UnitedHealth's Q3 2025 Earnings Call: Contradictions Emerge on Optum Health VBC Revenue, Commercial Margins, and Medicare Advantage Trends

Date of Call: October 28, 2025

Financials Results

• Revenue: $113B+, up 12% YOY
• EPS: $2.92 adjusted EPS, slightly ahead of expectations
• Gross Margin: Medical care ratio 89.9%, compared to 85.2% in the same quarter last year
• Operating Margin: Operating cost ratio 13.5%, elevated due to larger investments in technology and people versus prior guidance set in Q2

Guidance:

• Formal 2026 guidance will be provided in January.
• Expect 2026 margin improvement driven by UnitedHealthcare repricing; Medicare breakeven for 2025 but 2026 may see further pressure if trends persist.
• Anticipate ~1M Medicare Advantage membership contraction in 2026 and Optum Health VBC membership ~10% decline in 2026.
• V28 is a >$6B headwind in 2026 with ~50% expected offset via payer contracting.
• Operating cash flow ~ $16B for 2025; debt-to-capital expected to trend toward ~40% in H2 2026 with potential to resume buybacks then.
• Investments in Optum Health/Insight and AI may slow 2026 growth but aim to accelerate 2027 performance.

Business Commentary:

* Operational Challenges and Turnaround Initiatives: - UnitedHealth Group's earnings were impacted by mispricing and underperformance in several business segments, particularly in Medicare and Medicaid. - The company is implementing operational rigor and pricing strategies for 2026 to return to solid earnings growth and address these challenges.

• UnitedHealthcare Segment Performance:
• UnitedHealthcare's medical cost trends remained high but in line with expectations, with Medicare Advantage expected to see a 7.5% trend in 2025.

• The company is adjusting benefits and network reductions to offset elevated trends and government funding cuts, leading to membership contraction projections.

• Optum Health and Value-Based Care Strategy:

• Optum Health is focusing on narrowing networks and aligning with appropriate risk footprints to refocus on value-based care, aiming for membership reduction of 10% in 2026.

• The company is concentrating on improving operating efficiency and network integration to drive operational consistency and return to growth by 2027.

• Payer Contract and Cost Management:

• UnitedHealth Group has offset approximately half of the 2026 V28 headwind through payer contracting, with benefit adjustments and rate adjustments.
• Public sector funding pressures and specialty pharmacy trends are ongoing challenges impacting Medicaid and Medicare products.

Sentiment Analysis:

Overall Tone: Neutral

• Management repeatedly acknowledged significant near-term headwinds (V28 >$6B, elevated medical trends) while emphasizing confidence in a return to solid earnings growth ("confident we will return to solid earnings growth next year") and decisive actions (repricing, network narrowing, payer contracting) to drive margin improvement.

Q&A:

• Question from Josh Raskin (Nephron Research): Can you update the Optum Health sub-business breakdown — how much revenue is from capitated premiums, how much from UnitedHealthcare, and how much from fee-for-service employed physicians?
  Response: Optum Health revenue mix: ~65% value-based care, 15% care-delivery fee-for-service, 20% payer/employer services; roughly two-thirds of VBC serves UnitedHealthcare.

• Question from A.J. Rice (UBS): Where does Optum Insight sit competitively, where must investments go, and what is the timeframe to re-accelerate growth?
  Response: Optum Insight is competitively strong and is investing to become AI-first (real-time claims platform, auto-coding, clinical analytics) with early pilots showing material productivity/ROI — growth re-acceleration tied to scaling these AI products.

• Question from Justin Lake (Wolfe Research): Confirm commercial margins returning to the 7%–9% target by 2027 and the current 2025 baseline ~3%–5%?
  Response: Management expects commercial margins to return to the 7%–9% range by 2027; 2026 will progress materially but likely remain ~150 basis points below the low end that year.

• Question from Stephen Baxter (Wells Fargo): Can you break down the expected Medicare Advantage membership declines in 2026 between individual, duals and group, and your view of industry growth into 2027?
  Response: Expect ~1M MA membership contraction in 2026 (includes ~600k product exits); the remainder split roughly evenly between group and individual; long-term MA growth intact but near-term depends on program funding/stability.

