UnitedHealth Group Incorporated

Good morning and welcome to the United Health Group third quarter 2025 earnings conference call. A question and answer session will follow United Health Group's prepared remarks. As a reminder, this call is being recorded. Here's some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on 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 8K, dated October 28, 2025, which may be accessed from the Investor Relations page of the company's website. I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.

Good morning. Thank you for joining us today. Our enterprise continues to advance on the improvement paths first discussed with you in July. We've been introducing new leaders, strengthening underperforming businesses, identifying both opportunities and inefficiencies, and importantly, recommitting to the mission and culture of this company. We're getting at the core of the underperformance issues with fresh perspectives, intent on positioning our organization as a positive and innovative leader helping to advance the next era of healthcare. A keen sense of urgency in this effort is consistent throughout the enterprise. At the same time, recognizing the pace of progress varies across our businesses, depending upon their challenges and opportunities. Some efforts will require more time and investment. Others will show more immediate progress. Repricing within UnitedHealthcare is on track to drive solid operating earnings growth from margin improvement within that business in 2026. In our less mature businesses, such as Optum Health and Optum Insight, our efforts to improve operations and make needed investments will show more measured progress in 2026 and will take more time to fully bear fruit. As Patrick Conway will discuss, our belief in the need for and impact of value-based care remains intact, as is our confidence in returning to expected performance standards. And throughout the company, we will ensure we are focused on activities that align with our long-term future and be very disciplined about moving on from those that do not. We're committed to returning to the consistent enterprise-wide performance levels you should expect of us. Within OptumHealth, the team has taken concrete steps that will refocus the business back to its original mission. Actions that will narrow networks with more emphasis on appropriately aligned physicians, geographies, the right clinical services, and the right benefit offerings for the members we serve. We are also keeping sharp focus on the continued competitiveness of UnitedHealthcare, as evidenced by our recent Medicare STARS score showing improvement year over year, and that work remains intense now for payment year 2028 STARS performance. As we look ahead to the next few years, we will consistently emphasize the fundamental execution discipline that has long been a key trait of this company. And I'm gratified to see the quick and enthusiastic response to this enterprise, this emphasis from our leadership team. External challenges will remain, including continued headwinds in 2026 from the third year of nearly $50 billion in industry-wide Medicare cuts by the previous administration. as well as Medicaid funding and program pressures. Even so, I'm confident we will return to solid earnings growth next year, given the operational rigor and more prudent pricing. While we are still finalizing 2026 plans and intend to share full guidance with you in January, current analyst consensus captures a likely stepping-off point for next year. We intend to balance our earnings growth ambitions in 2026 with investments and actions that will drive higher and sustainable double-digit growth beginning in 2027 and advancing from there. That is the perspective we're keeping front of mind. Our longer-term outlook will be refreshed as we continue to execute over the next year. As we've been doing these last few months, we will continue to engage actively with both investors and the broader stakeholder community and plan to convene our investor conference in the back half of 2026. This morning, Tim Noll and Patrick Connolly will provide details on the progress of UnitedHealthcare and Optum, respectively. Our Chief Financial Officer, Wayne Devight, will review third quarter results. I'm pleased to welcome Wayne to our leadership team. He has the right experience, values, and expertise to help guide UnitedHealth Group at this moment in our development, and he's off to a fast start. So with that, Tim, you want to take it?

