structurally, as well as through an alternative perspective. Throughout the quarter, we have continued to assess the company’s businesses with renewed perspectives, bolstered by sustained confidence in our progress and overall strategic direction.
We anticipate completing that evaluation in the fourth quarter as we prepare for 2026. Looking ahead, several themes are emerging from these efforts. We are channeling our efforts toward addressing U.S. healthcare needs and will be reducing our presence in international markets that do not align with these priorities.
We will be finalizing our initiatives for recovering the remaining outstanding loan balances from the care provider support programs associated with the 2024 Change Healthcare cyberattack. For Optum Health, we are consolidating locations and completing plans to address the geographic markets in which we will serve patients, all aimed at advancing and scaling the leading value-based clinical care business of Optum Health.
We are realigning Optum Financial Services within our Optum Insight Services platform, although these plans have not yet been finalized. Many of these actions are already underway, and we believe they will enhance both our focus and long-term performance.
We are currently quantifying the accounting, tax, and cash implications of our plans. At this stage, our preliminary analysis suggests a non-GAAP, substantially non-cash charge in the low single-digit billions of dollars. Further details will be provided during our fourth-quarter call as we finalize these efforts.
In summary, we will conclude 2025 well-positioned for a return to solid growth in 2026, with acceleration expected in 2027, alongside a clear focus on our enduring mission and strategy. A key factor contributing to my confidence in our outlook is witnessing how our employees are embracing a renewed emphasis on the mission, culture, and values of our company.
The manner in which we operate in the sensitive area of healthcare is as crucial as the work itself, and we are bringing renewed energy to that imperative every day. Operator, let us now open the floor for questions.
Operator
The floor is now open for questions. If you have a question or comment at this time, please press *1 on your touch-tone phone. You may remove yourself from the queue by pressing *2 on your touch-tone phone. We kindly ask you to limit yourself to one question. If multiple questions are asked, only the first will be answered so that we can respond to everyone in the queue this morning. Our first question comes from Josh Raskin with Nephron Research.
Josh Raskin
Hi, thank you. Good morning. I truly appreciate all the detailed information you provided this morning. I was wondering if you could give us a more updated and specific overview of the sub-businesses within Optum Health. Specifically, I would like to understand what percentage of the revenue comes from capitated premiums originating from health plans, and within that, how much is derived from your largest customer, UHC. Additionally, I’d like to know how much of the remaining revenue comes from fee-for-service billings by your employed physicians, and perhaps you could touch on some of the moving parts as well. I heard some details about membership trends as we look ahead into 2026, at least directionally.
Patrick Conway
Sure. Let’s start with Patrick, and then Kristen can wrap up. Sounds good. Thank you, Josh, for the question. At a high level, the revenue breakdown remains as we described last quarter: 65% BBC, 15% care delivery fee-for-service, and 20% payer and employer services within BBC. Approximately two-thirds of our book of business serves United Healthcare, with the remainder being a diverse array of payers, presenting growth opportunities as we close out this year. As mentioned earlier, we are targeting to close 2025 just under a 3% margin, with BBC margins below 1%. We are taking actions this year to position ourselves for success in 2026, and I’ll let Krista address that part.
Krista Nelson
Thank you for the question, Josh. As we move into 2026, we remain firmly committed to the long-term potential of this business, including the 6-8% margin target we outlined in the second quarter, with a continued focus on our value-based care agenda, representing a 5% commitment. We are actively pursuing a robust set of initiatives and opportunities with clear visibility and significant ambition for the work ahead. Overall, we remain optimistic about our long-term positioning. Thank you for the question.
Operator
Thank you. Next question, please. We will take our next question from AJ Rice with UBS.
AJ Rice
Thank you. Hi, everyone. I’ll stick with the Optum theme here. I appreciate the comments on Optum Insight and the mention of the need for investment. Could you elaborate further on your view of where Optum Insight stands competitively at this point, where those investments need to be directed, and the timeframe for seeing a re-acceleration of growth in that segment?
