UnitedHealth Group's Q3 2025 Earnings Call: Contradictions Unveiled in Optum Health Margins, Medicaid Recovery, and Medicare Advantage Strategies

Date of Call: October 28, 2025

Financials Results

• Revenue: $113B, up 12% YOY
• EPS: $2.92 adjusted EPS, slightly ahead of expectations
• Operating Margin: Operating cost ratio 13.5% in Q3, reflecting increased investments; medical care ratio 89.9% in Q3 vs 85.2% year-ago

Guidance:

• Formal 2026 guidance to be provided with Q4 results in January.
• Management comfortable with current analyst consensus as a stepping-off point for 2026.
• Expect margin improvement and earnings growth in 2026 with accelerated, sustainable double-digit growth beginning in 2027.
• V28 represents >$6B headwind; targeting ~50% offset via payer contracting.
• Pause on buybacks/M&A while targeting debt-to-capital ~40% (near H2 2026); dividend unchanged.
• Investing in Optum Health/Insight and AI; full-year operating cash flow expected ~$16B; tax rate to normalize in 2026.

Business Commentary:

* Financial Performance and Investments: - UnitedHealth Group reported adjusted earnings per share of $2.92, slightly ahead of expectations, with revenues exceeding $113 billion, reflecting 12% year-over-year growth. - This performance was driven by domestic membership expansion of over 780,000 lives year-to-date, reaching a total of over 50 million members. - The growth was supported by strategic investments in technology and people, with over $450 million allocated to employee incentives and contributions to the UnitedHealth Foundation.

• Operational and Strategic Focus:
• The company is focusing on improving underperforming businesses by introducing new leaders and restructuring efforts, with a keen sense of urgency across the enterprise.
• They are aligning activities with long-term future goals and disciplining activities that do not align with their mission and strategy.

• Efforts are being made to advance the next era of health care while managing costs and addressing outstanding loan balances from the 2024 Change Healthcare cyberattack.

• Optum Health Restructuring:

• Optum Health is refocusing back to its original mission of value-based care by narrowing networks and integrating provider models, expecting membership to shrink by approximately 10% in 2026.
• This action is aimed at offsetting nearly half of the 2026 V28 headwind through payer contracting efforts, which are over 90% complete.

• The restructuring seeks to improve operational efficiency and enhance the focus on appropriate managed benefit products and patient bases.

• Challenges in Medicaid and Medicare:

• Medicaid margins are anticipated to be breakeven in 2026, with challenges due to mismatches between rate adequacy and member acuity, primarily affecting behavioral health and home health services.
• In Medicare, the company expects margins to decline further due to existing cost trends, with 2025 trend projections of approximately 7.5% in Medicare Advantage.
• Efforts are being made to mitigate these challenges through benefit design adjustments and cost control measures to stabilize funding and improve performance.

Sentiment Analysis:

Overall Tone: Neutral

• Management repeatedly acknowledged underperformance and operational fixes while expressing confidence: "we are committed to returning to the consistent enterprise-wide performance levels you should expect" and "I'm confident we will return to solid earnings growth next year." Financials show growth (revenues +12% YOY) but high medical cost trends (medical care ratio 89.9% vs 85.2% prior year) and significant restructuring actions (portfolio rationalization, ~low single-digit billion non-GAAP charge).

Q&A:

• Question from Joshua Raskin (Nephron Research LLC): Can you provide an updated breakdown of Optum Health sub-business revenue (capitated premiums vs FFS) and how much comes from UHC?
  Response: Optum Health revenue mix ~65% value-based care, 15% fee-for-service, 20% payer/employer services; roughly two-thirds of VBC business serves UnitedHealthcare.

• Question from Albert Rice (UBS Investment Bank, Research Division): Where does Optum Insight sit competitively, where will investments go and when will growth reaccelerate?
  Response: Optum Insight is competitively strong and is pivoting to AI-first products (e.g., Optum Real, Integrity One, Crimson AI); management is investing to modernize legacy offerings and scale AI-driven platforms with early pilots showing material productivity gains.

• Question from Justin Lake (Wolfe Research, LLC): Confirm commercial margins returning to 7%–9% by 2027 and current 2025 baseline assumptions?
  Response: Management views the 7%–9% long-term commercial margin as attainable; 2026 likely remains ~150 bps below the low end with pricing actions expected to drive meaningful progress toward that range.