Thanks, Steve. For the current year, overall UnitedHealthcare performance remains in line with expectations we offered in the second quarter. Medical cost trends remain historically high, but consistent with our second quarter guidance, and we expect that to continue throughout the remainder of 2025. Turning to our efforts for 2026, a vital element has been our pricing. Since our last update with you, we've repriced the vast majority of our UHC risk businesses, including Medicare Advantage and, to varying degrees, our commercial fully insured and residual ACA offerings. Trend experience for the third quarter continues to validate the actuarial forecasts underpinning our 2026 pricing actions. Taken together, these actions position each of our businesses on a clear path towards margin growth in 2026, with the exception of Medicaid, which I will discuss in a moment. Our Medicare business continues to perform in line with the expectations we shared last quarter. That's true for care activity and medical cost trends, and importantly, for the mix of clinical activity and utilization across physician, outpatient, and inpatient. We forecast a full year 2025 trend of approximately 7.5% in Medicare Advantage, consistent with our previous expectations. As we shared with you last quarter, trend remains elevated across Medicare overall, with our MedSupp offerings still seeing medical cost trends in excess of 11%. In individual Medicare Advantage, we continue to believe an expected 10% medical cost trend for 2026 has us positioned appropriately. This trend assumption reflects a continuation of the elevated care activity levels observed in 2025, known impacts from fee schedule changes, and continued expansion of aggressive provider coding and billing practices. We have taken a similarly prudent view across all our Medicare product offerings for 2026. including Medicare Supplement, Group MA, and Standalone Part D. For Medicare Advantage, we're now about two weeks into the annual enrollment period, and early results are in line with our strategic positioning for 2026. Our plan for next year reflects a conservative path focused on margin growth. We made significant adjustments to benefits and executed targeted plan exits and network reductions to offset elevated medical trends and government funding decreases. As a result of our plan actions, as well as competitive market dynamics, we expect membership contraction of approximately 1 million members in total Medicare Advantage, including individual and group markets. We expect these actions will drive margin improvements in 2026, with potential for further advancements in 2027 that will position us to reach the upper half of our 2% to 4% targeted margin range, all of which is supported by strong STARS results. As Steve mentioned earlier, we already have shifted focus to the next STARS performance period, including incremental investments made in the fourth quarter. Turning to commercial. We are focused on pricing and cost management efforts to support 2026 margin recovery. At this point, approximately 60% of our group commercial insured offerings have been priced for next year. Our commercial pricing reflects the elevated cost levels we've seen this year, which we expect to persist in 2026. While we expect our group fully insured business to contract in line with the broader market, we continue to see strong traction for our self-funded offerings. We expect the vast majority of our employer insurance businesses to be repriced for 2026 and to return to our normal margin range in 2027. Moving to ACA markets, we have submitted rate filings in nearly all of the 30 states where we participate that reflect 2025 morbidity and experience. These include average rate increases of over 25%. Where we are unable to reach agreement on sustainable rates, we are enacting targeted service area reductions. We believe these actions will establish a sustainable premium base while likely reducing our ACA enrollment by approximately two-thirds. These actions should drive margin improvement in our employer and individual segment in 2026, those still below our targeted 7 to 9% range. In Medicaid, the path to recovery will be more challenging. States have not funded in line with actual cost trends, so funding levels are not sufficient to cover the health needs of state enrollees. While we're making steady progress in bridging this gap with states, the mismatch between rate adequacy and member acuity will likely extend through 2026. To date, We have received 2026 draft rates on almost half of our contracts, which have a January 1st rate cycle, and we continue to advocate for rate updates to better reflect our ongoing experience with elevated trends. Our team is focused on addressing drivers unique to these markets, especially behavioral health, and will continue to push for appropriate funds. As I said last quarter, wherever states support responsible funding for Medicaid, we remain committed to serving people through that program and view this as integral to our mission. As we indicated in July, we anticipate Medicare margins will be breakeven for 2025. As we look to 2026, we expect margins to decline further if existing cost trends continue and the current rate environment does not change. Looking at UnitedHealthcare overall, the underlying business continues to perform well in serving consumers, plans, and program sponsors. To give you some examples of how we're enhancing the experience for these cohorts, nearly 85% of member inquiries are served digitally. When members call us, 90% of calls are answered within 30 seconds, and 95% of members' questions are resolved in the first interaction. Some 95% of our claims are automatically processed immediately. We're delivering more value, ease, simplicity, and guidance throughout the UHC member experience. We're also aggressively scaling AI and machine learning capabilities to enhance these experiences and optimize core performance. While 2025 remains a transition year, the pressure we experience is largely a result of mispricing and suboptimal market positioning. We remain humbled by the challenges of this environment and the lessons we've had to learn once again, but confident that we are on solid footing to recapture our performance potential. With that, I'll turn it over to Patrick Conway, CEO of Optum.

Thanks, Tim. I will spend the majority of my time today updating you on our efforts to restore OptimHealth to its original intent around value-based care, which experience continues to show us is the optimal model to deliver the right care at the right time and the right setting for the best outcomes at the lowest cost to the people we serve, particularly in light of current cost trends and the market dominance of the large health systems. Over the last few years, through a period of rapid expansion, OptumHealth's strategy around value-based care strayed from the initial intent of the model. Three critical issues emerged. First, the provider network grew too large. Second, the rapid pace of expansion and slower pace of integration resulted in operating inconsistencies exacerbated by relying too much on affiliated physicians who are less aligned with core VBC policies. And lastly, OptumHealth was accepting risk in products and services less suited for a clinically oriented value-based model. Understanding these issues has helped us better pursue the steps needed to get back to the original intent of OptumHealth and value-based care. Over the past six months, we have made significant leadership changes to better drive an integrated BBC provider model. Under the leadership of Krista Nelson, our Chief Operating Officer, we are focusing our efforts on three key connected areas to drive better performance. First, returning to the original intended clinical framework that best supports VPC. Second, moving towards narrower, more integrated, and dedicated value-based care provider model and network. And third, focusing on the appropriate managed benefit product and patient base. Within this framework, our team has made solid progress, especially in bringing greater discipline to how we approach risk arrangements which will benefit the business in 2026. This includes partnering with payers on benefit adjustments and appropriate rates to match the risk and mix of the populations we serve. at this point we are close to completion and over 90 of our value-based payer contracts for next year and are on track to reach our goal of offsetting approximately half of the 2026 b28 headwind through payer contracting we are also pursuing market and product exits including from lower performing ppo contracts as indicated last quarter we have finalized exits for 200 000 lives in 2026 the majority of which are PPO. While still early in the Medicare annual enrollment period, we expect total OptumHealth value-based care membership to shrink by approximately 10% in 2026 before returning to growth in 2027. We also continue to intentionally shape our care provider network to prioritize high-performing partners who demonstrate strong patient engagement and consistently positive outcomes. We are moving to employed or contractually dedicated positions wherever possible. We are separating from providers who are less aligned with the VBC model. The targeted network actions we've taken over the last 60 days will result in fewer providers in our networks starting in 2026. Within our markets and their related networks, we are working to more fully integrate our clinical practices to ensure greater performance consistency. The team is refining our portfolio and accelerating a consistent national operating model for regionally-led, high-performing OptumHealth practices that reduces fixed costs, drives purchasing economies, aligns technology, and most importantly, ensures continued high-quality care. These actions increase our confidence in our ability to meet our V28 cost reduction targets in 2026, and strengthen our operating foundations for the long term. Lastly, our engagements and clinical work at Optum continue to track with our expectations for meaningfully reducing medical cost trends, engaging with over 85% of our high-risk members in 2025, which accounts for the remaining V28 pressure offsets in 2026. Bottom line, getting back to the basics of our VBC model will be good for the people we serve and for our business. As a point of reference, our 2026 CMS star rating projections show 80% of optimal at-home members and four-plus star plans and nearly 100% of our ISNIP members and four-plus star plans. Evidence of our quality of care is underscored by a strong NPS of 90 at our highest performing facilities. For the third quarter, OptumHealth performance was in line with our expectations, reflecting the natural seasonality in our business and the pull forward of some investments. Within this, we expect to end 2025 with margins of just under 3%, which includes value-based care margins under 1%. We expect margin improvement across all of OptumHealth in 2026, even in the face of the third year of the Medicare funding cut. We believe these efforts will drive further acceleration in 2027 towards our long-term margin targets of 6% to 8%. Turning to OptumHealth's fee-based care services, as we discussed last time, these were not performing to their potential. We are adopting more consistent and rigorous processes to better manage these practices for growth and appropriate profitability. We are seeing early results in our east region, which serves nearly 5 million patients. where we have generated a 3% per visit productivity increase quarter over quarter, driven by targeted improvements in scheduling, workflow efficiency, and patient acquisition. We have similar undertakings in motion in our south and west regions. As for OptumInsight, we continue to perform solidly, but not at the level of the potential for these services. Under the leadership of Sandeep Dadlani, we now see the alignment of our end-to-end technology and AI innovation efforts coming into formation. We will make the investments needed to accelerate the advancement of this distinctive platform that serves the expanse of the health system. We are confident that our plan will ignite top-line revenue and operating earnings in line with our long-term growth targets. At OptumRx, we continue to perform well with double-digit revenue growth in our pharmacies and a strong selling season for our pharmacy offerings. Our products are resonating in the market with stronger customer retention and new customer growth. At this stage, we expect new membership growth in 2026 will be more than offset by expected membership attrition from the UnitedHealthcare business. Importantly, our team remains disciplined around pricing, transparency, and quality outcomes for our customers at a time when the pharmaceutical industry continues to drive cost ever higher. Today, we offer full rebate pass-through arrangements to all of our customers, with nearly 85% of them participating. We were the first in our industry to announce this arrangement back in the beginning of the year, and we expect 95% of our customers will be in these arrangements in 2027. with the remainder in full rebate pass-through by 2028. And we have increased payments on branded drugs to over 14,000 independent retail pharmacies as part of our commitment to a balanced pricing approach. Thanks for your time today. I'll now turn it over to Wayne Devight.

