Earnings call transcript: UnitedHealth Q2 2025 sees stock dip as EPS misses

UnitedHealth Group’s second-quarter earnings call revealed a mixed financial performance, with earnings per share (EPS) falling short of expectations, causing a notable dip in stock price. The company reported an EPS of $4.08, below the forecasted $4.45, marking an 8.31% surprise miss. Despite a 13% increase in revenue year-over-year to $112 billion, the stock price fell by 3.63% in pre-market trading, reflecting investor concerns over the earnings miss. According to InvestingPro data, the stock has experienced a significant 47% decline over the past six months, though analysts maintain the stock is currently undervalued based on Fair Value analysis.

Key Takeaways

• UnitedHealth’s Q2 2025 EPS of $4.08 missed the forecast by 8.31%.
• Revenue grew 13% year-over-year to $112 billion, surpassing forecasts.
• Stock price dropped 3.63% in pre-market trading following the earnings report.
• The company is targeting $1 billion in cost reductions by 2026.
• UnitedHealth is focusing on AI and technology to enhance healthcare efficiency.

Company Performance

UnitedHealth Group demonstrated robust revenue growth in Q2 2025, with a 13% increase compared to the previous year, reaching $112 billion. This growth was driven by scaling AI efforts and launching new healthcare solutions. The adjusted EPS of $4.08 was lower than both the previous year’s results and market expectations, indicating challenges in managing operational costs and margins. InvestingPro analysis shows the company maintains strong fundamentals with a "GREAT" overall financial health score and impressive gross profit margins of 22%. The company has also maintained dividend payments for 33 consecutive years, demonstrating long-term financial stability.

Financial Highlights

• Revenue: $112 billion, a 13% increase year-over-year
• Earnings per share: $4.08, below the previous year’s performance
• Full-year revenue guidance: Approaching $448 billion, 11% growth expected

Earnings vs. Forecast

UnitedHealth’s actual EPS of $4.08 fell short of the forecasted $4.45, resulting in an 8.31% negative surprise. This marks a notable deviation from expected performance and indicates potential issues in cost management or market conditions impacting profitability.

Market Reaction

The stock market reacted negatively to UnitedHealth’s Q2 earnings miss, with the stock price falling 3.63% in pre-market trading to $266.30. This decline reflects investor concerns over the company’s ability to meet earnings expectations amidst rising medical costs and market contractions. The stock remains significantly below its 52-week high of $630.73, indicating broader market challenges.

Outlook & Guidance

UnitedHealth projects full-year revenue approaching $448 billion, representing an 11% growth. The company expects moderate earnings growth in 2026, with a focus on cost reductions and technology investments. Medicare Advantage margins are targeted at 2-4%, while commercial margins are expected to recover to 7-9% by 2027. InvestingPro subscribers have access to additional insights, including 10+ exclusive ProTips and comprehensive valuation metrics. The company’s current P/E ratio of 11.64x appears attractive relative to its near-term earnings growth potential, suggesting a compelling entry point for value investors.

Executive Commentary

CEO Stephen Hemsley acknowledged the challenging environment, stating, "We are on this course against a challenging environment." Tim Knoll, Head of UnitedHealthcare, emphasized the seriousness of current challenges, remarking, "We know these are serious challenges. We are humbled by them." Patrick Conway, CEO of Optum, highlighted the potential of value-based care, saying, "Value based care has the potential to transform health care."

Risks and Challenges

• Generational pullback in Medicare funding from 2023 to 2026.
• Rising medical cost trends impacting margins.
• Contraction in Medicaid and exchange markets.
• Potential challenges in implementing AI and technology solutions effectively.
• Managing cost reductions without impacting service quality.

Q&A

During the earnings call, analysts focused on the pressures of rising medical costs and margin compression in Medicare Advantage. There was significant discussion on the potential and challenges of value-based care, with executives reaffirming their commitment to AI and technology investments to drive future growth.

Full transcript - Unitedhealth Group (UNH) Q2 2025:

Conference Operator: Good morning, and welcome to the UnitedHealth Group Second Quarter twenty twenty five Earnings Conference Call. As a reminder, this call is being recorded. Here are 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 that 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 amount is available in the Financial and Earnings Reports 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 eight ks dated 07/29/2025, which may be accessed from our 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, Stephen Hemsley.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Thank you. Good morning, and thank you for joining. Today, our prepared remarks will be a little longer than usual, so we will be allowing more time for your questions. As we begin, I want to recognize and thank our employees who have been so dedicated to serving our patients, consumers and customers during a prolonged challenging period for our business. And I’d like to thank our leadership team, many of whom are new in their roles, for their willingness to join me in looking hard at our businesses, getting a grounded assessment of our action plans, rebaselining our outlook, and moving to pace to advance the performance of each of our businesses.

This morning, I know you are eager to get into the underlying details of our revised financial outlook, which we will do. But at this moment, I believe it’s also important to convey the tone we’re setting at this enterprise. More than anything, it is a tone of change and reform or out of recommitment to our mission to help people live healthier lives and help make the health system work better for everyone. It’s a mission that requires a commitment to a culture of values, of service, responsibility, integrity, and humility. We pair that mission driven, ambition of reform with a keen sense of the opportunity and the expectation to perform better than we ever have.

As we continue to assess the state of our businesses, it is very apparent that some require a fundamental reorientation. Others require building and nurturing, and others must be reconsidered and redirected to original purpose. We also recognize the need and the opportunity to revisit and address critical processes and fundamental business practices, both internal and market facing. We’re acutely aware we have an enormous responsibility for providing care for millions of people and for protecting the government and private programs we partner in. As such, we have embarked on a real cultural shift in our relationship with regulators and all external stakeholders.

Stakeholders. We intend to be proactively engaged, constructive, and responsive to the concerns of all stakeholders and in our engagement with them. We have the chance to reposition our enterprise as a far more modern, reliable, consumer, and provide and provider friendly enterprise using new technology and approaches, and we’re going to pursue that course. Pursuit of these opportunities aligns to and enables our reform and change mandate and allows us to better achieve our mission and to steadily perform better in doing so. We are on this course against a challenging environment, which includes a generational pullback in Medicare funding set in motion in 2023 and playing out through 2026.

Unprecedented medical cost trends measured in both intensity of services used as well as unit prices and more aggressive care provider coding and billing technologies. The prospects refer the contraction of the Medicaid and exchange markets, the growing need to invest opportunities new technologies offer and the expectation of all health care entities to offer a better experience for consumers, customers, care providers, and employees. And finally, the continuing public controversy over long standing practices and complexities across the entire health care sector, particularly managed care, which bears the critical roles for coverage for care management and for pricing for the intensity of the costs and services used in the benefit products and programs for the entire health care market. As a leading provider of health services, we must help advance a better health system. We are committed to engaging in these pursuits with purpose and better partnership with all stakeholders, transparency in our business and reporting practices, and continued integrity in all we do.

Beyond the environmental factors that are affecting the entire sector and more specifically to us, we’ve made pricing and operational mistakes as well as as others. They are getting the needed attention. Our critical processes, including risk status, care management, pharmaceutical, services, and and others are being reviewed by independent experts, and they will be reviewed every year and reported on, as these processes can be reviewed at any time by outside stakeholders. While we believe in our oversight and the integrity of these processes, wherever they are determined to be at variance with prescribed practice, they’ll be promptly remediated and will continue on this path. All the foregoing is fully addressable.

We can steadily restore our performance to levels consistent with our mission and stakeholder expectations, all as we strengthen an institutional culture aligned to that mission and accountable for performance. Over the last sixty days or more, we have made extensive management and operational changes aligned to this agenda of reform and performance. Other such changes to leadership, to our businesses, our culture, our approaches and practices, and to our board, governance, and succession oversight as appropriate will continue to be made as we proceed through this period. With those thoughts in mind, Tim Knoll and Patrick Conway, heads of UnitedHealthcare and Optum, respectively, will walk through some of the specifics in their businesses. John Rex will discuss financial performance and the elements affecting our outlook, and I’ll come back with some closing thoughts, and then we’ll have ample time for questions and answers.

Tim Knoll, Head of UnitedHealthcare, UnitedHealth Group: Thank Steve. I’ll start by emphasizing that we are approaching our business with greater humility, greater transparency, and a renewed determination to meet your expectations and our standards. The primary driver of the UnitedHealthcare earnings shortfall for 2025 is that our pricing assumptions were well short of actual medical costs. Our current view for 2025 reflects 6,500,000,000.0 more in medical costs than we anticipated in our initial outlook. A little over half or 3,600,000,000.0 of this is in our broad based Medicare portfolio.