• Question from Stephen Baxter (Wells Fargo Securities, LLC, Research Division): Can you detail the expected MA membership declines in 2026 (group vs individual) and industry growth outlook?
  Response: Expect ~1M MA membership contraction in 2026: ~600k from planned product exits and the remainder roughly split between group and individual; industry growth likely muted in 2026 due to funding cuts and market disruption.

• Question from Kevin Fischbeck (BofA Securities, Research Division): What % of MA is addressable by value-based care and how penetrated is that today?
  Response: Management believes MA has extensive untapped VBC potential but provided no specific TAM %; focus is on aligning markets, providers and products where VBC fits best.

• Question from George Hill (Deutsche Bank AG, Research Division): Quantify Q3 discretionary expense step-up and what portion is recurring vs one-time?
  Response: Q3 incremental investments totaled >$450M; about one-third funded the UnitedHealth Foundation (largely nonrecurring), while the remainder (people/technology investments, esp. in Optum Health/Insight) is largely recurring.

• Question from Lisa Gill (JPMorgan Chase & Co, Research Division): How should we think about utilization into Q4 and Part D trends?
  Response: Utilization and Part D are tracking in line with prior guidance and normal seasonality; this year shows a first-half earnings bias versus the usual split.

• Question from Andrew Mok (Barclays Bank PLC, Research Division): Why change Tier 3 Part D from copay to coinsurance for 2026 and how did copays perform in 2025?
  Response: Change reflects a multiyear, cautious benefit redesign given demo uncertainty; coinsurance and deductibles align with industry positioning to protect 2026 plan adequacy.

• Question from Ann Hynes (Mizuho Securities USA LLC, Research Division): Is the Medicaid margin bogey (negative ~1% to -1.5%) still valid and can the One Big Beautiful Bill enable recovery?
  Response: Medicaid performance view unchanged; 2026 seen as the trough with some margin degradation versus 2025, and management expects a return to roughly ~2% margins over an ~18–24 month period as funding and state actions align.

• Question from Lance Wilkes (Sanford C. Bernstein & Co., LLC., Research Division): What medical cost trends are you seeing in the employer market and what strategies are employers adopting for '26–'27?
  Response: Employer medical cost trend ~11% (priced into 2026); employers are adopting products like Surest, integrated advocacy and tighter medical/Rx coordination to manage affordability.

• Question from Scott Fidel (Goldman Sachs Group, Inc., Research Division): Any update on the dividend and how should we think about Optum Health portfolio rationalizations?
  Response: Dividend policy unchanged; buybacks paused until leverage improves; Optum Health will be reshaped—market exits and practice consolidations likely to refocus the business on the core VBC model.

• Question from Erin Wilson Wright (Morgan Stanley, Research Division): Can you quantify steps to turn around Optum Health (walking away from risk, fixing FFS, integration) and timing to 6%–8% margins?
  Response: Progress is expected to be back-half weighted; fee-for-service productivity gains can come quicker, while VBC and integration will progress more gradually—management declined to provide precise splits but expects steady improvement toward the 6%–8% long-term target.

• Question from David Windley (Jefferies LLC, Research Division): Is the ~50% V28 offset via recontracting across all payers and does VBC membership decline ~10% factor into this?
  Response: Yes—half of V28 offsets come from payer contracting across all payers (≈90% complete) including rate, product and benefits adjustments; Optum Health expects ~10% VBC membership decline in 2026 largely from PPO exits and portfolio optimization.

• Question from Jessica Tassan (Piper Sandler & Co., Research Division): What is CMS's tone on MA (STARS, risk adjustment, rates) and what is UHC lobbying for?
  Response: Management is encouraged by CMS receptivity and is engaging in fact-based, constructive discussions on program modernization and stability for beneficiaries; no specific lobbying asks were detailed.

• Question from Benjamin Mayo (Leerink Partners LLC, Research Division): Thoughts on provider coding trends, IDR process impact and actions you're taking?
  Response: Trend increases are driven by higher service intensity, site-of-service shifts and higher DRG weighting; company is using network actions, AI-enhanced payment integrity and policy efforts to address outliers; IDR not a material trend driver today.

Contradiction Point 1

Optum Health Margin Recovery and Investment Plans

It involves differing expectations and plans for OptumHealth's margin recovery and investment strategies, which are crucial for understanding the company's financial outlook and strategic direction.