Good morning, everyone. I'd like to begin by expressing my sincere appreciation to Steve, Tim, Patrick, and all of my colleagues at UnitedHealth Group for the warm welcome. It's truly an honor to be part of this team and to contribute to our shared mission. Today, I'd like to cover three important topics. First, I'll provide an overview of our quarterly performance and how it informs our outlook for the rest of the year. I will then discuss our capital and liquidity framework as we look ahead to 2026, particularly in terms of resuming share buybacks and strategic acquisition activities. And finally, I'll offer some insights into our expectations for 2026. Moving to the quarter. Today we reported adjusted earnings per share of $2.92, which was slightly ahead of our expectations. These results reflect steady execution while we work through our longer-term improvement plans. We've balanced immediate performance with strategic investments that will support our future growth and natural diversification. Some details for the quarter. We delivered revenues of over $113 billion, reflecting 12% year-over-year growth, driven by domestic membership expansion of over 780,000 lives year-to-date. We ended the third quarter with total domestic membership of more than 50 million. Our medical care ratio of 89.9% in the quarter compares to 85.2% in the same quarter last year, with the full year trending toward the lower end of the projections we offered last quarter. As Tim stated, medical cost trends, while historically high, remain consistent with our outlook for 2025 and align with our pricing actions for 2026. The operating cost ratio of 13.5% in the quarter reflects larger investments in technology and people than originally contemplated when guidance was set in 2Q. Specifically, we invested more than $450 million in broad-based employee incentives and in contributions to the UnitedHealth Foundation, both critically important for strengthening our relationships with our workforce and with local communities in the health system at large. And investments were proportionally greater in OptumHealth and OptumInsight. Finally, our earnings were supported by strong cash flows of 2.3 times net income and an overall increase in days claims payable of 1.7 days sequentially. Turning to our capital and liquidity framework, as previously communicated, we have paused our strategic acquisitions and share buyback while we dedicate our cash to returning to a long-term debt-to-capital ratio around 40% and interest coverage ratios in line with historic levels. In the third quarter, our debt-to-capital ratio remained stable at 44.1%, reflecting continued actions to improve cash efficiency, offset by the completion of the emeticist transaction late in the third quarter, which represented a net cash disbursement of $3.4 billion. We expect our debt-to-capital ratio to trend closer to 40% in the second half of 2026. Accordingly, While we have not finalized plans for 2026, we anticipate we may be in a position to reinstate our historical capital deployment practices later in the year. Finally, we generated operating cash flow from operations of $5.9 billion. We still expect to close this year with $16 billion in operating cash flow or 1.1 times net income. Looking ahead to 2026, As Steve mentioned, we will provide formal guidance with our fourth quarter results in January. We are comfortable with current consensus, and within that, we are making the requisite investments needed to accelerate our returns in 2026 and to position our company for meaningfully stronger growth in 2027 and beyond. We are optimistic in our ability to execute on our 2026 plans, but there are remaining headwinds we will have to overcome. Items to keep in mind include We're entering the final year of V28, which represents a more than $6 billion headwind to the overall enterprise. As you heard from Tim and Patrick, we've taken numerous actions around benefit design, cost control, and member engagement to substantially offset this impact. Further investment in OptumHealth and OptumInsight is needed, and we are accelerating some of those investments, as noted in our third quarter results. We are also accelerating our pace of AI applications to fundamentally advance a vast spectrum of processes and capabilities we expect will structurally improve our enterprise performance. Our effective tax rate is expected to return to a more normalized level in 2026 as compared to 2025. And finally, investment income should continue to move lower as interest rates decline. From a tailwind perspective, Our repricing efforts will be a catalyst for earnings growth as we begin returning to our long-term target margins, with particularly solid year-over-year results expected in our commercial and Medicare businesses. We also expect stability and a measured return to growth in our Optum entities, with aspects of that growth being reinvested in the business, specifically Optum Health and Optum Insight. These investments may slow 2026 growth but should accelerate growth in 2027, more in line with historical expectations. We will be paying down debt and identifying opportunities to further reduce our interest expense as a result of the declining rate environment. And finally, we're taking an aggressive step on affordability initiatives that should improve overall medical trend relative to our pricing. While we have a number of moving parts to manage for the remainder of this year, we also have concrete plans to execute on all the items we discussed this morning that will position us for the type of growth you've come to expect from UnitedHealth Group. Thanks for your time this morning. I'll now turn it back to Steve.

