UnitedHealth Group Inc ($UNH) Q3 2025 Earnings Call

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 are some important introductory information. This call contains forward-looking statements under US 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 report 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 28th, 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 United Health Group, Stephen Hemsley.

Thanks, Steve. For the current year, overall, United Healthcare 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 the 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 MA 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, though 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 trend. 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 break-even 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 United Healthcare 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 Optum Health 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, Optum Health'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, Optum Health 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 Optum Health and value-based care. Over the past six months, we have made significant leadership changes to better drive an integrated VBC provider model. Under the leadership of Christa 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 VBC. Second, moving towards a 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 in 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 V28 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 Optum Health 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 physicians 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 high-performing Optum Health practices that reduces fixed cost, 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 Optum at Home members in four-plus star plans and nearly 100% of our ISIP members in 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, Optum Health 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 Optum Health in 2026, even in the face of the third year of the Medicare funding cuts. We believe these efforts will drive further acceleration in 2027 towards our long-term margin targets of 6% to 8%. Turning to Optum Health'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 Optum Insight, 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 our plan will ignite top-line revenue and operating earnings in line with our long-term growth targets. At Optum Rx, 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 United Healthcare 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 retailies as part of our commitment to a balanced pricing approach. Thanks for your time today. I'll now turn it over to Wayne DeVeydt.

Good morning everyone. I'd like to begin by expressing my sincere appreciation to Steve, Tim, Patrick, and all of my colleagues at United Health 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 United Health Foundation, both critically important for strengthening our relationships with our workforce and with local communities in the health system at large. And investments were proportionately greater in Optum Health and Optum Insight. 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 Amedisys 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 Optum Health and Optum Insight 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 United Health Group. Thanks for your time this morning. I'll now turn it back to Steve.

The floor is now open for questions. At this time, if you have a question or a comment, please press star one on your touchtone phone. You may remove yourself from the queue by pressing star two on your touchtone 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 Neuberger Berman.

Hi, thanks. Good morning. Appreciate all that detail this morning. I was wondering if you could just give us a more updated view or a more specific view on the sub-businesses in Optum Health. 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 the 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.

Sounds great. So thanks Josh for the question. High level, the breakdown on revenue is as we described last quarter: 65% VBC, 15% care delivery fee-for-service, and 20% our payer employer services. Within VBC, it's about 23% of our book of business is serving United Healthcare, the rest a diverse array of payers. Within growth potential as we close out this year, as you heard, we plan to close 2025 just under that 3% margin with VBC margins under 1% and then we're taking the actions this year to set us up for '26 and I'll let Christa cover that portion.

Yeah, thanks for the question Josh. So, I think as we are pacing into 2026, 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. 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 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 timeframe for seeing a reacceleration of growth there?

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 Optum Real, which was 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 1. This is the most advanced AI autocoding 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 a 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 cost and operating room optimization. Just the average return on investment for any provider system investing in Crimson AI has been 13 to 1. So look, in my first few interactions with our top clients, they have 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 Optum Insight 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 for 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 Optum Insight's 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. 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 Stephen 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 DS and group? And then 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.

Yeah, great. Thanks, Stephen. Good morning. So, I'll hit the membership item first. You know, Tim mentioned in the prepared remarks, approximately a million membership contractions for 2026 across MA. That does include both group and individual. Yeah, 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 some dislocation that'll 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 at this point, but that's kind of the way I see it from this distance. When you think about growth overall, you know, 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, you know, continued benefit cuts in the marketplace, continued plan closures, and then some disruption in the broker community related to 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 Fishbach with Bank of America.

Great. Thanks. I was wondering if you could talk a little bit more about Optum Health, 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, you would have thought that value-based care could potentially serve the majority of MA lives. I mean, is there a trend that you're thinking about? Like, what 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, 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 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 Optum Health, 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, as I just think about the potential, it really is limitless. I think what you're seeing from us is a focus on 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 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 what we're returning to. So good question.