• Question from Kevin Fischbach (Bank of America): What percentage of Medicare Advantage is addressable by a successful value-based care model (TAM) and current penetration?
  Response: Company remains highly committed to expanding value-based care, sees a large addressable opportunity but will concentrate on markets, provider alignment, and appropriate risk footprints to scale VBC profitably.

• Question from George Hill (Deutsche Bank): Can you quantify the Q3 step-up in discretionary expenses and how much is run-rate vs one-time?
  Response: Q3 investments >$450M: roughly one-third (~$150M) to the UnitedHealth Foundation (not run-rate) and the remainder largely recurring investments in people, technology and AI (Optum Health/Insight).

• Question from Lisa Gill (JPMorgan): How should we think about utilization into Q4 and any expected Part D step-up in Q4?
  Response: Utilization and Part D are tracking in line with prior guidance; seasonality remains (first-half weighted earnings) and no unexpected Q4 step-up is anticipated.

• Question from Andrew Mok (Barclays): Why did you change Tier III branded drugs from copay to co-insurance for 2026 Part D plans and how did copay perform in 2025?
  Response: Change reflects a cautious, multi-year benefit-design approach amid demo uncertainty; the co-insurance/deductible design aligns with industry practice and positions MAPD/PDP well for 2026.

• Question from Anne Hynes (Mizuho Securities): Are prior Medicaid margin assumptions still valid and what prevents recovery in 2027–2028?
  Response: View unchanged: Medicaid likely troughs in 2026 due to underfunding and elevated trends; recovery to ~2% rated margins expected over an 18–24 month period contingent on better state funding and program collaboration.

• Question from Lance Wilkes (Bernstein): What medical cost trends are you seeing in the employer market and what strategies are employers adopting for 2026–2027?
  Response: Employer medical cost trend ~11% (priced into 2026); employers are adopting solutions like Surest, integrated advocacy, combined medical/Rx benefits, and selective VBC adoption to address affordability.

• Question from Scott Fidel (Goldman Sachs): Any change to the dividend and how are you thinking about portfolio rationalizations in Optum Health?
  Response: No change to the dividend; dividend maintained and the company expects to resume buybacks/acquisitions in H2 2026 as leverage improves.

• Question from Aaron Wright (Morgan Stanley): Can you quantify steps to turnaround Optum Health (walking away from risk, fixing FFS, integration, investments) and does this get you to 6%–8% margin by 2028?
  Response: Turnaround is phased and back-half weighted: faster FFS productivity gains plus ongoing VBC contracting and integration; targeted investments and portfolio actions aim toward the long-term 6%–8% margins but timing is back-loaded.

• Question from Dave Windley (Jefferies): Is the half-offset of V28 via re-contracting across all payers and is the ~10% VBC lives decline related?
  Response: Yes — about half of V28 offset comes from payer contracting across all payers (~90% complete); Optum Health expects ~10% VBC membership decline in 2026 driven by PPO and market exits.

• Question from Jessica Tassan (Piper Sandler): What's the tone of recent conversations with CMS on Medicare Advantage (STARS, risk adjustment, rates) and what are you advocating?
  Response: Management reports CMS is receptive to fact-based conversations about modernizing MA and improving stability; UnitedHealthcare is engaging constructively on program modernization.

• Question from Whit Mayo (Barclays): Can you comment on provider coding increases, IDR process, and actions being taken to address trend?
  Response: Increased service intensity and coding are meaningful trend drivers; company is addressing outliers via network actions, AI-enabled payment integrity and payment policy changes, and views IDR as not a major current driver.

Contradiction Point 1

Optum Health Revenue and Margin Targets

It involves changes in financial forecasts and strategic goals for Optum Health, which are critical for investors and operational planning.