Thanks, Wayne. As I hope you heard clearly, this team and our 400,000 colleagues are focused on delivering on all fronts for the people we're privileged to serve and for our shareholders. As I said in the outset, we're being very disciplined. This plays out day to day as this management team recognizes the need to manage our costs, both in the short term as well as structurally. And through another lens, throughout the quarter, we have continued to evaluate the company's businesses with fresh perspectives and with continued confidence in our progress and our overall direction. We expect to complete that assessment in the fourth quarter as we position for 2026 and the years ahead. A few themes emerge from these efforts. We are dedicating our energies to serving U.S. healthcare needs, and we'll be reducing our footprint in international markets that do not support these needs. We will be finalizing our initiatives for recovery of the remaining outstanding loan balances from the care provider support programs associated with the 2024 Change Health Cyber Attack. For OptumHealth, we are consolidating locations and completing plans addressing the geographic markets in which we will serve patients, all intended to operationally advance and scale the leading value-based clinical care business of Optum Health. And we are realigning Optum Financial Services within our Optum Insight Services platform. While we have not yet finalized these plans, many of these actions are underway, and we believe they will improve both our focus and long-term performance. We are in the process of quantifying the accounting, tax, and cash implications of our plans, At this stage, our preliminary work would imply a non-GAAP, substantially non-cash, low single-digit billion-dollar charge. We will provide further details in our fourth quarter call as we conclude these efforts. Simply put, we will end 2025 well-positioned for a return to solid growth in 2026, acceleration in 2027, and a clear focus on our long-standing mission and strategy. An important reason for my confidence in our outlook is the way I see our people embracing a renewed focus on the mission, culture, and values of our company. How we go about things in the sensitive area of healthcare is as essential as what we do, and we are bringing new energy to that imperative each day. Now, operator, let's open it up for questions.

The floor is now open for questions. At this time, if you have a question or 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 we can respond to everyone in the queue this morning. Our first question comes from Josh Raskin with Nepron Research.

Hi, thanks, good morning. Appreciate all that detail this morning. I was wondering if you'd just give us a more updated view or a more specific view on the sub-businesses in OptumHealth. I'm specifically looking to understand how much of the revenue base is coming from capitated premiums from health plans, and within that, how much from your biggest customer, UHC, and then how much of that remainder is fee-for-service billings from your employed physicians, and then maybe some of the moving parts. I heard a little bit of the membership details as you think about stepping into 2026, at least directionally.

Sure. Why don't we just start with Patrick and then finish with Kristen?

That's great. So thanks, Josh, for the question. You know, high level, the breakdown on revenue is, as we described last quarter, 65% VBC, 15% care delivery fee-for-service, and 20% are payer-employer services. Within VBC, it's about two-thirds of our book of business is serving UnitedHealthcare, the rest a diverse array of payers. um within um growth potential as we close out this year as you heard uh we plan to close 2025 uh just under that three percent margin uh with bbc margins under one percent and then we're taking the actions this year to set us up for 26 and i'll let krista cover that portion yeah thanks for the question josh so um i think as we um are you know

Pacing into 2026, you know, we remain anchored and committed to the long-term potential of this business. The 6% to 8% margin that we outlined in the second quarter, and within that, the 5% commitment to our value-based care agenda. You know, we continue to work a robust set of actions and opportunities with clear line of sight and, frankly, a lot of ambition to the work ahead. And, you know, again, just remain optimistic on our positioning for the long term. Thanks for the question.

Thank you. Next question, please.

And we'll take our next question from A.J. Rice with UBS.

Thanks. Hi, everybody. Maybe just I'll stick on the Optum theme. I appreciate the comments on Optum Insight and the comment about need for investment. Can you just sort of comment a little more deeply on your view of where Optum Insight sits competitively at this point, where those investments need to go, and the time frame for seeing a reacceleration of growth there?

Sure. I actually think that Opsim's competitive position is actually pretty strong. We have a really nice base of business and continue to grow that, but I think the potential is much greater. So, Sandeep, you want to offer some views?