About 1 third or $2,300,000,000 is in the commercial business, split evenly between ACA plans and our employer business. The remaining trend pressure is related to Medicaid, most notably due to elevated behavioral trend. In addition to trend driven issues, updated 2025 outlook removes about 1,000,000,000 from previously planned portfolio actions that we are no longer pursuing. It also reflects about 850,000,000 of other items, including unfavorable prior period items, primarily from 2024 and recognition of several onetime settlements. We know these are serious challenges.

We are humbled by them and will carry that sense of humility more deeply into our culture. But we also believe we can resolve our current issues and recapture our earnings growth potential. Let me now provide an update on where each business stands starting with Medicare. When we prepared our twenty twenty five Medicare Advantage offerings back in the 2024, we significantly underestimated the accelerating medical trend and did not modify benefits or plan offerings sufficiently to offset the pressures we are now experiencing. This was compounded by the magnitude of plan exits across the sector and the extent to which we now see care providers placing further service intensity into the health system.

The increasingly flexible orientation to which our Medicare networks and plan designs have evolved over recent years left us less able to address these trends in year. On trends specifically, the increase in care activity across individual and group Medicare Advantage we saw earlier this year has now affected complex populations and our Medicare Supplement business as well. Across Medicare Advantage, physician and outpatient care together represent 70% of the pressure year to date. However, inpatient utilization has accelerated through Q2 and we expect will comprise a relatively larger portion of the pressure over the full year. We continue to see utilization increases in ER and observation stays and consistently see more services being offered and bundled as part of each ER visit and clinical encounter.

In short, most encounters are intensifying in services and costing more. The higher trend is broad based geographically and across our membership, including our large retained membership base. To put this into context, we had initially assumed Medicare Advantage medical cost trend of just over 5% when configuring our 2025 bids, in line with our normalized trend experience in 2024. We now expect full year 2025 trend to be approximately 7.5%. Medicare Supplement, which typically is representative of overall care activity levels and cost trends in Medicare fee for service broadly, is up similarly in 2025 compared to historical levels.

We expect that trend to be over 11% this year versus eight to 9% in recent years, further confirming the broad based nature of the care activity and the coding and billing patterns we are seeing. On commercial, we are seeing higher than expected medical cost increases, particularly in outpatient care and, although to a lesser extent, inpatient care. Orthopedic spending and pharmacy infusions are notable factors here. In the ACA business, the revenue impact resulting from a difference between the morbidity that we price for and what we experienced is the primary cause of our underperformance. One example of the elevated commercial trend is group fully insured.

Their trend is approaching 11%, which is approximately 100 basis points higher than our initial expectations.

John Rex, President and Chief Financial Officer, UnitedHealth Group: Moving to

Tim Knoll, Head of UnitedHealthcare, UnitedHealth Group: Medicaid. Similar elevated trends are apparent and further affected by increasing and unanticipated acceleration of cost in behavioral health, where trend is running at 20%, as well as in pharmacy and home health. We anticipate the existing rate and acuity mismatch will extend well into next year. Beyond these segment specific factors, there are other broad drivers of higher medical costs. There has been a marked increase in health care costs due in part to increases in service intensity per encounter.

For example, in Medicare Advantage, higher frequency of physician rounding, testing, and related services of specialists and in ER settings are contributing to elevated outpatient spend. In addition to strongly responsive pricing for 2026, which I will speak to in a moment, we are intensifying our remediation actions. We have stepped up our audit, clinical policy, and pay payment integrity tools to protect customers and patients from unnecessary costs. These efforts ensure care is delivered in appropriate settings and grounded in safety and quality while also identifying waste and abuse in outlier coding and billing practices. We are shifting to narrower networks and focusing on more disciplined managed products, particularly in Medicare Advantage.

And we have scaled our AI efforts across health plan operations, which improves the patient and provider service experiences while driving cost savings. Lastly, in Medicaid, we continue to actively engage with state partners using both past experience and data driven insights to show the need for immediate and more regular rate updates. Taken together, this work is helping restore our operational muscle and reclaiming executional rigor, helped by modern tools and driven by a relentless focus on improvement. Turning now to 2026. Our pricing strategy is intensely focused on margin recovery and moving back towards our earnings growth targets.

In Medicare, we have historically targeted an operating margin range of 3% to 5%. Now with the changes from the Inflation Reduction Act on the Part D program, which resulted in higher revenue but do not impact earnings, the equivalent target margin range is in the 2% to 4% range. We are working intensively to remediate Medicare through pricing, product design, and benefit changes that will enable us to be within the lower half of the targeted margin ranges in 2026 and advancing further in 2027. Our Medicare Advantage pricing strategy for 2026 assumes a trend approaching 10% compared to our current 7.5% trend expectation. This accounts for trend acceleration and incorporates factors such as changes in fee schedules and the continuation of higher yields from provider coding and billing practices.

Considering the continued cost trends and funding pressures and the need to support margin recovery, we have made significant adjustments to benefits. Additionally and unfortunately, given these pressures, we have made the difficult decision to exit plans that currently serve over 600,000 members, primarily in less managed products such as PPO offerings. We have taken similar approaches for Medicare Supplement, Group MA, and stand alone Part D pricing for next year. We will be watching the market closely as the twenty twenty six Medicare offerings become public so we can better assess our market positioning and respond quickly. For commercial, because renewals occur occur over the course of the year, we are able to price for changes more dynamically.

Our pricing will anticipate higher trend continuing into 2026 and 2027. We expect increased membership decline as well as shifts into both level funded and self funded product categories because of higher medical cost trends. In the individual exchange business, while we are prepared to continue to participate in the majority of the 30 markets we currently serve, we will approach them far more conservatively for 2026. We may need to make the difficult decision to exit select markets if we are unable to achieve the rates necessary for higher market wide morbidity. Additionally, due to the projected expiration of premium subsidies across the ACA market, our membership should decline significantly, and we are mindful of the potential for adverse selection dynamics as we right reprice these offerings for next year.

In Medicaid, there remains a lag between funding levels and member health risk, and we expect this to continue into 2026 resulting in additional margin compression in the business, including a loss within the nondual segment of Medicaid in 2026. Membership losses from early adoption of recent legislation is also factored into our initial views for 2026. Wherever states support responsible funding for Medicaid, we remain committed to serving people through that program and view this as integral to our mission. The American health system’s long standing cost problem is accelerating. We are embracing our responsibility to continue to drive better health outcomes while trying to keep health care affordable for all Americans.

The operational and pricing strategies I have described reflect our understanding of the challenges we face as a company and a society and our dedication to responsibly navigating the current financial pressures so that we can set a stable course for the future. I’ll now turn it over to Patrick Conway, CEO of Optum.

Patrick Conway, CEO of Optum, UnitedHealth Group: Thanks, Tim. Clearly, Optum’s performance this year has also not met expectations, yours or ours. Echoing Tim and Steve, we are approaching this with humility and the need for deep analysis of key issues and commitment to substantially improved execution. Serving our patients and customers is at the heart of our mission and business, and we have the opportunity to truly help make the health system better for everyone. To do that, we need to refocus on our performance discipline with a bias for action and transparency for all stakeholders.

We have launched our agenda of change at Optum, starting with the evolution of our leadership team. Roger Connor brings tremendous experience in organizational execution as our chief financial officer. Krista Nelson is a deeply experienced health care operator now in the new role of chief operating officer of OptumHealth. Divya Suradhivara is already energizing reenergizing product development, marketing, and service as the new CEO of OptumInsight. And John Mart brings his unmatched pharmacy services experience to bolster the already compelling offerings of OptumRx.

These are not the only people in new roles, and there will be more. We are taking these and many other steps swiftly to enable Optum to recapture its historic momentum. Let me turn now to review of our businesses, starting with OptumHealth, where improved execution is needed most, and we are experiencing the greatest pressures to our business. Our belief remains steadfast. Value based care has the potential to transform health care.

Yet even as we struggle to align this model with new funding dynamics, it consistently delivers better outcomes. Tim highlighted the challenges of rising health care unit cost, accelerating service volumes, and provider coding intensity, which further underscores that value based care remains the most effective method for compensating providers to improve and sustain a patient’s health in contrast to simply increasing the volume and price of services. Research consistently supports this premise, showing Medicare Advantage patients in fully accountable arrangements are twenty percent less likely to be hospitalized and experience eleven percent fewer ER visits compared to those in fee for service. We are early in our value based care journey. We know we have real and self inflicted executional challenges, and we bear the responsibility to get this right, recognizing that urgent work lies ahead.