Steven Hensley
Sure. I actually think that Optum's competitive position is quite strong. We have a solid business base and continue to grow it. However, I believe the potential is much greater. So, Sandeep, would you like to share your views?
Sandeep Dudlani
Sure. Thanks, AJ. Look, just four weeks into the role, I am highly impressed by the talent, domain expertise, customer relationships, and the mission. I'm particularly excited about the momentum of some of our AI-first new products in the portfolio. For instance, just last week, you might have seen that we launched Optumreal, which was inspired by innovations at United Healthcare.
This is the first real-time platform for claims and reimbursements in the industry. Our early pilots are already showing significant results in streamlining what I consider one of the most complex pain points for payers and providers. Let me give you another example. We recently launched Optum Integrity One.
This is the most advanced AI-driven auto-coding tool on the market, and it is generating demand among health systems and hospitals seeking to enhance mid-revenue cycle automation and performance. The metrics for ambulatory outpatient claims coding show a 73% improvement in productivity compared to prevailing solutions. For hospital inpatient coding, it demonstrates a 23% increase in productivity.
Another example is Crimson AI. This is an AI-first clinical analytics platform that has secured six wins in just the last 90 days. It helps providers optimize surgical costs and operating room efficiency. The average return on investment for any provider system adopting Crimson AI has been 13 to 1.
In my initial interactions with our top clients, they have expressed tremendous enthusiasm and anticipation for our new AI-based offerings. They have also provided feedback on areas where we can improve. However, it is clear that our traditional services under Optum Insight need to evolve into AI-first services, then into products, and eventually into platforms.
We are well underway in this journey. We are starting to build powerful AI products like the ones I mentioned. We are also rationalizing and modernizing some of our existing legacy products that have a strong market presence. Finally, we are investing in an AI-first workforce.
Remember, I come from a tech background where we developed 10,000 AI builders and created AI tools for sales teams. Thus, as previously noted, we are investing in developing new products and offerings. I am incredibly excited about the possibilities. Our goal is to simplify healthcare with AI, and Optum is the best company to achieve that. Thank you for the question.
Steven Hensley
Thank you, Sandeep. Next question, please.
Operator
Our next question comes from Justin Lake with Wolfe Research.
Justin Lake
Thank you. Good morning. First, let me congratulate and welcome Wayne back to the sector. It’s good to have you back. My question is for Tim. I wanted to confirm that you mentioned getting your commercial margins back to the 7% to 9% target range by 2027. Just want to make sure I heard that correctly. And then regarding the baseline projection for 2025, I am calculating a margin in the 3% to 5% range for the commercial segment. Tim, is that within the correct range? Thank you.
Tim Noel
Yes, thank you, Justin, for the question. Regarding the commercial business, as we have discussed, we expect to make meaningful progress by 2026 as a result of our pricing initiatives. The work being done across ACA and other commercial product lines is gradually helping us move toward that long-term margin goal of 7% to 9%.
We view 2026 as a year where we are likely still about 150 basis points below the lower end of that margin range. However, considering how our pricing is being received in the market, along with some opportunities we see to better control costs in the future, we remain confident that achieving the longer-term margin range of 7% to 9% is attainable.
Operator
Thank you. Next question, please. Our next question comes from Steven Baxter with Wells Fargo.
Steven Baxter
Yes, hi. Thank you. I just wanted to ask for some additional insights regarding the membership declines you are projecting for Medicare Advantage in 2026. Could you help us understand the breakdown between individual and group plans? Additionally, at the industry level, CMS anticipates enrollment growth to remain relatively flat in 2025. First, does the company concur with that assessment? Second, how do you envision industry growth trending as we move into 2027 and beyond? Thank you.
Steven Hensley
I believe Bobby Hunter is best suited to address this. Please go ahead.
Bobby Hunter
Yes, great. Thank you, Steven. Good morning. Regarding the membership issue, Tim mentioned in the prepared remarks an anticipated contraction of approximately 1,000,000 members across Medicare Advantage in 2026. This figure encompasses both group and individual plans. We have been transparent about exiting certain products, which will affect around 600,000 members.