Next please. Our next question comes from George Hill with Deutsche Bank.

Yeah. 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. And 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 talk about, like, can you quantify the step up in investments that were incurred in Q3, and how much of those should we think of as run-rate investments versus one-time investments for Wall Street leverage going forward?

Yeah. Hey, 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 run-rate into next year, but nonetheless something that we believe is part of our core and we'll 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 Optum Insight, 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 health and in AI specifically.

Thank you. Next question please. Our next question comes from Lisa Gil 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, you know, we're looking at what's happening with the exchanges, looking at the step-up in Part D. So, can we 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?

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, as 60% in the first half in terms of earnings contribution, 40% in the second half. You know, 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 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 with respect to Medicare.

Thanks, Tim. Next, please. Our next question comes from Andrew Mock with...

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.

Hey, B. Yep. 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 just to kind of call out as you think about how we decided the modifications to make to the benefit design for Part D in particular for 2026 was 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 co-insurance we have on tier 3, the deductibles that we have kind of broadly across MAPD and PDP, it, you know, I feel pretty aligned to industry there. And I would expect us to have continued good performance as we step then into 2026. And as it relates to '25, really, you know, 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, feel pretty good about how we're stepping into '26 on PDP.

Great. Thank you. Next question, please. Our next question comes from Anne Hines with Mizuho Securities.

Great. Thanks. My question is focused on Medicaid. At the last call, I believe you said margin 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 2027 and 2028? Thanks.

Yes, Ann, thanks for the question and good morning. As Tim indicated, our view for Medicaid has not changed from last quarter. We expect break-even 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 Wilks 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 '26 and looking out to '27 on the selling seasons in particular? Any interest in adoption of value-based care? Are they using more shoppable things like that? Thanks.

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 with 50% of our January insured business resolved at this point, I'm 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. A great response. Scott, next question, please. Next question comes from Scott Fidel with Goldman Sachs.

Hi, thanks. Good morning. Appreciate the update on the capital deployment timing to returning to the normal plan. Can you also just update us on sort of the dividend and what your view is on the dividend looking forward? And then curious just around, I know that there's going to need to be possibly some portfolio rationalizations occurring in Optum Health 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 maybe more broadly around where and around, you know, potential rationalizations that could occur. Thanks.

Thanks, Steve, and 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. And so view it as no changes, and then hopefully back into our normal capital deployment activities back half of next year.

Yeah, I can just add to that. Thanks for the question. So yeah, Scott, you know, as Steve mentioned, we are really kind of taking a look at the whole 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 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 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 primary delivery system along with the complementary services, things along those natures. All very logical, all actually more constructive, but to be constructive sometimes you have to take some things away, right?

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 is 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 Aaron 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 Optum Health? 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-end weighted? Is that the right way to think about it? Thanks.

Yeah. Yep. Thanks for the question, Aaron. 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. Also 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. For example, you've kind of a little bit of 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 Windley 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.

Yeah, absolutely. So, yep. 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 that, with our contracting with the 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 we've talked a little bit about some market exits inside of that. So exiting more than 40% of our PO 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 PO 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, market footprint, and the risk that is appropriate for this model.

Exactly.

Good question. Next, please. And our next question comes from Jessica Cassan 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? 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.

Yeah. Thanks Jess 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. This is in direct contrast to what we experienced over the previous administration. And we always enjoy and appreciate the effort 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 the best path forward that provide some level of stability for beneficiaries and also 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 Leerink 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 by health systems and by providers. And 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, you know, a bias towards some higher DRG weighting than we've seen in the past. And, you know, it is happening fairly consistently across the country, but then also have some fairly very significant outliers. And one part of what we're doing is we are addressing these outliers. We have to keep medical costs and healthcare affordable for consumers, affordable for states, the federal government. So we will be taking some network actions where we need to to keep healthcare 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.