We have spent a decade assembling a care delivery model today serving nearly 20,000,000 patients across three lines of business, value based care, fee for service care delivery, and services, the latter two of which help further enable value based care. The first category, value based care, has grown to account for approximately 65% of OptumHealth’s revenues and serves five five million patients in fully accountable arrangements. I’ll provide more details on this in a moment, but first, we’ll detail the gap to our original OptumHealth outlook. Overall, OptumHealth earnings in 2025 are approximately 6,600,000,000.0 below our expectations. To break this down, approximately 3,600,000,000.0 or 55% is concentrated in our value based care business with three principal drivers of roughly equal weight.

Number one, the mix of enrollment, including more complex and dually eligible members and more new to Optum patients who were underserved. Two, accelerated medical trend, particularly physician and outpatient in Medicare and behavioral and Medicaid. And three, underestimation of new members’ risk status as they came come into our care and suboptimal execution of the v ’28 risk model transition. Second category, another 2,000,000,000 or 30% relates to the decision to discontinue previously planned portfolio actions. And about $1,000,000,000 or 15% is from a combination of lower service volumes in our services businesses, some nonrecurring prior period impacts and the slowing of tuck in acquisitions.

For example, on lower service volumes, in 2025, we plan for approximately 20,000,000 fee for service visits in our care delivery clinics, and we are tracking 19,000,000 visits or 5% below this expectation.

John Rex, President and Chief Financial Officer, UnitedHealth Group: Let me dive a bit

Patrick Conway, CEO of Optum, UnitedHealth Group: deeper specifically into factors affecting our value based care business. First, b twenty eight. This industry wide shift is effectively a price reduction that we now estimate created an $11,000,000,000 headwind over three years for OptumHealth with 7,000,000,000 that’ll be realized through 2025. That is 2,000,000,000 and 1,000,000,000 respectively more than our initial estimates, while we also overestimated the impact and miss executed the planned efforts to offset these v twenty eight funding cuts. Second, enrollment mix.

Consistent with q one in 2025, we have an unanticipated number of new to OptumHealth patients who were previously underserved. These new patients are largely in markets where numerous plan exits occurred. They include com complex patients who require time to be managed effectively by us. This mix impact implies negative margins near double digits for these new patients, which will improve meaningfully in 2026. Lastly, the elevated medical trend we recognized in the second quarter was exacerbated by insufficient pricing within UnitedHealthcare and other payer partners, pulling through in the form of insufficient capitation rates for Optum.

Despite these headwinds, Optum’s fully accountable value based care business is delivering an operating margin of about 1% in 2025. This compares to full year operating margins of over 3% in 2024 and nearly 5% in 2023. A large part of the mis execution addressing the v twenty eight funding cuts was due to non standardized and overly localized management approach, which we are addressing with urgency. We are driving to a consistent and much more concentrated regional operating model with four market leaders. We are evaluating our position in each market.

We will shift risk back to the original underwriters until we have the hardened capacity to navigate it under value based constructs. And Optum will be much more disciplined in taking risk arrangements and product designs and constructs that allow value based care to have its intended impact. The margin compression reflects significant growth in new membership cohorts with nearly forty percent of patients served today having come in since the beginning of 2024. It also reflects the pull through from Medicare Advantage pricing dislocation Tim described and the v twenty eight payment cuts. Regarding patient cohorts, in our value based care practices, margins improve the longer patients remain.

Our most mature value based care cohorts, those from 2021 and prior, are operating at an estimated eight plus percent margin in 2025. Those in 2022 and 2023 cohorts are operating at a 2% margin. The 2024 through 2025 groups are at negative margins. Strong physician engagement, appropriate medical diagnosis, and improved consistent quality of care continues to drive year over year improvement in a cohort’s financial performance and in their health. But it’s taking too long, and there’s too much variability in results among practices.

We are actively addressing those factors. That’s the overall picture of what is happening. I’ll turn now to remediation. Our plan for improvement has four key elements. First and foremost, we are improving the implementation and consistency of our clinical model, which is anchored in primary care and supported by wraparound services that continue to outperform on quality and cost.

Second, we are committed to margin recovery in value based care. We’ve aligned our twenty twenty six benefits and product portfolio and footprint with our payer partners to address the final year of V28 headwinds. We plan to cease arrangements for about 200,000 patients largely in fully accountable PPO products, representing approximately forty percent of the PPO patients we serve today. We expect to keep narrowing our exposure beyond 2026. We are increasing rates to reflect the higher risk profiles and acuity we are seeing and expect to continue.

We believe the combination of these activities will mitigate about half the remaining $4,000,000,000 b ’28 headwind in 2026. The remainder of our offset will come from operating cost discipline and consistent execution of our care programs, which enhance engagement, diagnosis accuracy and quality outcomes, and reduce overall cost of care. With 2026 being the final year of v ’28 phase in, you should expect 2026 value based care margins to remain relatively consistent with the 1% margin we are achieving this year and then begin to advance again in 2027 and beyond. We are optimizing our portfolio practices. We are managing our fee for service and fully accountable risk practices to align with performance expectations, transitioning to partial risk or service arrangements where necessary, and exiting fully accountable products in certain markets.

Third, we are aggressively advancing operational disciplines across our portfolio of businesses. The more concentrating concentrated operating model I mentioned earlier plays into more standardized approaches, predictable outcomes, and lower operating cost. We will complete the final stages of our technology integration, which will enable meaningful advances with emerging technologies like AI to drive efficiency gains. For 2026, we expect to deliver almost 1,000,000,000 in cost reductions. Finally, beyond value based care, OptumHealth also includes fee for service care delivery, including home care, ambulatory surgical care, and medical practices that are not yet fully accountable but support value based care.

These together account for 15% of OptumHealth’s revenues. Most of these businesses are performing well and operate at low double digit margins. However, the primary care and multispecialty medical practices that are not yet fully accountable are running at negative margins, generating hundreds of millions of losses this year alone, placing the overall fee for service care delivery business in the mid single digit margin range. So we are actively working to improve payment yields and productivity while growing these high value services and fee for service margins. We are targeting growth for these services, which are projected to deliver strong year over year earnings growth in 2026.

The third component of OptumHealth services is comprised of businesses including managed behavioral health, military and veterans, and health financial services. These account for about 20% of OptumHealth revenues and combined have an almost 10% operating margins. Overall, at OptumHealth, while we expect continued pressure for the rest of this year, we anticipate meaningful improvement in our operations and with earnings growth in 2026, albeit with a longer path to recovery in our value based care business. We now see OptumHealth long term margins in the 6% to 8% range and about 5% for Bio Based Care specifically as we see significant growth opportunity for the decade to come. The overall blended margin will reflect the earlier investment losses generated by new cohorts.

OptumHealth is early in its development, and mix and mix execution is a clear setback, but the long term growth potential and expectations remain intact and significant. Moving to OptumInsight. There is a great need and appetite for technology and data products to help the health system perform more efficiently and effectively. Yet OptumInsight has not fully capitalized on this opportunity. That’s largely due to an unfocused suite of products, lagging innovation, and longer than expected impact from last year’s cyber attack, which unfortunately came at the expense of being able to drill down on business innovation, operations, and growth.

But as I mentioned earlier, we have a talented team in place now and continue to recruit talent to develop the next generation of products rooted in AI. As it relates specifically to 2025, we are adjusting our outlook downward by $1,000,000,000. About half of this is due to more gradual recovery than initially expected in some of our volume based businesses due to change health care and onetime cyber related expenses. The other half is due to pausing previously planned portfolio actions so that we can prioritize growth and innovation across our broader portfolio. At OptumRx, client retention remains high and consistent with past years.

We expect revenue growth of $18,000,000,000 or 13% and earnings growth of just over $200,000,000 or nearly 4%, driven by low margin specialty drugs. Compared to the strong revenue growth rate, our earnings growth has been constrained by four main factors. The removal of portfolio actions from our plan is roughly a $150,000,000 headwind, another $50,000,000 from a couple of ancillary businesses where we are taking aggressive corrective actions and adjusting plans. And the impact of initial launch phase of our private label business, Nuvela, is a roughly $150,000,000 headwind. As it matures, we see Nuvela delivering affordability for our clients and consumers and strong earnings for OptumRx.