Consider this as the first key component contributing to that million-member decline. The remainder of the gap to reach the full million is fairly evenly distributed between pressures within our group Medicare Advantage business due to a disciplined pricing approach.
This includes some disruptions among group customers resulting from aggressive competitive actions by other players. The other half of the bridge from 600,000 to a million represents an even split between our individual and group businesses. It’s still very early in the Annual Enrollment Period (AEP) at this stage, but that is how I view it from this vantage point.
When considering overall growth, I would expect 2026 to align more closely with the general trajectory of growth observed in 2025. This is largely due to continued benefit reductions in the marketplace, ongoing plan closures, and some disruptions within the broker community stemming from significant commission changes.
I firmly believe in the long-term growth potential of Medicare Advantage, and I think we can achieve growth above those levels as we look further ahead. However, at present, upward pressure on medical cost trends is increasing healthcare expenses, while funding cuts to the program are eroding choice, access, and value for consumers.
And that is a tangible impact on the 35 million Medicare-eligible individuals who rely on Medicare Advantage (MA) to make healthcare affordable. Thus, we still firmly believe in the differentiated value proposition of MA but cannot overstate the importance of program stability as we look toward long-term growth rates and opportunities for MA. Thank you for the question.
Steven Hensley
Thank you, Bobby. Next question, please.
Operator
The next question comes from Kevin Fischbeck with Bank of America.
Kevin Fischbeck
Great, thank you. I was wondering if you could elaborate further on Optimum Health’s pullback and retrenchment, or perhaps its refocus on specific types of plans. If we were to go back several years, many would have thought that value-based care could potentially serve the majority of MA beneficiaries. So, is there a threshold or benchmark you’re considering? Which groups or markets do you want to focus on, and what percentage of MA truly lends itself to a successful value-based care model? Additionally, how penetrated is that model today? Thank you.
Steven Hensley
Yes, hi. Krista, please respond to this. However, I would say that we remain very optimistic and actually believe that MA should move more toward value-based care—precisely aligning with what Bobby mentioned earlier. Krista, perhaps you could speak a bit about the future of value-based care.
Krista Nelson
Yeah, absolutely. Kevin, thank you very much for the question. As we mentioned in our opening remarks, we are deeply committed to value-based care, and research continues to validate the impact it can have. We know fee-for-service rewards volume, while value-based care aligns incentives.
When you look across Optum Health, we have an incredible set of assets that truly enable an integrated delivery system to create value in the markets we are focused on. So, I think about the potential—it really is limitless.
I believe what you're seeing from us reflects a focus and operational discipline as we return to some of our core principles, positioning ourselves for future expansion and growth. We are deepening our presence in key markets by focusing on the appropriate networks, providers, and risk portfolio to ensure long-term success within value-based care. This requires alignment with the right products, processes, and disciplines—and that alignment is what we're returning to. Good question, next please.
Operator
Our next question comes from George Hill with Deutsche Bank.
George Hill
Yes, good morning, and thank you for taking my question. We observed a significant increase in what I would call discretionary expenses during the quarter compared to Q2. You’ve spoken extensively about the need for investment across many business lines. How should we interpret these numbers? Can you quantify the increase in investments incurred in Q3 and clarify how much of those should be viewed as recurring versus one-time investments, which will provide leverage going forward?
Wayne Divide
Certainly. Wayne, let me address that. Thank you, George, and good morning. Of the $450 million-plus that we discussed, approximately one-third represents a commitment to our foundation, which had not been adequately funded in the past. This positions us for multiple years of activities related to the foundation. While this may not necessarily reflect a run-rate for the next year, it is something we consider integral to our mission and will continue in the coming years. The remaining portion is entirely dedicated to investments in our people.
You heard Sandeep mention Optum Insight, which aligns with the number of resources we have there and the alignment of incentives around the execution we anticipate. Therefore, I would consider much of this to be recurring in nature, forming part of our core business and the ongoing investments we will make in the expansion we foresee in both Optum Health and AI specifically.