Can you provide an update on Optum Health's subsidiary businesses, including revenue sources and membership projections for next year? - Joshua Raskin (Nephron Research LLC)

2025Q3: For 2025, margins were under 1%. Krista Nelson emphasizes commitment to the long-term potential of 6% to 8% margin targets, working on robust actions for future success. - Patrick Conway(CEO of Optum Rx), Krista Nelson(CEO of UnitedHealthcare Community & State)

Can you explain OptumHealth's margin recovery plans and any pricing strategy changes for better payer partner alignment? - Albert J. William Rice (UBS Investment Bank, Research Division)

2025Q2: OptumHealth is collaborating more closely with payer partners to address funding cuts, resulting in a 50% reduction in the V28 headwind expected for 2026. Our strategy involves a stronger partnership for benefit reductions and a focus on managing risk arrangements and product designs. The plan is to sustain the 1% margin for 2026 and gradually improve thereafter. - Patrick Hugh Conway(CEO of Optum)

Contradiction Point 2

Medicaid Margin Recovery Timeline

It involves differing expectations for the timeline of Medicaid margin recovery, which is crucial for understanding the company's financial outlook and strategic focus.

Is the Medicaid margin recovery still expected by 2028, and what prevents a faster recovery? - Ann Hynes (Mizuho Securities USA LLC, Research Division)

2025Q3: Medicaid margins are still expected to recover by 2028, with a focus on aligning rate adequacy with member acuity. Current challenges include specialty pharmacy and behavioral health costs. - Stephen Hemsley(CEO & Non-Independent Non-Executive Chairman), Unknown Executive

What are the 2026 target Medicaid margins and expected premium increase? - Ann Kathleen Hynes (Mizuho Securities USA LLC, Research Division)

2025Q2: Medicaid margins are expected to be negative in 2026 due to ongoing trend pressures and funding lags. Premium increases in Medicaid are expected to be comparable to 2025. - John F. Rex (President & CFO)

Contradiction Point 3

Medicare Advantage Cost Trends and Management Strategy

It involves differing perspectives on the expected trend and management strategy for cost trends in Medicare Advantage, which directly impacts financial performance and strategic planning.

What are the expected membership declines in Medicare Advantage for 2026, and what is the company's outlook on industry growth? - Stephen Baxter (Wells Fargo Securities, LLC, Research Division)

2025Q3: Membership contraction in Medicare Advantage is expected at 1 million for 2026. The decline is due to product exits and pricing discipline. - Robert Hunter(Executive Vice President)

What is the current estimate for the Medicare Advantage cost trend, and how much of it was reflected in Q1? - Justin Lake (Wolfe Research)

2025Q1: In 2025, we expected care levels consistent with 2024, which was about a 1/3 increase in total trend drivers. We saw a 2x increase in physician and outpatient care in Q1 2025, limited to Medicare Advantage. - Timothy Noel(CFO)

Contradiction Point 4

Medicare Advantage Membership Growth and Outlook

It involves differing perspectives on Medicare Advantage membership growth and expectations, which are critical for assessing the company's market positioning and future prospects.

Will there be expected membership declines in Medicare Advantage for 2026? Does the company expect the industry to grow? - Stephen Baxter (Wells Fargo Securities, LLC, Research Division)

2025Q3: We expect membership contraction in Medicare Advantage of approximately 1 million in 2026. - Robert Hunter

Explain the Medicare Advantage revenue adjustment and its impact? What is the outlook for MA growth in 2025? - Justin Lake (Wolfe Research, LLC)

2024Q4: 2025 MA growth is expected to be balanced, with strong returns from previous members and stable growth across products and geographies. - Robert Hunter

Contradiction Point 5

Value-Based Care Membership and Revenue Mix

It highlights a discrepancy in the reported revenue mix and membership details of value-based care, which are crucial for understanding the company's strategic focus and growth potential.

Can you provide an update on Optum Health's business segments, including revenue sources and membership details for 2024? - Joshua Raskin (Nephron Research LLC)

2025Q3: Approximately 65% of Optum Health's revenue comes from value-based care, 15% from care delivery fee-for-service, and 20% from payer, employer services. - Patrick Conway(CEO of Optum Rx), Krista Nelson(CEO of UnitedHealthcare Community & State)

Can you clarify the recent 4 million consumer count drop and margin changes in the Optum Health segment? Are they related to MA rebates? - Joshua Raskin (Nephron)

2024Q4: Optum Health revenue drivers included an increase in the number of VBC members, strong growth in integrated delivery system contracts, and improved OptumRx performance. - Andrew Witty(CEO)