Sure. Thanks, AJ. Look, four weeks into the role, I am super impressed with the talent, the domain knowledge, the customer franchise, and the mission. I'm particularly excited by the momentum of some of our AI-first new products in the portfolio. I mean, just last week, you must have seen we launched OptumReal, which is inspired by innovation at UnitedHealthcare. This is the first real-time platform for claims and reimbursements anywhere in the industry. And just our early pilots are showing dramatic results in streamlining what I think is one of the most complex pain points for payers and providers. I'll give you another example. We recently launched Optum Integrity One. This is the most advanced AI auto-coding tool in the market, and it's driving demand among health systems and hospitals looking to improve middle revenue cycle automation and performance. I mean, just some metrics. For ambulatory outpatient claims coding, this showed 73% productivity over prevailing solutions. And for hospital inpatient coding, it showed 23% increase in productivity. A third one is Crimson AI. This is an AI-first clinical analytics platform that has created six wins in the last 90 days itself. This helps providers with their surgical costs and operating room optimization. Just the average return on investment for any provider system investing in Crimson AI has been 13 is to 1. So, look, in my first few interactions with our top clients, They've expressed tremendous excitement and anticipation for our new AI-based offerings. They've also provided feedback on where we can do better. But it's clear that our traditional services in OptumInsight have to evolve to AI-first services, then to products, and eventually to platforms. We are well on our way with this journey. We're beginning to build powerful AI products like the ones I mentioned. We are rationalizing and modernizing some of the existing legacy products that have great market presence. And then finally, we're investing in an AI-first workforce. Remember, I come from the tech role where we built 10,000 AI builders, and we're building AI-first sales teams. So we are investing, as earlier noted, in building, growing new products and offerings, and I'm incredibly excited about the possibilities. We want to simplify healthcare with AI, and OptumInsight is the best company to do it. Thank you for the question. Thanks, Sandeep. Next question, please.

Our next question comes from Justin Lake with Wolf Research.

Thanks. Good morning. First, let me congratulate and welcome Wayne back to the sector. Good to have you back. My question here is for Tim. I wanted to confirm, you talked about getting your commercial margins back to the 7% to 9% target range for 2027. Just wanted to make sure I heard that right. And then in terms of the current baseline for 25, I'm kind of backing into a margin in the 3% to 5% range for commercial, Tim. Is that in the right ballpark? Thanks.

Yes, thanks Justin for the question. So the commercial business, you know, as we've talked about for 2026 and as a result of our pricing actions, will make meaningful progress as you think about the work being done across the ACA and the other commercial products. to chip away at a return to that 7.9% long-term margin. We view 2026 as a year where we're probably still 150 basis points below that low end of the margin. But again, given how the pricing is being received in the marketplace, some of the opportunities that we see around controlling our costs in the future, we still feel as though that longer-term margin range of 7 to 9 is attainable.

Thank you. Next question, please.

Our next question comes from Steven Baxter with Wells Fargo.

Yeah. Hi. Thanks. Just wanted to ask for some additional color on the membership declines you're expecting in Medicare Advantage in 2026. Can you help us think about the breakout between individual, duals, and group? And at the industry level, CMS is expecting enrollment growth to be pretty flat in 2025. I guess first, does the company agree with that assessment? And second, How are you thinking about the type of industry growth you might see as we move into 2027 and beyond? Thank you.

I think Bobby Hunter is best for this. Go to it. Yeah, great. Thanks, Stephen. Good morning. So I'll hit the membership item first. You know, Tim mentioned in the prepared remarks, you know, approximately a million membership contractions for 2026 across MAs. That does include both group and individual. Obviously, we've been pretty clear about the fact that we're exiting products, impacting about 600,000 members. So think about that as kind of your first core element of how you build to that million. And I would say the balance of the bridge to the full million is pretty evenly split between pressure inside of our group MA business as a result of taking a really disciplined approach to pricing there and and some dislocation that will exist in the group customers as a result of some other more aggressive competitor actions. And then the other kind of 50% of that bridge from the $600,000 to the million representing a pretty even split across our individual MA business, obviously really early in AEP at this point, but that's kind of the way I see it from this distance. When you think about growth overall, I would expect 2026 to be probably more in line with the general progression and growth that we're seeing in 2025. And that's largely a result of continued benefit cuts in the marketplace, continued plan closures, and then some disruption in the broker community related to growth. pretty broad commission changes. I absolutely believe in the long-term growth potential of MA, and I think we can grow above those levels as you step out further. Ultimately, right now, though, medical trend pressure is increasing the cost of healthcare, and the funding cuts to the program are degrading choice, access, and value to the consumer. And that's a real impact on the 35 million Medicare-eligibles who rely on MA right now to make healthcare affordable. So still absolutely believe in the differentiated value proposition of MA, but cannot underscore the importance of stability in the program as we look to the longer-term growth rate and opportunity for MA. Thanks for the question. Thanks, Bobby. Next question, please.

Our next question comes from Kevin Fischbeck with Bank of America.

Great. Thanks. I was wondering if you could talk a little bit more about OptumHealth's The pullback and retrenchment, I guess, and the refocus on certain types of plans, I guess, you know, if we went back a number of years, we would have thought that value-based care could potentially serve the majority of MA lives. I mean, is there a tan that you're thinking about? Like, if you looked at the market today and the markets you want to focus on, what percentage of MA really lends itself to a successful value-based care model? And I guess, how penetrated is that today? Thanks.