George Hill
Appreciate it. Thank you.
Operator
Next question, please. Our next question comes from Lisa Gill with JP Morgan.
Lisa Gill
Thank you very much. Good morning. I just had a question regarding utilization and how to think about it in the second half of the year. Clearly, this quarter performed slightly better than we expected, but we are also considering what is happening with the exchanges and the increase in Part D. So, could we perhaps discuss your expectations going into the fourth quarter? Specifically regarding Part D, are you anticipating a significant increase as we look ahead to the fourth quarter?
Tim Noel
Tim, would you like to take this? Yes, thank you, Lisa, for the question. When I consider utilization, it is tracking in line with the expectations we outlined during last quarter's call across all product lines, including the general commercial business, the ACA, Medicare, Medicaid, and even the Part D segment of the business, which is also performing as expected.
Clearly, there is a significant degree of seasonality that consistently affects the health insurance business. You can think of normal seasonality, with a 60% earnings contribution in the first half of the year and 40% in the second half.
Clearly, there is, you know, quite a bit of seasonality that's always at play in the health insurance business. I think you can think of normal seasonality, you know, first half to second-half as you know, 60% in the first half in terms of earnings contribution, 40% in the second-half.
You know, this year, given some of the trends that we've observed, there has been a bit more of a bias towards earnings in the first half of the year compared to the second half. However, these trends are generally tracking in line with our expectations and consistent with the guidance we provided in the second quarter.
The seasonality is essentially a byproduct of the business itself, as well as some of the additional expenditures, such as the seasonal ramp-up in accounts payable related to Medicare.
Lisa Gill
Thank you, Tim.
Operator
Next, please. Our next question comes from Andrew Mock with Barclays.
Andrew Mock
Good morning. I would like to follow up on the Medicare Part D drug benefit for next year. It appears that the benefit for Tier 3 branded drugs has shifted from a co-pay to co-insurance across most of your MAPD and standalone Part D plans. Could you elaborate on your experience with the co-pay structure in 2025 and what drove the decision to modify the benefit structure in 2026? Thank you.
Bobby Hunter
Bye. Yes, yes. Good morning, Andrew. Thank you for the question. Broadly speaking, we take a multi-year, measured approach to our benefit planning. This includes, as you can appreciate, managing and balancing numerous variables, which is particularly crucial given the dynamics surrounding V28 and the phased implementation process.
You know, the other element perhaps just to highlight as you consider how we made our decisions, particularly regarding the modifications to the benefit design for Part D in 2026, given the uncertainty surrounding the demonstration program and whether or how it would continue into 2026.
Therefore, we adopted what we believed to be a reasonably cautious approach. We utilized all available tools to ensure that we would be well-positioned in terms of overall benefit design, regardless of how the demonstration program evolves by 2026.
As I assess our current position from a benefit design perspective—considering the coinsurance rates on Tier 3 and the deductibles implemented broadly across MAPD and PDP—I feel our strategy is well-aligned with industry standards. I expect that this alignment will contribute to continued strong performance as we move into 2026.
This also applies to 2025. On the MAPD side, there are no concerns regarding selection mix or outlook, given the prevalence of deductibles applied to our MAPD offerings. Similarly, for PDP, there are no material risks or contributors affecting the broader outlook either. Overall, I feel confident about our positioning for PDP as we step into 2026.
Andrew Mock
Great, thank you.
Operator
Next question, please. Our next question comes from Anne Hines with Mizuho Securities.
Anne Hines
Great, thanks. My question focuses on Medicaid. During the last call, I believe you mentioned that margins should fall within the -1% to -1.5% range. Is that still a reasonable target? Additionally, considering the potential impact of the 'Big Beautiful Bill,' are there any factors that could hinder a path toward Medicaid margin recovery in 2027 and 2028? Thank you.