Additionally, GLP-1s, which can benefit appropriate patients, continue to impact earnings, representing a $160,000,000 headwind for our pharmacy services businesses. After three months in this role, I wanna thank the thousands of people serving in Optum and to let external stakeholders know that the problems are fixable and that Optum will continue to drive long term growth and make the most of our opportunity to serve people. I’ll turn it over to our President and Chief Financial Officer, John Rex.

John Rex, President and Chief Financial Officer, UnitedHealth Group: Thanks, Patrick. I’ll first walk through second quarter results, then provide some color around the underlying assumptions within our reestablished ’25 outlook. Starting with the second quarter, UnitedHealth Group reported revenues of nearly $112,000,000,000 a 13% increase over the prior year, which reflected growth across UnitedHealthcare and Optum. Adjusted earnings per share of $4.08 was below the same period last year. This was due primarily to the pricing and medical cost trend factors at UnitedHealthcare and OptumHealth.

Included is about 1,200,000,000.0 in discrete items. A little over half reflects the recognition of unfavorable impacts to our ACA exchange offerings, which I will describe later in more detail. The remainder is the settlement of several outstanding items which have been in dispute or for which collection has recently become questionable. Most of these items arise from prior years. The full year ’25 outlook we’ve offered today accommodates 1,000,000,000 in additional potential such items that we may seek to resolve in year.

Now on to business overviews. At UnitedHealthcare, second quarter revenues grew by over $12,000,000,000 to $86,100,000,000 while operating earnings declined by $1,900,000,000 to $2,100,000,000 primarily due to the medical trend factors Tim discussed. Within our Medicare businesses, year to date Medicare Advantage growth is 650,000 people, including those who are duly eligible for Medicaid and Medicare. As noted, the second quarter results reflect just over $600,000,000 of unfavorable impacts from our ACA exchange business, which includes acceleration of anticipated second half losses with the establishment of a premium deficiency reserve. This is due to the higher patient morbidity that is pervasive across the entire exchange market.

Given competitive market dynamics, we have less member growth within our commercial offerings than initially anticipated. ACA exchange drives about one third of our reduced commercial risk member growth outlook for ’25, with group insured comprising much of the rest. As outlined earlier, our Medicaid offerings continue to experience pressure from the lag in state rate updates relative to the health status of the members being served. Our state partners remain highly engaged in ongoing rate conversations, and we are closely attuned to the federal funding changes and the continued pace of medical cost trends, particularly in behavioral health. Moving to Optum.

OptumHealth revenues were 25,200,000,000.0 in the second quarter, a decline of 1,800,000,000.0 from last year. This was driven by the previously noted contract adjustments and the effects of the Medicare funding reductions. OptumHealth now expects to add 300,000 new value based care patients this year compared to the initial 650,000 outlook as it seeks to focus on improving operating performance. As noted, we’ve updated our long term target margin objective for OptumHealth to the 6% to 8% range. OptumInsight had revenues of 4,800,000,000.0, an increase of 285,000,000 or 6% year over year.

We continue to progress on customer recovery following last year’s cyber event, albeit pacing more slowly than expected, and this is a component of the reduced full year outlook. The contract revenue backlog at the end of the second quarter was $32,100,000,000 OptumRx second quarter revenues grew $6,000,000,000 or 19% over last year to 38,500,000,000.0 driven by new customer adds as well as continued contribution from specialty products. Total adjusted scripts were $414,000,000 compared to $399,000,000 in the year ago quarter. Moving on to 2025 guidance. Our adjusted earnings outlook is at least $16 per share.

Revenues will approach $448,000,000,000 growth of 11% over ’24. We now expect a full year medical care ratio of 89.25% plus or minus 25 basis points. This compares to the initial 86.5% midpoint we offered at the end of last year, with the increase driven by the factors discussed. Within this, seasonal pacing compared to historical measures is impacted somewhat by the Part D coverage gap modifications due to the Inflation Reduction Act. With first half results at the midpoint, that places the second half at just under 91.5% with the fourth quarter expected to be the highest and at this distance, a relatively proportionate distribution on either side.

The full year outlook contemplates a total of 1,600,000,000 of potential settlement items, an incremental $1,000,000,000 over the $600,000,000 recognized in the second quarter. Our tax rate for the year is now estimated at about 18.5%, affected by our revised earnings outlook as expected benefits remain steady while earnings declined. The lower tax expense in the second quarter reflects the year to date recognition of the updated full year effective tax rate. We expect the second half rate to be just over 20%. Full year ’25 cash flows from operations are expected to be about 16,000,000,000 or 1.1 times net income.

In June, we increased our dividend by 5%, and we will strike a balance as to how we use capital over the near term, being thoughtful about maintaining a strong balance sheet and credit rating and mindful of long standing commitments, including the pending Amedisys transaction. Our updated share count of 912 to 914,000,000 compares to the original outlook of 918 to $923,000,000 and considers only share repurchase completed earlier this year. We will continue to balance and assess our capital priorities as we progress to returning to the performance levels we know we can achieve. With that, I will hand it back over to Steve before we head into Q and A. Thanks,

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: John. This is a challenging year for our enterprise, but I feel strongly we can overcome these challenges as we’ve done before. I can see the depth of the commitment of our team. We are regaining the intensity, the precision, and the executional disciplines required to perform consistently and reliably. Our customers and our shareholders deserve it, and the health system expects us to function at our full potential.

As we look towards 2026 and beyond, we expect the efforts we discussed throughout today’s call to steadily improve our performance. It begins with respecting pricing basics, advancing our foresight acumen, and just better, more intense, more decisive overall management. We will be driving better business practices, better consumer and provider experience, and accelerating investments in areas in key areas to both strengthen our foundations and modernize our businesses anchored in practical innovations and scaled app AI applications. We are continuing to evaluate the investments we need to make in the near term to meet our long term growth potential while acknowledging the challenging environment in the year ahead. As I mentioned at our shareholder meeting in June, we’re rebuilding the trust through both change and through increased transparency.

That includes work to ensure a wide range of stakeholders have confidence in the integrity of our company and our business practices. This work is moving forward in our assessment of key policies, practices and associated processes by the end of the third quarter and our first performance measures report in the fourth quarter. We have retained independent experts to oversee and assist in these reviews, including the analysis group and FTI consulting. We will use this to continually strengthen and advance our strong compliance environment. Looking to 2026 at this distance, I would expect solid but moderate earnings growth.

As we look further ahead, we see our earnings growth outlook strengthening quickly in 2027 and pacing steadily upward over the succeeding years. Now let’s open it up for questions. Operator, please.

Conference Operator: The floor is now open for questions. At this time, if you have a question or a comment, please press star one on your touch tone phone. You may remove yourself from the queue by pressing star two on your touch tone phone. We ask you to limit yourself to one question. If you ask multiple questions, we will only be answering the first question so that we can respond to everyone in the queue this morning.

First question comes from AJ Rice with UBS. Hi,

AJ Rice, Analyst, UBS: everybody. Maybe just to drill down a little bit on OptumHealth, if I could. You’re talking about some rate increases or how you’re pricing for a much higher trend in MA on the insurance side. I would assume that has some trickle down benefit to OptumHealth. Or when you’re talking about having margin consistent with this year, next year on the physician piece, is that does that not contemplate some benefit from that repricing?

And maybe as well talk about your discussions with the outside plans that OptumHealth contracts? I mean, are you seeing them make same similar steps, toward pricing for a more reasonable margin next year that you’re trying to do at UHC?

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: It certainly does, AJ. Patrick, you wanna comment?

Patrick Conway, CEO of Optum, UnitedHealth Group: Yeah. Thanks, AJ, for the question. Let me take the sort of pieces in part. So, yes, in terms of the pricing from across payers, UnitedHealthcare and other payers, as they adjust pricing, that flows into our capitation rates. That is a tailwind, where it versus the headwind we saw, this year.

We’re also working with our payer partners on benefit reductions, which we talked about. So significant benefit reductions, across payer partners and a much, tighter, transparent, bidirectional dialogue, in this year, which I think sets us up, better for next year. Those combinations, we think, mitigates, 50% of the headwind, of v ’28, which as you heard, we sized at $4,000,000,000 for next year. The other two components that will, mitigate the other 50%, one, operating cost reductions where we, continue to hone our model, using AI and other tools generating operating, cost reductions. And then next, you know, deep engagement, with the patient cohorts we we see.

So as you heard, as we mature and remain stable in those cohorts, you have increased performance over time. So as you pace into 2026, as you heard, we believe we can maintain those margins at the 1% level. Obviously, we’ll continue to do the work each day to see if there’s any upside to that potential. But, the approach this year with our payers has been tight, close, and I think will bear, benefits going into 2026.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Thank you, Pat. Next question.