Yeah, I'll have Krista respond to this, but I think we remain very positive and actually think MA should move more to value-based care and those themes just picking up exactly what Bobby said. So, Krista, maybe you want to talk a little bit about the future of value-based care?

Yeah, absolutely. Kevin, thanks so much for the question. So, you know, as we mentioned in our opening remarks, we are deeply committed to value-based care, and we're You know, research continues to validate the impact that it can have. We know fee-for-service rewards volume. You know, we know that value-based care aligns incentives. And when you look across OptumHealth, we've got an incredible set of assets that really enable an integrated delivery system to create value in the markets that we are focused in. And so, you know, I just think about the potential. You know, it really is limitless. I think what you're seeing from us is a focus and operating discipline and really kind of getting back to some of our core so that we are able to expand and grow in the future. And we're really deepening our presence in the markets. You know, we're focused on the appropriate network, on the appropriate providers, on the appropriate risk footprint portfolio so that we are positioned for long-term success inside value-based care.

which implies you have to have it aligned to the right products, you have to have it aligned to the right processes and disciplines, and that alignment is really what we're returning to. So, good question. Next, please.

Our next question comes from George Hill with Deutsche Bank.

Good morning, and thanks for taking the question. We saw a pretty significant step up in what I would call discretionary expenses in the quarter compared to Q2. You talked a lot about the need for investment in a lot of the business lines. I guess as you think about those numbers, can you quantify the step up in investments that were incurred in Q3, and how much of those should we think of as one-rate investments versus one-time investments where we'll see leverage going forward?

Sure. Wayne, just take it. Yeah, thanks, George. Good morning. I would say of the 450-plus that we discussed, about a third of that is a commitment to our foundation, which had not been funded at the levels that it should have been in the past and clearly puts us on a runway for multiple years of activities around the foundation. So view it as not necessarily a run rate into next year, but nonetheless something that we believe is part of our ongoing core and will continue to do it in the outer years. The delta of that, then, is all investments in our people. You heard Sandeep talk a bit about OptumInsight, and that cultivated with the number of resources we have there and aligning incentives around the execution that we expect. So I would view much of that as being recurring in nature, part of our core business, and the investments we'll continue to make in the expansion that we see both in OptumHealth and in AI specifically.

Appreciate it. Thank you. Next question, please.

Our next question comes from Lisa Gill with JP Morgan.

Thanks very much. Good morning. I just had a question around utilization and how to think about it here in the back half of the year. Clearly, this quarter came in a little bit better than what we were expecting, but I We're looking at what's happening with the exchanges, looking at the step up in Part D. So can you maybe just talk about your expectation going into the fourth quarter? And specific to Part D, are you expecting a big step up as we think about the fourth quarter?

Tim, you want to take this? Yeah, thanks Lisa for the question. So as I think about utilization, really tracking in line with the expectations that we called out in last quarter's call, really across all of the product lines. the general commercial business, including the ACA, as well as Medicare and Medicaid, and also on the Part D portion of the business, also tracking in line with expectations. Clearly, there is quite a bit of seasonality that's always at play in the health insurance business. I think you can think of Normal seasonality, first half to second half, 60% in the first half. In terms of earnings contribution, 40% in the second half. This year, given some of the trends that we've seen, a little bit more of a bias towards earnings in the first half of the year versus the second half. half of the year, but really kind of trends tracking with how we expected them to track, consistent with what we guided in the second quarter, and the seasonality really just kind of a byproduct of the business, and also some of the additional spend that we have on things like a seasonal ramp in AEP with respect to Medicare.

Thanks, Tim. Next, please.

Our next question comes from Andrew Mock with Barclays.

Hi, good morning. I wanted to follow up on the Medicare Part D drug benefit for next year. It looks like the benefit for Tier 3 branded drugs changed from a co-pay to co-insurance across most of your MAPD and standalone Part D plans. Can you elaborate on your experience with the co-pay structure in 2025 and what drove that decision to change the benefit structure in 2026? Thanks.

Yeah, hey, good morning, Andrew. Thanks for the question. So, you know, I would say just kind of big picture, you know, we take a multi-year metered approach to our benefit planning. That includes, you know, as you can appreciate, managing and balancing many different variables. And that's particularly important given the dynamics around V28 and the phased approach there. You know, the other element perhaps is to kind of call out as you think about how we decided, you know, the modifications to make to the benefit design for Part D in particular for 2026 with some uncertainty around the demo program and how that would continue to persist or not into 2026. So we took what we felt was an appropriately kind of cautious approach there, pulling all the levers available to us to ensure that we would be well positioned on the overall benefit design, regardless of how the demo came into 2026. So as I look now at kind of where we sit from a benefit design standpoint with the coinsurance we have on Tier 3, the deductibles that we have kind of broadly across MAPD and PDP, I feel pretty aligned to industry there, and I would expect us to have continued good performance as we step then into 2026. As it relates to 2025, really on the MAPD side, no concerns around selection, mix, or outlook. given the prevalence of deductibles that we put on our MAPD offerings. And on PDP, really kind of no material contributor or risk to rest of your outlook on that one either. So overall, I feel pretty good about how we're stepping into 26 on PDP.

Great. Thank you. Next question, please.

Our next question comes from Ann Hines with Mizuho Securities.

Great, thanks. My question is focused on Medicaid. At the last call, I believe you said margins should be in the negative 1 to negative 1.5% range. Is that still a good bogey? And just like looking with the one big beautiful bill, is there anything that would prevent like a path to Medicaid margin recovery in 2007 and 2028? Thanks.

Mike, you want to take that?