Mike Neidorff
Mike, would you like to address that? Yes, and thank you for the question, and good morning. As Tim mentioned, our outlook for Medicaid remains unchanged from the previous quarter. We anticipate breaking even in 2026, similar to 2025. Looking ahead to 2026, we foresee some margin erosion due to ongoing disruptions in premium funding and the elevated medical cost trends we are observing.
However, we do see 2026 as the turning point for that performance. Our rising trends are primarily driven by specialty pharmacy, behavioral health, and home health services, much like the rest of the industry. Over time, we believe that through collaboration with states, there will be transformation and progress. We expect to return to rate margins of around 2% over an 18 to 24 month period. Thank you very much for the question.
Steven Hensley
Thank you, Mike.
Operator
Next question, please. Our next question comes from Lance Wilkes with Bernstein.
Lance Wilkes
Great, thank you very much. Could you discuss the employer market a bit, specifically the medical cost trends you're seeing this year and next? And regarding the pressures on employers, what strategies are they considering for 2026 and looking ahead to 2027 during the selling seasons? In particular, is there any interest in adopting value-based care? Are they increasingly utilizing measures like that? Thanks.
Dan Schumacher
Dan. Yes. Thank you, Lance, for the question. The trends for 2025 and our outlook for 2026 remain consistent with what we communicated in last quarter's guidance. The trends are approximately 11%, which is how we have factored pricing into 2026. With 50% of our January insured business already resolved at this point, I am encouraged by both the yield on persistency and the rate, which will drive the margin expansion that Tim mentioned in light of the trend of approximately 11%.
You're correct; healthcare affordability is a top priority for all employers. This topic has been prominent during this selling and renewal season as it always is, but even more so given the current trends and associated pricing. Employers are evaluating a wide range of considerations.
You mentioned Surest, which continues to be a leading product for us, steadily gaining market share. Its growth trajectory remains strong, with a robust pipeline already in place. As we look ahead to the jumbo selling season of 2027, I would like to highlight some additional factors that employers are focusing on.
Integrated advanced advocacy solutions within our product portfolio continue to capture employer interest, as they enable us to adopt more synergistic approaches to care. This includes value-based care, as you referenced, as well as tighter coordination between medical benefits and prescription drug (RX) benefits—a trend that is increasing as more employers consolidate medical and RX benefits. We are very satisfied with the progress we are making in this area in collaboration with Optum RX.
These are a few key highlights that are top of mind for employers, certainly for 2026 and already as we look ahead to 2027. Thank you for the question, Lance.
Steven Hensley
Thank you, Dan. A great response, Scott.
Operator
Next question, please. The next question comes from Scott Fidel with Goldman Sachs.
Scott Fidel
Hi, thanks. Good morning. I appreciate the update on the timing for the return to the normal capital deployment plan. Could you also provide us with an update on the dividend and your outlook on it moving forward? Additionally, I’m curious about the potential portfolio rationalizations within Optimum Health and other businesses as you implement the new approach. Can you frame that for us in terms of revenue or perhaps more philosophically, in terms of how you're thinking about the asset base? And maybe more broadly, around where potential rationalization might occur. Thanks.
Steven Hensley
Sure. Regarding the dividend, we'll start with Wayne, and then I'll address Optum before handing it over to Krista and Patrick. So, Wayne.
Wayne Divide
Thank you, Steven. Good morning, Scott. There are no changes to our historical dividend practices, nor do we expect any changes going forward. We will continue to maintain the dividend as we have done. The next priority is debt repayment, after which we will revert to our share buyback program and strategic acquisitions. Therefore, there are no anticipated changes, and we hope to resume our normal capital deployment activities in the second half of next year. Broadly speaking, and related to Optimum Health, let me help clarify.
Steven Hensley
We remain highly committed to this initiative. We are simply reshaping it back to its original conception, believing it has the greatest impact and value. We are taking the necessary steps to realign it so we can effectively grow and advance it within the framework of our disciplined model moving forward. Christy, would you like to elaborate a bit?
Krista Nelson
Yes, I can add to that. Thank you for the question. As Steve mentioned, we are closely examining the entire integrated delivery system. We have a mix of value-based care assets, along with some assets focused more on fee-for-service, but which truly support our value-based care agenda.