Can you provide an update on Optum Health's sub-businesses, including revenue from capitated premiums and fee-for-service billings? - Josh Raskin (Nephron Research)

2025Q3: Optum Health's revenue is 65% from VBC, 15% care delivery fee-for-service, and 20% from payer employer services. Two-thirds of the VBC book serves UnitedHealthcare, with the rest serving diverse payers. - Patrick Conway(CEO, Optum)

How might MA repricing affect OptumHealth's pricing adjustments, and how are you addressing this with external plans? - Albert J. William Rice (UBS Investment Bank)

2025Q2: Optum's VBC revenue grew by $16.2 billion, reflecting 34% growth over the prior year. ... VBC revenue represented 63% of total Optum revenue. - Patrick Hugh Conway(CEO, Optum)

Contradiction Point 2

Commercial Margin Targets

It involves changes in financial forecasts and strategic goals for the commercial business, which are critical for investors and operational planning.

Are commercial margins targeted to reach 7-9% by 2027, and what is the 2025 baseline? - Justin Lake (Wolfe Research)

2025Q3: Commercial business aims to return to the 7-9% margin range by 2027. Pricing actions in 2026 will help achieve this, with current expectations placing 2026 margins 150 basis points below the target range. - Tim Noel(Executive, UnitedHealthcare)

What factors are driving EPS growth into 2026, especially in terms of MA margins? - Justin Lake (Wolfe Research, LLC)

2025Q2: This puts our business on a path to return to our targeted range of 7% to 9% by 2027. - John F. Rex(President & CFO)

Contradiction Point 3

Optum Health's Value-Based Care Challenges and Strategy

It highlights differing perspectives on the challenges and strategies related to Optum Health's value-based care model, which is central to UnitedHealth Group's growth and financial performance.

Can you update us on Optum Health's sub-businesses, including revenue from capitated premiums and fee-for-service billings? - Josh Raskin(Nephron Research)

2025Q3: Optum Health's revenue is 65% from VBC, 15% care delivery fee-for-service, and 20% from payer employer services. Two-thirds of the VBC book serves UnitedHealthcare, with the rest serving diverse payers. - Patrick Conway(CEO, Optum)

Can you link higher primary care visit rates to Optum Health's impact? Why can't you improve cost control in a value-based care environment? - Joshua Raskin(Nephron Research)

2025Q1: The issue is with member profiles and transitions to new payment models. Optum Health faces challenges with new Medicare patients being less engaged. - Andrew Witty(CEO)

Contradiction Point 4

Medicare Advantage Cost Trend Assumptions and Persistence

It involves differing opinions on the cost trend assumptions and their persistence, which are crucial for financial planning and investor expectations.

Will membership declines in Medicare Advantage by 2026 be distributed between individual duals and group? - Stephen Baxter(Wells Fargo)

2025Q3: Approximately 1 million membership contractions expected, with 600,000 from product exits and the rest split equally between group and individual Medicare Advantage due to pricing and market dynamics. - Wayne DeWitt(CFO)

How do your Medicare Advantage cost trend assumptions for this year compare to Q1 results? - Justin Lake(Wolfe Research)

2025Q1: In 2025, we planned for care activity levels consistent with 2024, suggesting about a 1/3 increase in trend drivers due to unit consumption. However, we're now seeing a 2x increase in the first quarter of 2025, focused on physician and outpatient services. - Timothy Noel(EVP)

Contradiction Point 5

Medicare Advantage Membership Trends

It involves expectations for Medicare Advantage membership, which impacts enrollment and revenue projections for the company.

Will membership declines in Medicare Advantage in 2026 be split between individual duals and group plans? - Stephen Baxter (Wells Fargo)

2025Q3: Approximately 1 million membership contractions expected, with 600,000 from product exits and the rest split equally between group and individual Medicare Advantage due to pricing and market dynamics. - Wayne DeWitt(CFO, UnitedHealth Group)

What are your views on the 2026 Medicare Advantage announcement and its impact on reimbursement? - Stephen Baxter (Wells Fargo)

2024Q4: Our individual MA membership is expected to remain unchanged compared to 2023 levels as we exit the year. And our duals membership is expected to grow in the 1% to 2% range due to the net positive impact of this year's product availability changes. - Wayne DeWitt(CFO, UnitedHealth Group)