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.