It’s crucial to ensure that this integrated model delivers the best outcomes. As we consider portfolio rationalization, we are taking into account several factors, such as clinical quality, operating cost performance, engagement levels, and ensuring the model can be fully realized for both value-based care and fee-for-service lines.
And so I think those are the ways in which we're kind of looking at the model. So it's a market focus. It's, you know, we are looking at rooftops, we are again looking at the populations, the risk, the product, and I think through all of that there will be an output of some actions that we'll take in the near term to position us for long-term success of that integrated model.
Steven Hensley
Likely withdraw from a few geographic markets, likely reshape the practices within certain markets where we remain; likely shape the, let's say, primary delivery system along the lines of complementary services things along those lines—all very logical, all actually more constructive. But to be constructive sometimes you have to take some things away and refine the approach across Optum and connect a couple of questions.
You know, in the face of escalating cost trends, what we hear from our payer partners, from employers, and from patients and providers is that they want a value-based care system that delivers better quality, better experience, and lower-cost care—and that's what Optum is delivering to our various customers. Thanks, good question. Next, please.
Operator
Our next question comes from Aaron Wright with Morgan Stanley.
Aaron Wright
Great, thanks. So I have a follow-up on that front. Is there anything you can quantify or break down for us in terms of those steps to turn around Optum Health? Like how much is just walking away from risk? How much is fixing the fee-for-service business? And presumably that could be addressed a little bit quicker, right? And, and how much is just integrating into a consolidated operating model? And then, what sort of incremental investments can you quantify at this point that need to go into that business as well? Presumably, does this all get you to 6 to 8% margin in 2028 and that's just back-end weighted? Is that the right way to think about it? Thanks.
Steven Hensley
I think directionally, I don't think we can achieve the level of precision you might be looking for something like that just because this does blend together. But Krista, do you want to respond?
Krista Nelson
Yes, thank you for the question, Aaron. Let me start where you left off — while progress may be more weighted towards the second half, we should expect to see advancements throughout. Although we might witness quicker progress in certain areas of fee-for-service improvements, such as productivity, scheduling, access enhancement, or collection rates that Patrick mentioned, we will also begin to see some progress within our value-based portfolio.
Consider initiatives like medical management, the work we are doing with our payers, efforts to curate our networks, and the measures we are taking to manage operating cost discipline. All these elements come together in this integrated model. While we may experience faster progress in specific areas, you will still see ongoing advancement across the holistic model.
For instance, we are a bit further ahead in the Eastern region on this front and have already seen some impact there. That serves as a good example of how this will unfold, right? Greater volume, increased capture, and broader reach.
Operator
Alright, next question please. Our following question comes from Dave Windley with Jefferies.
Dave Windley
Hi, good morning. Thank you for taking my question and squeezing me in. My question relates somewhat, but earlier in the call, you quantified that half of your headwind, I believe the V28 headwind for 2026, is planned to be mitigated through recontracting. I wanted to clarify: does that apply across the portfolio of payers, or are you primarily gaining that from the UHC portion versus the non-UHC portion? Additionally, did I hear correctly that BBC lives are expected to decline by 10%? Is that related at all? Thank you.
Steven Hensley
Thank you. Chris, would you like to respond?
Krista Nelson
Yes, absolutely. As Patrick mentioned, we aimed to offset half of the V28 headwind through our payer contracting efforts, which encompass all payers. We have completed this process and are approximately 90% done with contracting, with visibility into completing the remainder by the end of the year. So, we feel confident about that.
This includes rates as well as products and benefits, and we’ve discussed some market exits within that context. Exiting more than 40% of our PPO footprint was part of that initiative, again spanning all of our payers.
Regarding your question on membership, with an anticipated reduction of approximately 10% as we move into next year, we may see additional PPO exits as we continue our work with all payers and finalize these efforts.