Yes, Anne, thanks for the question and good morning. As Tim indicated, our view for Medicaid has not changed from last quarter. We expect breakeven in 2026, or in 2025. As we think about 2026, we expect some margin degradation due to the continued dislocation of premium funding and what we're seeing in terms of elevated medical cost trends. But we do see 2026 as the trough for that performance. Our elevated trends are driven, as the industry has, by specialty pharmacy, behavioral health, and also as we look at home health services. We think over time, the one big beautiful bill, there will be some transformation and work as we collaborate with states, but we see over time, about an 18- to 24-month period, we'll be able to return to rated margins of around 2%. Thanks very much for the question.

Thanks, Mike. Next question, please.

Our next question comes from Lance Wilkes with Bernstein.

Great, thanks a lot. Could you talk a little bit about the employer market and specifically what's the medical cost trends you're seeing this year and next? And given the pressures on employers, what are some of the strategies they're looking at for the 26 and looking out to 27 selling seasons? In particular, any interest in adoption of value-based care Are they using more surest? Things like that. Thanks. Dan.

Yeah, thanks, Lance, for the question. Trends for 2025 and our outlook for 2026 remain in line with what we shared in the guidance last quarter. Trends are approximately 11%, and that is how we have priced into 2026, and I'll just share that. that with 50% of our January insured business resolved at this point, encouraged by both the yield on persistency and rate to deliver the margin expansion that Tim spoke about in light of that trend of approximately 11%. You're right, healthcare affordability is top of mind for all employers and we hear that this selling and renewal season as we always do, but even a little bit louder given the trends and the pricing associated with it. Employers are evaluating a host of considerations. You referenced Surest, and Surest continues to be a leading product for us, continuing to capture share. And that has continued to grow and has a robust pipeline already as we look toward the jumbo selling season of 2027. I might highlight some additional things that employers are looking at as well. Integrated advanced advocacy solutions that we sell in our product portfolio continue to capture employer attention as they help us bring together more synergistic approaches to care. That includes value-based care, as you referenced, tighter coordination between medical benefits and Rx benefits. which employers are continuing to do on an increasing basis as we see more and more employers moving to combining medical and Rx benefits, and satisfied very much so with how we're advancing in that way with OptumRx. So those are a couple of highlights that I would offer that are on top of mind for employers, certainly for 2026 and already as we look forward into 2027. Thanks for the question, Lance.

Thanks, Dan. Great response. Scott, the next question, please.

Next question comes from Scott Fidel with Goldman Sachs.

Hi, thanks. Good morning. Appreciate the update on the capital deployment timing returning to the normal plan. Can you also just update us on sort of the dividend and what your view is on the dividend and that looking forward? And then curious just around, I know that there's going to need to be possibly some portfolio rationalizations occurring in OptumHealth and other businesses as you pursue the new approach. Is there a way that you can sort of frame that for us in terms of, I don't know whether it's sort of revenue or just more philosophically, you know, how you're thinking about the asset base and OH and maybe more broadly around where and around, you know, potential rationalizations that could occur. Thanks.

Sure. The dividend, we'll start with Wayne, and then I'll start with the opt them and give it to Krista and to Patrick.

So, Wayne. Thanks, Stephen. Good morning, Scott. There are no changes in our historical dividend practices, nor do we expect those to change going forward. We will maintain the dividend as we've done. The next prioritization as we're paying down debt will then revert back to the buyback program and then our strategic acquisition. So, view it as no changes and then hopefully back into our normal capital deployment activities back half of next year.

And then just broadly, you know, related to Optum Health, helping people understand, we are very much committed to this. We are just reshaping it back to the way we had originally conceived it and believe that it has the most impact and value, and we're really just taking the right steps to bring that back into form so that we can really move and grow and advance it in the construct of that disciplined model we had going forward. So Chris, do you want to talk a little bit about that?

Yeah, I can just add to that. Thanks for the question. So yeah, so Scott, you know, as Steve mentioned, we are really kind of taking a look at the whole like integrated delivery system. We have a combination of value-based care assets, some assets that are focused more on fee-for-service but truly enable that value-based care agenda. And it's really important to ensure that kind of integrated model can deliver the best outcomes. And so as we're thinking about the portfolio rationalization, we're, you know, taking into account a combination of things like where we have the right clinical quality, where we have the best, you know, operating cost performance, where we have the right engagement, and where that model can really be brought to life for both value-based and those kind of fee-for-service service lines as well. And so I think those are the ways in which we're kind of looking at the model. So it's a market focus. It's, you know, we are looking at rooftops. We are, again, looking at the populations, the risk, the products. And I think through all of that, there'll be an output of some actions that we'll take in the near term to position us for long-term success of that integrated model?

Likely withdraw from a few geographic markets, likely reshape the practices within certain markets where we remain, likely shape the Let's say the primary delivery system along line with the complementary services, things along that nature, all very logical, all actually more constructive. But to be constructive, sometimes you have to take some things away. And, Brian?

Just to add one point across Optum and connect a couple questions, you know, in the face of escalating cost trends, what we hear from our payer partners, from employers and from patients, and providers, as they want a value-based care system that delivers better quality, better experience, and lower-cost care. And that's what Optum is delivering to our various customers.

Thanks. Good question. Next, please.

Our next question comes from Erin Wright with Morgan Stanley.