Conference Operator: Our next question comes from Justin Lake with Wolfe Research.

Justin Lake, Analyst, Wolfe Research: Thanks. Good morning. Appreciate all the detail. I wanted to focus on the run rate out of ’25 into 2026. So it looks like you’re about $5 of earnings for the second half.

Pay it back about a dollar for the discrete items that John mentioned. You’re about $6. Given typical seasonality, maybe that’s like $13 of run rate earnings. So wanted to see if that’s reasonable math first. And then what are the moving parts that drive EPS growth specifically?

Maybe you could talk to where your MA margins are this year versus where you expect them to be next year. Thanks.

John Rex, President and Chief Financial Officer, UnitedHealth Group: Hey, Justin. Good morning. It’s it’s John Rex. Just a few comments on that. So, yes, your overall kind of assessment of second half is is is correct.

A few things I’d point to, and then I think I’d ask Tim and Bobby to comment a little bit also on just we talk about, Medicare Advantage margins and where that goes. I mean, the the the key elements here so, yes, we are kind of looking at getting some things behind us in terms of the actions we’re taking we anticipate taking in the second half. And as you know really quite well, 80% of our premium revenues reprice on January 1. So very significant impact in terms of that as you move into that next year, in terms of the the, the impact that creates in terms of off the run rate that you see going into the into the second half. And I’ve asked Bobby to maybe comment a little bit specifically on your piece on Medicare Advantage.

Bobby, Executive, UnitedHealth Group: Yeah. Yeah. Thanks, Justin, for the question. Thanks, John. So, Justin, when you think about, you know, 2020, ’6 or 2025, where we’re likely to kind of pencil out for the balance of the here is more in the low end of the new normal range that Tim outlined in his prepared remarks.

So think kind of the two to two and a half percent range, and I’m talking about kinda all broad based UHC Medicare in that bucket. And then given the actions that we’re taking for 2026, so, the meaningful benefit cuts, the plan reductions, the trend that we’re pricing towards, we do believe that’ll allow us to overcome some of the headwinds, again, tied to, you know, v 20 funding cuts and that embedded trend and expand those margins to a range of two and a half to 3%. So think about us then getting to kind of the midpoint of that range by 2027 and advancing from there. Thanks for the question.

John Rex, President and Chief Financial Officer, UnitedHealth Group: So, Justin, yeah, really kind of the math that you’re looking at here. So continued trend accelerations that we look at through the end of the year while our revenues are staying the same, and then we get to Jan one where the vast majority of premium revenues reset, and that’s really the impact that you’re seeing in terms of as you look at that 2H run rate and where we come out. Thank you. Next question, please.

Conference Operator: Our next question comes from Josh Raskin with Nephron Research.

Josh Raskin, Analyst, Nephron Research: Thanks. Good morning. I appreciate some of the commentary you’ve made on ’26 and ’27 even. Do you have an updated view on your long term EPS growth rate that, you know, was formerly cited at 13% to 16% at the enterprise level? And then I heard the target margin’s obviously updated for OptumHealth.

But do you have updated target margins for maybe UHC in its entirety as well as the other two segments within Optum?

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Yeah. Thanks, Josh, for the question. You know, as you can appreciate, as we’re just coming back, onstream, in the near term, our growth rates do not reflect, I think, the potential of this enterprise. So from it’s somewhat academic, but I expect we will pace back steadily to low double digit ranges and continue to advance from there. And I think importantly, the framework for our long term growth outlook remains very much intact.

Reasonable year over year organic growth from within well run businesses, the compounding effect of deliberate productivity gains, the compounding effect of capital applied in the form of share buybacks as we return value and capital to shareholders, and the compounding effect of capital used in evolving the business model toward a more expansive view of the health care markets that is less fragmented, more integrated to better serve consumers and the overall system. And the components of that should allow us to continue to grow at the strong levels we’ve experienced in the past. And that’s our outlook on it.

John Rex, President and Chief Financial Officer, UnitedHealth Group: And, Josh, just maybe a little bit on margin. Maybe Tim has a comment, and he he made some comments on on on Medicare in particular with the IRA changes. And, Tim, maybe

Kevin Fischbeck, Analyst, Bank of America: if you just, could reflect on those.

Tim Knoll, Head of UnitedHealthcare, UnitedHealth Group: Good morning, Josh. Thank you. So, you know, we talked about, the reframing of the broad based Medicare Advantage, targeted margin range. Really kind of really not all that different, just the mechanical implications of more revenue coming through the IRA without, necessarily any incremental earnings. And then as Bobby just talked about, you know, we see that pacing to the closer to the midpoint in 2026 and getting there in 2027.

On the commercial business, 2026, will be a year where, we’ll not get all the way into our target margin range of seven to 9%, but certainly see a path to get there thereafter. So really no change bottom line to the targeted margin range, across UHC.

John Rex, President and Chief Financial Officer, UnitedHealth Group: John, any more? I think just maybe Tim’s comment that he made on the call in terms of how he thinks about Medicare Advantage with the addition of those IRA dollars and and such. And, doesn’t change really the productivity of the the business. It’s just that that piece of the revenue impacts the margin calculation, that came in piece of revenue that came in without really any earnings attached to it to when it came in. So similar profile.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: And in general, I don’t think we’ve actually ever seen the full portfolio of Optum perform to its full potential. So I think there’s that that should be strongly additive as well as the, emergence of the OptumInsight businesses, the strong margins that are coming off the platform of more technology enabled services. So those elements play in, but it is so early, in our restart that, to me, the discussion of a long term growth rate seems somewhat academic other than the framework for our historical, outlook remains fully intact. Next question.

Conference Operator: The next question comes from Kevin Fischbeck with Bank of America.

Kevin Fischbeck, Analyst, Bank of America: Great. In your commentary around the guidance reduction, you mentioned across a number of businesses that you had portfolio actions that you’re delaying. Can you talk a bit about what exactly those types of actions were across the businesses? And are those potential savings still something that you think you’re gonna execute on? Or are those not the right way to think about is adding those those up and then coming up with an earnings power number at some point over the next couple of years?

Thanks.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Clarify the question? I’m not sure I understand

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group0: Yeah.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: The portfolio action. What

Kevin Fischbeck, Analyst, Bank of America: Yeah. You you you mentioned a number of things, like, when you’re trying to bridge between, like, you know, the Medicare Advantage results this year versus, you know, what you assumed would happen. You put a I think you put some buckets in there saying that you were gonna do some things, and then you decided to to put them on pause. Is that not the right way to think about it?

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: These are these are on transactions? Yeah. So I I that’s a good question because I do think that that needs to be clarified. You know, the company pursued, kind of a re evaluation of the portfolio of all of its businesses last year, and, we’re taking actions to, position some of the businesses and divested some. That, I think is evident in our results.

And as I came in and looked at that, my orientation is to pursue more the the performance of the business portfolio that we have, make those businesses perform, to their full potential. I think that that portfolio needs to be considered in light of, you know, what I think the real, performance potential is. And so we stopped that entire activity, and some of that was considered in the, outlook in the current year, and that has been withdrawn completely. And we are focused on the performance of the businesses that we have, and we’ll pick up portfolio assessment somewhere down the road. But right now, our focus is on the portfolio that we have, and we have removed any of that from our outlook.

Kevin Fischbeck, Analyst, Bank of America: K. Thanks.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Next question, please. Does

Conference Operator: that answer your question?

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Kevin, does that answer your question?

Kevin Fischbeck, Analyst, Bank of America: Actually, just maybe just to clarify. So are these businesses that you thought you were were gonna be losing money and you’re now going to keep them and focusing on the earnings power going forward? Or was there something around around gains on sales or things like that that you were gonna recognize from the vesting things that you’re not gonna include in the guidance? Thanks.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Oh, I think that’s a much more complex issue, Kevin. I think the motivations for for those transactions all have different reasons. Some of those businesses we thought, were better in the hands of others. Others, were, let’s thought to be, let’s say, not core, but we’re really not the pity in that right now. I think all solid businesses, and we’ll continue to, run them and optimize their performance and then consider their long term standing in our portfolio.

Next question, please. Mhmm.

Conference Operator: Our next question comes from Lance Wilkes with Bernstein.