However, this would be a direct result of actions we’re taking to optimize our portfolio, including product offerings, market presence, and aligning risk appropriately to this model, focusing on products conducive to effective management.
Steven Hensley
Exactly. Good question.
Operator
Next, please. Our next question comes from Jessica Kasson with Piper Sandler.
Jessica Kasson
Hi everyone, thank you very much for the question. Could you describe the tone of any recent conversations you may have had with CMS, their receptivity and stance towards MA? What do you think CMS is focusing on from a STARS risk adjustment and MA race perspective, and what is UHC lobbying for? Thank you.
Steven Hensley
You can decide who will respond to that. You know, we are not lobbying for anything in particular. So, thank you, Jeff, for the question.
Bobby Hunter
When I think about CMS's receptivity, we have been encouraged and continue to be highly encouraged by this administration’s willingness to engage in discussions with the industry regarding ways to modernize and improve this already very popular program. This stands in direct contrast to our experience under the previous administration. We always appreciate and value the opportunity to engage in fact-based conversations about how to modernize the program and believe this is the best way to arrive at constructive solutions and move forward effectively.
So, again, we are encouraged by the level of activity and the depth of the conversations we are having with the administration. We will continue these efforts and bring them ideas that we believe represent the best path forward, providing stability for beneficiaries while also modernizing the program in the process.
Steven Hensley
Yes, absolutely. We have time for one more question. Let’s proceed to the next one, please.
Operator
Our final question comes from Whit Mayo with Leary Partners.
Whit Mayo
All right. Thanks, Tim. I was just hoping that you could comment more on the provider coding issues you were discussing. We hear pushback on that from many health systems. And maybe you could share any observations on the independent dispute resolution process and actions being taken there or its impact on trends? Thanks.
Tim Noel
Yeah, thanks for the question, Whit. When I think about some of what we're seeing in trends, there certainly is a meaningful portion of it that is related to more service intensity per encounter being billed by health systems and providers. Some of the ways this is manifesting include higher-cost sites of service where lower-cost options are available—think labs, emergency rooms, and surgeries.
I'm also seeing more services being attached to emergency room visits and hospital stays, an increase in the number of specialists involved per inpatient day. Additionally, there seems to be a bias toward some higher Diagnosis-Related Group (DRG) weightings than we've observed in the past.
This trend is occurring fairly consistently across the country, though there are also some significant outliers. One part of what we're doing is addressing these outliers. We must keep medical costs and healthcare affordable for consumers, states, and the federal government.
So we will be taking certain network actions where necessary to keep healthcare affordable. We're also making greater use of artificial intelligence (AI) in our payment integrity programs, enhancing some of our payment policy efforts as well as our clinical affordability initiatives to address what we're observing.
Regarding the Independent Dispute Resolution (IDR) process, it's not something that stands out as a material driver of trends at this point, but it's certainly something we're monitoring quite closely.
Steven Hensley
Great. Thanks. It’s been a great conversation today, but that’s all the time we really have. I want to thank everyone for joining us, and we look forward to speaking with you again and engaging with you before January. In January, we will provide both our year-end results and guidance for 2026. So thank you all for joining us this morning.
Details at UnitedHealth IR
Tips: This summary was generated by an AI language model based on publicly available information, including auto-generated subtitles and publicly released audio from third-party sources. While efforts have been made to ensure accuracy, AI-generated content may contain errors or omissions. Please refer to the official materials released by the respective listed companies for the most accurate and up-to-date information. This content is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any investment products. The views and summaries presented do not reflect the official position of moomoo. Moomoo makes no warranties, express or implied, regarding the accuracy, timeliness, or completeness of this content and shall not be held liable for any losses arising from its use. The copyright of any original conference call content remains with the respective listed companies.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
theamazingcat :
kkiokio : Nice to meet you all!
FrustratedDeveloper : 400+
Fated : Same to u
kkiokio : i didn't mean it
JobCarasco : What do you think?
102612452 : Seems good
huat ang : Looks good!
Swami : What’s going on with the Criminal Investigation
75731385 : Hi
View more comments...