Great. Thanks. So, I have a follow-up on that front. Is there anything you can quantify or break down for us in terms of those steps to turn around OptumHealth? Like, How much is just walking away from risk? How much is fixing the fee-for-service business? And presumably that could be addressed a little bit quicker, right? And how much is just integrating into a consolidated operating model? and then what sort of incremental investments that you can quantify at this point that needs to go into that business as well. Presumably, does this all get you to 6% to 8% margin in 2028, and it's just back and weighted? Is that the right way to think about it? Thanks.

I think directionally, I don't think we can achieve the level of precision you might be looking for, something like that, just because this does blend together. But Krista, do you want to respond? Sure.

Yeah, thanks for the question, Erin. So let me just kind of start where you ended, which is, you know, likely more back half-weighted, but you should expect progress throughout here. And, you know, while we might see faster progress in some fee-for-service improvement, you know, Patrick highlighted whether that's kind of productivity or scheduling or improving access or collection rate, you will also start to see some progress on our value-based portfolio as well. Think of things like medical management, the work we're doing with our payers, the work we're doing to curate our networks, also the work we're doing to manage operating cost discipline. So these things really all come together in this integrated model, but maybe some faster progress in certain areas while you'll still continue to see kind of progress against the holistic model.

But, for example, you've kind of a little bit further ahead in the eastern region on this and seen some impact on that, and that's a good example of how this will progress, right?

Absolutely.

So a pickup in terms of volume there, greater capture, greater reach. Okay. Next question, please.

Our next question comes from Dave Wendley with Jefferies.

Hi, good morning. Thanks for taking my question, squeezing me in. My question is related somewhat, but I think earlier in the call, you quantified that half of your headwind, I think the V28 headwind for 2026, you plan to mitigate through recontracting. And I wanted to make sure I understood, is that across the portfolio of payers, are you mostly harvesting that from the UHC portion, the non-UHC portion? And then is the, did I hear correctly that VBC lives you expect to decline by 10%? Is that interwoven in that at all? Thank you.

I think so. Krista, do you want to respond?

Yeah, absolutely. So, yep. So, like Patrick mentioned, so we sought to overcome half of the V28 headwind through our payer contracting efforts, which would include all payers. And we have completed that, and we're about 90% complete with our contracting with line aside to the rest by the end of the year. So feel good about that. You know, that encompasses rates as well as product and benefits. And, you know, we've talked a little bit about some market exits inside of that. So exiting more than 40% of our PPO footprint was also kind of part of that exercise, but, again, across all of our payers. And then, you know, you asked about membership as well with the approximately 10% reduction as we pace into next year. You know, again, we probably will see even some additional PPO exits as part of the work we continue to do with all of our payers and the work that we're going to do to finish that work. But then that would be, you know, just really a direct result of actions we're taking to optimize our portfolio. So, again, products, markets, footprint and the risk that is appropriate for this model.

Leaning to products that lend themselves to management.

Exactly.

Good question. Next, please.

And our next question comes from Jessica Casson with Piper Sandler.

Hi, guys. Thanks very much for the question. Can you describe just the tone of any recent conversations you may have had with CMS and their receptivity and posture towards MA. What do you think CMS is focused on from a STARS risk adjustment and MA rates perspective, and what is UHC lobbying for? Thanks.

You guys can decide which one responds to that.

You know, we're not lobbying for anything in particular, so please.

Yep. Thanks, Jessica, for the question. You know, as I think about CMS receptivity, we've been encouraged and continue to be very encouraged of the receptivity of this administration to have conversations with industry about ways to modernize and ways to improve this already very popular program. direct contrast to what we experienced over the previous administration, and we always enjoy and appreciate the efforts to be able to have these fact-based conversations around how to modernize the program and feel like that's the best way to get to a constructive answer and a constructive way to move forward. So, you know, encouraged again on just the level of activity and the level of conversation that we have with the administration, and we'll continue to do that and continue to bring to them ideas that we think are ideas that are the best path forward that provide some level of stability for beneficiaries and also, you know, modernize the program in the process.

Yeah, absolutely. So we have time for one question remaining. So next one, please.

Our last question comes from Whit Mayo with Learink Partners.

All right, thanks. Tim, I was just hoping that you could comment more on the provider coding stuff that you were talking about. We hear pushback on that from many health systems, and then maybe any observations that you could share on the independent dispute resolution process and actions you're taking there or the impact on trend. Thanks.

Yeah, thanks for the question, Whit. So, you know, when I think about some of what we're seeing in trend, there certainly is a meaningful portion of it that is related to more service intensity per encounter being billed by health systems and by providers. Some of the ways that's coming through are higher cost sites of service where lower costs are available. Think lab, think ER and surgery. I'm also seeing more services being attached to ER visits and hospital visits, an increase in the number of specialists that are rounding. per inpatient stays, and then a bias towards some higher DRG weighting than we've seen in the past. And it is happening fairly consistently across the country, but then also have some very significant outliers. And one part of what we're doing is we are addressing these outliers. We have to. We have to keep medical costs and health care affordable for consumers, affordable for states, the federal government. So we will be taking some network actions where we need to keep health care affordable. We're also making more use of AI in our payment integrity programs, increasing some of our payment policy efforts, as well as our clinical affordability programs to address some of what we're seeing. You know, as I think about the IDR process, it's not something that would spike out in terms of a material trend driver from this distance, but certainly something that we're keeping an eye on pretty carefully.

Great. So thanks. Great conversation today. It's all we really have time for. I want to thank you all for joining us, and we look forward to talking with you again soon. in engaging with you before we get to January. And in January, we will provide both our year-end results as well as guidance for 2026. So thank you all for joining us this morning.