Justin Lake, Analyst, Wolfe Research: Great. Can you talk a little bit about the management process and strategic review process that you’ve undertaken with the company and where you are to date with that, maybe providing some insight into what the management process was previously and the changes you’ve made to it? And then from a strategic review process, would you say you’re completed with any sort of strategic review, or are there any sort of timeline associated with future strategic review? Thanks.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Well, I’m not sure I know what you mean by strategic review, but, just to kind of thematically address this, probably just seventy plus days in, kind of returning to what I would would call very basic, fundamental, discipline. So much greater intensity around depth of review of the businesses, underlying financial levers, etcetera, core of the economic levers, in the businesses. You know, basically, just a much more intensive monthly management review of business performance, not just on financials, but on operating metrics, on relationships with the external stakeholders, on future potential, on the progress made on remediation efforts and programs, offsetting some of the headwinds that we have discussed this morning, like b 28 and so forth. So just a really comprehensive business by business review, and assessment of the performance, prospects of the businesses, I’d say, relatively in the near term. Much more broader, engagement of the management team, and engaging, our resources across the enterprise to take a just a very fresh objective look at all of the businesses, the progress made in terms of their undertakings, and maybe refocusing those things to things that, let’s say, a more narrow, more concentrated agenda of priorities, faster decision making, changes in people.

There have been, I think as Pat just described, pretty far reaching changes across the entire Optum portfolio. That is still in motion, across our other businesses and across corporate. So, I’m just basically rambling to give you a sense that it’s a much more intensive, everyday kind of engagement. We have returned to monthly business meetings. We are focused on six underlying directions along those lines, and the leadership team has really engaged exceptionally well.

We’ve returned to work across the enterprise just to give you an example of things like that. And I just think there is a new tone and a new expectation setting in. And then we are going to continue to drill down on these businesses and get much more granular, particularly as we get in and complete the 2026 planning process. So I think that gives you a feel for it.

Justin Lake, Analyst, Wolfe Research: Great. Thanks.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Sure.

Conference Operator: And our next question comes from Lisa Gill with JPMorgan.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group1: Steve, when you talked about 2026, you talked about the steady improvement, but you also said you need to evaluate investments. How should I think about that for 2026? Are there incremental costs that you need to bring online? You know, other investments that you need to make in the business as we we think about ’26? And if we do have incremental investments in ’26, how do we think about the returns on those investments in the timeline?

Justin Lake, Analyst, Wolfe Research: Mhmm.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: So I but, you know, coming into, kinda returning to this environment, you obviously looked at, particularly with the results of the cost structures, the organizational, approaches that have been taken and so forth. And, you know, I think there are meaningful cost opportunities within the enterprise, but I and and and we are, pursuing them with urgency. But I also believe, that we should be balanced, that there are areas that we have, underinvested, and they include, areas of OptumInsight where Patrick talked about, the performance challenges there. OptumInsight, I think, can be a remarkable business, but we need to pay more attention to it, make sure it has stable and deep leadership. And we need to make the investments in the, updating the product offerings, which are largely a portfolio of point to point solutions.

And with the technology capacities we have and the expertise we have, make them much more compelling end to end kind of, impacts. And that would be just one example. I think our AI agenda, Sandeep, has gotten real traction, on that agenda, and, I intend to accelerate it to really infuse this entire enterprise with an AI first orientation and to also use that as a means to develop the capabilities to, again, revitalize products really across the the enterprise. I’d also tell you that, again, in what I’ll view as OptumInsight, Divya, who’s leading that business, the fintech agenda for that could also be compelling and has also been underinvested. And we have an excellent and distinctive platform there, and we need to, push forward on that.

So I I think there are so many areas of opportunity that, really are near term for us. Do I think they will translate I think they’ll translate into good contributions for ’26, but I think not only do we need a little money, we need a little bit of time. And so I do think ’27, ’28 is really where you’re going to see acceleration in those for sure in ’27. So does that give you a feel for those kinds of things? And, I don’t know, Patrick or Divya, if you have other commentary.

Patrick Conway, CEO of Optum, UnitedHealth Group: So just briefly building what Divya what Steve said, and then, Divya, feel free to add on. Look. I think OptumInsight and OptumFinancial and the AI agenda are a large area of opportunity. As we interact with clients and customers, we hear that from payers, providers, others. They want our support in those areas.

So I think it’s both external and internal, internal on cost savings, external on growth and innovation as Steve alluded to. And, Divya, turn it over to you if you wanna add more.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group2: Yeah. Lisa, coming into this business and just giving it a fresh look, there’s a lot to be optimistic about in both of these businesses, OptumInsight and OptumFinancial. There’s some structural tailwinds when you think about it. Firstly, as Steve said, payers and providers are looking for tech forward solutions to help solve their problems and the headwinds that they face. And coming in, I’m finding that we have deep customer relationships and domain knowledge that’ll help us do that.

On top of that, combining OptumInsight and OptumFinancial, we’re able to create unified solutions that are gonna offer the market a lot more financial flexibility, and that’s something that the market really needs. So what we’re doing is taking all these trends, and we’re coming up with a product portfolio that’s AI based. And we’re launching we’ve already launched this year an AI powered RCM solution. Later this year, we’ll be launching a AI powered real time coordination of benefits. So think of this as early innings in our product journey, and we’re gonna have more launches coming out in the coming quarters and years, which makes me very optimistic about the future of the business.

As Steve said, this is not an area we’ve focused in in the past, but we have the right strategy, we have the right investments, and we have the right team to go execute. Thank you.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: And I’ll just make two other comments and one pretty basic, and that is you come in and you take a look and you see cost opportunities for sure and starting at corporate and the and the corporate versions of the business units. And you basically are sitting back saying, we’re gonna re we’re gonna pull those back, and we’re going to make the investments in the businesses that we think can produce remarkable performance for us going forward, high margin businesses, etcetera. And that plays into the long term growth view, and that is if we execute on those, which have always been in our strategic, sites, the contributions of those can be distinctive and plays into, you know, a a very positive long term growth outlook. Next question, please. Thank

Conference Operator: Our next question comes from Steven Baxter with Wells Fargo.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group3: Yeah. Hi. Thanks.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group0: I think you suggested the long term target margin for value based care is now 5%. I think this is also, you know, what you suggested the business earned as recently as 2023 before the onset of v twenty eight. So it just might be helpful to better understand, I guess, what were the old value based care target margins that compare the 5% to? And I heard you, you know, loud and clear talk about, you know, expected stability in 2026. Can you better help us understand the margin drivers, you know, beyond 2026, with the exception maybe of the MA repricing, which we already understand to get back to that 5%?

Thank you.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Yes. So maybe we’ll start with Patrick, and then if John wants to to to comment about the kind of the change of perspective on margins there. Patrick?

Patrick Conway, CEO of Optum, UnitedHealth Group: Yes. So, thanks, Steven, for the question. So you did hear correctly, OptumHealth margin all in, six to 8%. Value based care, as we sit today, you know, estimating around that 5% level. Really, the issue is, the significant, revenue, hit to the system with b 28 and what that, meant and adjusting the curve, adjusting, the impact.

I’d point you back to the cohorts that we called out. I think this is critical. In years one and two, which is about 40% of our membership as we stand today in 2025, negative Years three to four cohorts, 2% margins. Year five plus, eight plus percent margins. If you look at the progression, as we focus on, you know, taking risk in markets that we’re, confident in our ability to perform and in products, primarily HMO, confident in our ability to form, focused on employed and contracted positions, you should see those cohort shifts.

So years one to two will be more in the range at 25 to 30% of the portfolio. Years five plus, more 40 plus percent. That gets you to that five, range in terms of margins. And then as you heard on the services businesses, we’ve got services businesses often with a with a margin around 10 We’ll continue to grow those. And I’d call out in care delivery fee for service.

We have an opportunity for both growth and margin improvement. Home health, low double digits. Surgical centers in the range of 20%. But in care deliveries in our clinics, we’ve got opportunities, especially in some regions, to improve performance, improve that margin portfolio, and improve the performance of the care delivery service bucket.

John Rex, President and Chief Financial Officer, UnitedHealth Group: And, Steven, if considering the the the, change in the OptumHealth margin target, most of that is driven by, really, the value based care, the value based care perspective. And what’s going on there is really we are being a little more, circumspect about how long it takes to get these practices into the, zone that we need them to be in. So it the the appropriate amount of time to get them performing as they should perform, That’s a component there. The conversion for those that are still, mostly fee for service and getting those into a position of where they can actually also, start, start becoming fully accountable, practices, Important elements in in that. And then this perspective that at 5,000,000 patients served today, that should be the the addressable market is much, much larger than that, and that we will continue be continuing to do this for a decade as Patrick made in his has stated in his prepared comments and the investments that that takes.

