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UnitedHealth Group's third quarter revenues grew 12% to $113.2 billion, but headwinds have created challenges for the company, with CEO Stephen Helmsley saying there was a “key sense of urgency” across the company to return to performance standards.
Shares rose 3% after news broke that the company has exceeded expectations, according to Seeking Alpha. But challenges remain.
Hemsley said during UHG's earnings call Tuesday morning that subsidiary Optum Health in particular, which has been affected by an elevated medical cost trend, will be “refocused” back to its original mission.
WHAT'S THE IMPACT
Optum Health’s third quarter revenues were flat year-over-year (YOY) at $25.9 billion, while earnings from operations sat at $255 million, reflecting a 1% operating margin. This compares to operating earnings of $2.2 billion and an operating margin of 8.3% in last year's Q3.
The YOY decline, officials said, was due to continued reimbursement pressure stemming from Medicare funding reductions and elevated utilization.
Optum Health CEO Patrick Conway said during the call that as Optum has expanded over the past few years, its mission suffered: Provider networks grew too large, the company relied too much on affiliated physicians, and Optum Health was accepting risk not suited to a value-based model, said Conway.
To recover, Optum, he said, will be focusing on three main areas: returning to the original intended clinical framework, moving toward narrower and more value-based networks, and focusing more on the product and patient base.
Conway expects Optum membership to shrink by about 10% next year before expanding again in 2027, though margins should begin to improve in 2026, he said.
He added, however, that new membership at Optum “will be more than offset by membership attrition from the UnitedHealthcare business.”
Overall, UnitedHealth Group raised its 2025 earnings outlook to reflect net earnings of at least $14.90 per share and adjusted net earnings of at least $16.25 per share.
Its medical care ratio (MCR) of 89.9% was in line with expectations, while the operating cost ratio of 13.5% reflected investments to support future growth.
The company said that next year it expects membership contraction of about 1 million people in Medicare Advantage, which is expected to drive margin improvements next year and “additional enhancements” in 2027. Sixty percent of its group commercial pricing is set for next year.
THE LARGER TREND
According to Seeking Alpha, UnitedHealth Group has been one of the worst performers in the S&P 500 this year, with a near-60% drawdown at one point.
The challenges this year have been persistent. In July, the company officially acknowledged an investigation by the U.S. Department of Justice for alleged criminal healthcare fraud, as the feds seek to probe its Medicare Advantage practices.
A lawsuit filed in May against UHG claims the healthcare company misled investors about its financial outlook following the murder of then-CEO Brian Thompson, who in December was killed by a gunman while attending the company's annual investor day in New York.
The suit accuses UHG of allegedly hiding a corporate strategy to deny medical care and downplaying the impact of Thompson's murder on the business. That harmed shareholders, according to the lawsuit, which was filed by a group of shareholders and is now seeking class action status.
Plaintiffs argued that UHG's financial guidance, released prior to Thompson's death, became obsolete once Thompson died, and yet the insurer reiterated that financial guidance at the start of this year.