So a little more circumspect about the investments that we need to put in to bring these, to bring these into full, to fully pro full production. Patrick noted that some of the the longest standing vintages of or or cohorts of members are performing at 8% plus margins. But it just it’s we’re giving ourselves more time to get there and also giving our ourselves times more investment room, maybe echoing a little on what Steve said in terms of the investments we need make into getting getting them fully ready and to be performing, and that we’ll be making these investments for the next decade as we grow this business.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Or more. So six to eight becomes a much more rational and better guidance outlook. So good question. Thank you for asking it. Next, please.

Conference Operator: Our next question comes from Sarah James with Cantor Fitzgerald. Thank you. Can you talk about any changes you’ve made in your management review process of underwriting assumptions and conservatism? And the independent party review that you talked about, does that involve any of your underwriting process? Thank you.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: So, yes. So first, I’ll have maybe, Tim comment about kind of underwriting perspectives as as well and maybe then Dan Schumacher because, kind of from an enterprise, point of view, we are looking at, you know, let’s say, strengthening, underwriting and making sure that we are taking in a total enterprise view from a underwriting point of view. So, Tim, you wanna start?

Tim Knoll, Head of UnitedHealthcare, UnitedHealth Group: Yeah. Thanks for the question, Sarah. So with respect to, you know, underwriting and the processes associated with that, you know, we we still feel like, we have, you know, very strong people, processes in place to submit product filings, to analyze and assess our business. And I think that’s, you know, one of the reasons why we have a very clear view on what’s happened in 2025. If there’s one change, the change would be that I think we’re a little bit more respectful of the environment that we’re in and the dynamic nature of it, and we’re contemplating that as we think about our pricing in all of our businesses, commercial, Medicare.

And then we’re gonna use those data and analytics on the Medicaid side to approach our our, partners, our state partners with data driven insights as we talk about how to configure rates appropriately moving forward so that revenue mat matches the new acuity of these these these populations. But, you know, no fundamental change in the processes and people. We’re very strong there, and these analytics will frankly drive the approach that we’re seeing, which I think is appropriate and respectful of of what’s going on broadly in the health care industry.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group3: Dan. Good morning, Sarah. This is Dan. So at the enterprise level, we are working to strengthen our forecasting process. We’ve implemented an, you know, internal audit review that examines our guidance and the work that we put into that, but also we’re strengthening our actuarial resource base.

And, to Tim’s point, we’ll be looking at, you know, the underlying trend builds across the company and across membership, cohorts as well as composition. Obviously, revenue is complex when you think about the interactions between, you know, risk model changes and so forth. So we’ll be doing that as well. And, likewise, building out, and strengthening our our analytics, taking advantage of new approaches, working with Sandeep on the AI front, and pulling in signals earlier and being able to adapt to those more quickly, and then propagate them rapidly across the enterprise. So those are some of the

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: things that we have underway. Yeah. And I think we already use third, third party experts in our processes, so that would not be anything new. And I think we probably use, as much or most of the resources in the marketplace along those lines and have for years. But at the end of the day, as those processes come to to closure, judgments are made, and judgments are made about market reads and how how markets are predicted to perform.

And I think those judgments, are some of the areas that are are kinda sensitive in terms of outlook right now. And, the oversight of those judgments and the conservativeness of them, is also something we are taking into place and and broadening those, decisions, across the enterprise. So a good question, but it is definitely, among the processes that are under review, across the enterprise.

Conference Operator: Our next question comes from Andrew Mock with Barclays.

John Rex, President and Chief Financial Officer, UnitedHealth Group: Good morning. Wanted to follow-up on Medicare margins. If we think about the three patient populations in Medicare Advantage, retail, group and special needs, Can you compare the relative margin profiles and different paths of margin recovery for each, including which population is most addressable near term? Thanks.

Bobby, Executive, UnitedHealth Group: Please. Yeah. Hey. Good morning, Andrew. Bobby here.

So, yep, when you again, overall margins for ’25, think about two to two and a half percent, ’26 expanding to 20, 2.5 to three. Yeah. We talked about early in the year some of the pressures that we were seeing, in the group business in particular, with the trend pressure kinda overweight in that area. You know, I would say that that phenomenon has continued. We continue to see certainly pressure on the medical side across all, populations, but that one in particular has been elevated.

You know, group, as you kinda know, does have the opportunity to reprice each year, not dissimilar from, you know, individual MA, and we are pursuing those discussions with our, group customers. So think about the majority of those being able to be repriced on a given year, and that is absolutely kind of the path that we’re moving down. On the retail and snip portions, you know, I would say both performing, you know, generally in line. Obviously, more of our growth this year is coming in both the D SNP and C SNP space. We saw that in AEP.

We’ve continued to see that as the years progressed on balance. You know, that growth is accretive to the enterprise. Those are areas that we’re going to continue to focus. I think we have the broad care management tools, you know, really that kinda best equip us, in partnership with some of our value based care providers like Optum to really effectively manage that population. That’s So gonna be an area you continue to see us lean into, heavily and bring the full capabilities and assets of the enterprise.

And on the retail side, you know, we talked about, obviously, the the different approach we’re taking to trend, for 2026 and the different approach that we’re taking to the the products, the benefits, exiting a a significant number, of plans and obviously impacting, as Tim noted, about 600,000 plus members that is predominantly in the PPO space. And think about roughly a third of those as kind of full market or submarket exits. So, you know, meaningful adjustments coming both on, the other individual side and the group side to help advance that margin progression for ’26.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Thank you. Next question, please.

Conference Operator: Our next question comes from Anne Himes with Mizuho Securities.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group4: Great. Thank you. I don’t know if you addressed it on the call, but can you remind us what your target margin is for Medicaid and what you expected it to be in 02/1926? And then just a follow-up, John, you had talked about 80% of the premium next year will increase because the pricing cycle should improve in 2026 for the industry. Can you give us a compounded increase that you expect?

That would be great. Thank you.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Michael?

Justin Lake, Analyst, Wolfe Research: Thank you for the question. For 2025, we expect breakeven performance for our non dual or core Medicaid business under community and state. Our 2025 Medicaid earnings outlook is down modestly due to persistent high medical trend stemming from care usage levels that are really higher than we realized in the final stages of redetermination and also increased service intensity per encounter as identified within our claims data. We do expect some degradation with our cost benefits ratio driven by the twelve to eighteen month lag that we see in our core Medicaid rating cycle process. And as we think about 2026, we contemplate negative margins at that time anywhere from negative one to negative 1.7%.

John Rex, President and Chief Financial Officer, UnitedHealth Group: Thank you for the question. And this is John following up on the rest of your question here. Few comments. So I’m gonna ask some of the UnitedHealthcare people But as Bobby and Tim have explained, lot of what happens in Medicare Advantage, you know, is the benefit redesign and then the cost trend assumptions they’re building in, and they’ve talked to looking towards about a 10% trend

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group0: for,

John Rex, President and Chief Financial Officer, UnitedHealth Group: for 2026 with the actual rate of premium increase determined by what, CMS has come out with. But let’s get a little deeper into that and talk about specific components, maybe even getting to commercial and some of the things that we’re doing in there. Tim, I’ll lead it with you and just go ahead.

Tim Knoll, Head of UnitedHealthcare, UnitedHealth Group: Yeah. So answering the, you know, the question around, you know, our our long term margins in the Medicaid business itself, you know, excluding the dual special needs plans in Canadian state, the rated margin that we attempt to attain with the states is around a 2% margin. Historically, we’ve talked that blending to a three to 5% margin within the community and state segment. Given the adjustments we’ve talked about around Medicare Advantage broadly moving from three to five to two to four because of the impact of inflation reduction act, we’d expect that to be, you know, mirrored in the community and state growth targets. So, you know, two to four still in community and state are adjusted to in community and state, and Medicaid would be kind of a 2% targeted margin.

John Rex, President and Chief Financial Officer, UnitedHealth Group: And and, Anne, in terms of your, you know, the point you were making about kind of premium increases one would expect in ’26 as you go into that overall on the 80% of premiums renewal. So Bobby and Tim shaping up what happens in kind of those businesses, those government program businesses, and the premiums coming from those, customers, and then what they’re doing in the benefit design underneath there. And then maybe it’d be helpful if, Dan Keter comment a little bit on some the pricing expectations in commercial markets and what he’s seeing there because that’s another important part of what’s driving that premium increase in in that marketplace.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group0: Yeah, John. Sure can. In 2025, as noted in in Tim’s remarks, trend in the commercial group business has materialized a 100 basis points above our expectation, which has created some trend pressure I’m sorry, trend and margin pressure. So we are well below our margin range for the commercial business of seven to 9% this year. As we look to 2026, we’re pricing for margin recovery in both the exchange business and the group business.

This will lift our margins to be closer to but modestly short of our target margin range of seven to 9%. We expect to recover into that range for 2027, has been previously noted. To provide that margin expansion and recovery in 2026 with our trend outlook to be above 11%, we are pricing with that fully in mind.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group3: Anne, this is Dan. Just to to round it out in terms

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: of the the the premium increases,

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group3: you know, so what Dan just described in the commercial business, you should think in terms of, you know, double digit on that one. On the Medicaid side, we’re operating at about a combined 6% premium increasing ’25 and would expect that to be comparable as we move into 2026. And then, obviously, on the Medicare side, as John mentioned, that would track with what, the CMS adjustments were.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Okay. Next question, please. Our

Conference Operator: next question comes from Matthew Gilmore with KeyBanc.

Bobby, Executive, UnitedHealth Group: Hey. Thanks for the question. So the settlements you called out, they’re part of the discrete items. Can you give some detail on the nature of those settlements? Are those mostly tied to value based care contracts and OptumHealth?

And if that’s the case, can we think about the OptumHealth outlook for ’25 as being burdened by about 1 and a half billion of those settlements that hopefully don’t repeat next year?

John Rex, President and Chief Financial Officer, UnitedHealth Group: Matt, John Repp here. So I I wouldn’t call it necessarily mostly tied to that. It is across businesses. Think of these things as ranging from elements like like you’ve described, but I’d put it more in the context potentially in some areas. It’s, company receivables we have from other companies that we from from for which we are we started question whether or not they’re collectible.

And so as it moved into that zone, we, we’ve taken we’ve taken some provisioning for for those. Other areas were just disputed items. And in in this business, you know, there can be disputed items that persist for some period of time. And, I think as we were taking a fresh look and we are coming to, come out with our outlook for the year, making sure that we had contemplated all those so we could get some of those settlement items out of the way. So so think about it as both both in the zone of receivables where we question the collectability, maybe a dispute with a customer over some over over amounts, over amounts, and these dating back a year or more sometimes, in terms of, where they might be, sometimes with with with providers, also in terms of areas we were, that we were looking at.

So it’s really a collection of items that that we that we came at, but I wouldn’t call it predominantly. I mean, there’s there’s certainly a there’s certainly a nice a a good amount of that sitting in OptumHealth too, but I wouldn’t call it predominant in terms of in terms of those amounts. So that gives you a little flavor for some of the items that we’re trying to

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Can just generally split them so they get some idea what the what they’re overcoming? Yeah. I would say kind

John Rex, President and Chief Financial Officer, UnitedHealth Group: of within within OptumHealth, think of that kind of as in the zone of if I take the full amount of probably about half a billion or so sitting within OptumHealth, Call it yeah. We we called on the call Tim called on the call 850,000,000 within UnitedHealthcare, and then, a couple 100,000,000 in OptumInsight. And little under 100,000,000 in that zone in in OptumRx, and then a smattering of a few other items probably accounting for about 100,000,000 or so. That would be, I’d call, a corporate items and such that we that that, across the enterprise.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: So that that could that should give you the granular granularity you need. Okay? Next question, please.

Bobby, Executive, UnitedHealth Group: Got it. Thank you.

Conference Operator: Our next question comes from Jessica Tasson with Piper Sandler.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group5: Hi. Thanks so much for taking the question and for the detail this morning. When we think about the Medicare margin recovery, can you help us understand the split and timing between kind of MLR improvement and then incremental operating leverage, if any? And your updated MA margin targets, kind of fully contemplate the benefit of efficiencies you might harvest from AI at UHC? Thanks.

Bobby, Executive, UnitedHealth Group: Yeah. Good morning, Jessica. Thanks for the question. So, you know, obviously, when when we’ve outlined the number of actions that we’re taking to pursue the margin recovery this morning, they’ve really been items oriented around what we’re doing with optimizing our plan design, ensuring that we’re investing, in durable and, you know, plans that are designed around care management, enabling care management. We’ve made meaningful benefit adjustments.

So all the kind of levers that are in our our control related to the product design, operational cost efficiency is absolutely something that we will continue to drive. We are partnered, incredibly closely with Sandeep and the team at Optum around different use cases of, you know, how AI can not only drive efficiency, but also help inform the early insights, and help us make decisions faster, in terms of both kinda how we respond to headwinds or challenges as well as kinda how we identify solutions and can bring those to stakeholders. So think about kind of all of those, you know, really in the mix as we think about opportunities to, you know, leverage those efficiencies, drive margins, and certainly will be supportive of our 27 and beyond, you know, kinda range that I’ve talked about where we’ll be at the midpoint or above in that two to 4% guidance. Guidance.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Okay. We have time for, one more question. So, please, next.

Conference Operator: And our last question comes from Ben Hendrix with RBC Capital Markets.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group0: Great. Thank you for squeezing me in. In light of your business line review and your reorientation of some businesses and balancing that with the sustained commitment to value based care, I’m wondering if there’s, any changes to how you’re thinking about the breadth and scale of care capabilities, that you want to add to support VBC. And, specifically, I’m thinking about kind of commitment to assets like the pending, Amedisys acquisition and, the expected closing there? Thanks.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Sure. Do you wanna comment on Amedisys? And then, Patrick, maybe comment about kind of the broader question there.

John Rex, President and Chief Financial Officer, UnitedHealth Group: Yeah. Ben, John Rex. Yeah. So we’re we’re looking forward to closing the Aemetis transaction here as we work through the process. We are still working through that process.

So as I as I mentioned in my capital comments on the call earlier, I mentioned that’s one of the items on our, in our in our minds that we think about, the rest of year. But we continue to work through that process with the regulators, and and so productive way. But committed to those kind of assets and certainly very committed to capabilities where we can serve people in the home. Super important in terms of foundational part of value based care in terms of how we actually serve them and serve them well. Gives us a a lot more reach into serving, other people also.

I’ll have Patrick maybe comment a bit.

Patrick Conway, CEO of Optum, UnitedHealth Group: Yeah. So thanks for the question, Ben. I’ll hit on the clinical rationale and then pass it off to Chris to hit some clinical operational points. As many many of know, I’m practicing physician. It’s about patient need.

For value based care, we need clinical assets. We need assets in the home and capabilities and clinicians in the home. We need mental and behavioral. We need specialty care. We need ambulatory surgical centers.

You need serious illness care. You need the breadth. We have those component parts in OptumHealth, and those allow us to serve people’s physical, mental, social, and financial needs to broaden it out, adopt them inside as well. That platform for value based care is distinctive. It has huge growth potential as John described earlier and Steve.

And importantly, it’s the pathway to a better performing US health system that achieves better health outcomes, better experience, and lower cost for the people we serve. I would like Chris to just talk briefly because then you have to execute on that out on that, you know, with Fidelity everywhere about some of the work there.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group6: Yeah. Thank you so much for the question. So I think what I’ll just add, Patrick commented a lot on the work we’re doing across our value based care platform platform to to stabilize stabilize the business and provide meaningful growth in the future. Maybe just a couple comments on some of the other care delivery services that we offer that really enable that integrated delivery system to come to life, Whether that is, you know, investments in ancillary services, whether that’s growth in home health, whether that’s growth in our ASC platform, those will be things that we consider. But most urgently and importantly, the team is really focused on how do we make sure we drive, you know, the best productivity, the best performance, the best payment yields, and some of the near term opportunities we have to deliver on our on our services businesses in the short term while we enable further growth for the long term.

Thanks for the question.

Stephen Hemsley, Chairman and Chief Executive Officer, UnitedHealth Group: Thanks, Kristen. So, that’s all we have time for today. I would thank you all for joining us. We look forward to speaking with you again in a few months, and I’ll find you I think you’ll find those discussions will be even more specific and detailed, but as well, a little deeper from a strategic point of view as we continue to, progress through our review here. And, we look forward to those engagements and, the engagements with you that we’ll have in the meantime before our next quarterly review.

So thank you for joining us. We appreciate your interest and attention. Thanks.

Conference Operator: And ladies and gentlemen, this concludes today’s call. Thank you for your participation. You may now disconnect.

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