UnitedHealth Group Incorporated (UNH) Earnings Call Transcript & Summary

Introducing UnitedHealth Group, United is the largest health insurance company in the U.S., the largest physician company, the third largest PBM. I'll just keep -- I'll stop it there and introduce -- and today for the panel, we have Andrew Witty, who's the CEO; John Rex, President and CFO; Brian Thompson, who is the CEO of UnitedHealthcare, the health plan business. We also have Zack Sopcak from Investor Relations, who's going to start off with some forward-looking statements.

Just take a moment to remind you that today's presentations will include forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. These risks and uncertainties can be found in the cautionary statements in our SEC filings posted on our website.

Okay. So I guess, every year, I go into your Investor Day, and I always say, how long can a $400 billion revenue company keep growing EPS 13% to 16%? And since we're in Vegas, to put it in betting terms, at some point, you have to take the under on being able to grow 13% to 16%. So when we think about -- when you think about keeping that growth rate going, like, what are the 2 or 3 things that investors need to kind of believe or understand to see that pathway to 13% to 16%?

Listen, Kevin, first, thanks so much for the opportunity this morning. I think first and foremost on that list is, is management and Board committed to that as a goal? I mean, everything starts from ambition, right, in terms of are we fully -- do we believe we are capable of developing plans and strategies in the short, medium, long term to be able to support that just as we have in the past? More specifically, if you look at where we stand today, over the last 10 years, I would say we've built a maturity across a number of our different business areas, which are really, really just beginning to kind of get into gear in terms of performance. And I think about value-based care as probably the most obvious example of that. It's taken a long time for the various components that we believe are important to help deliver great value -- value-based care, meaning high quality, lower cost, better physician experience, better patient experience, actually getting to a capability where you can do that on a repeatable basis year in, year out, kind of a little bit regardless of what's going on in the outside world. You know, obviously, you adjust for the outside world, but it doesn't disturb your ability to continue to drive that capability forward, what I think has been a hallmark of the last couple of years, in particular. And that kind of capability is only just really getting to a scale of maturation, which I think has a ton of runway still, an enormous runway still on it, actually. Then you look around the rest of the businesses -- and Brian will speak very clearly, I think, about the strengths in all 3 of the big UAC businesses and the platforms. As you start to see that combine then with some of the other ancillary organizations, strong growth in PBM and elsewhere, what we see across the group is a portfolio of businesses that are individually strong. They all come together to support and move toward what we believe is a fundamentally better way of delivering care for folks across the country. And then on top of that, I think the next decade is going to be about how you engage consumers in health care. And as you think about consumerization of this marketplace and the need for businesses to move from what has historically been more kind arm's length or B2B or a little bit less engaged with the patient as a consumer, a little bit less engaged with the healthy individual prior to being a patient, those are all great opportunities for us to modernize and strengthen going forward. And those 2 elements of value-based care powered by a shift towards being the #1 choice in health care consumer, those are really going to be the things that drive us forward.

And I think that the market has a little bit shorter-term focus, particularly on MA and [indiscernible]. Just give an update on kind of what you're seeing there within the trend, specifically on MA, how that's developing relative to kind of what you saw maybe a month or so ago?

B.T. here will give you a good run on that in a second. But I mean, I think the bottom line is things are playing out very much the way we anticipated as we put together the bids for last year. For 2024, I mean, I think everybody knows we saw -- we recognized shifts in medical costs in the -- in Q2 of last year. We saw that in time for us to be able to price appropriately for this year. That's played through the years, played through very much in line with what we'd have expected from a medical trend perspective. You'll see that in terms of the performance of the organization. And we continue to see MA being a very, very strong value proposition for seniors choosing how they want to get their care delivered and financed going forward. So we continue to be very strong supporters to this program. We don't see anything particularly different this year from what we planned in the bid. Obviously, the V28 rate notice was a significant set of signals, but we took the time to plan what we believe is the right 3-year response strategy for that. We're in year 1 of the 3-year response strategy. It's playing out the way we anticipated, and we'll continue to prosecute that plan. And Brian, maybe you can give more...

Sure.

...detail on that.

Yes. I think, had you asked me when I stepped into the shoes of where we could be right now, if you asked me that a year ago, I would definitely take that opportunity. It's playing out. We're 1 year in. The things that we had planned for look like we had hoped they would look, so consistent with our expectations, and planning for another year. You know, I've been in this business now 20 years, and I've been doing the benefits for MA for 11 of them and have had many unknowns to deal with, ins and outs, each and every year. Last year, we were dealing with some emerging trend that we responsibly got into our bids, and it's playing out exactly like we had thought. From this distance right now, not dealing with the same level of unknowns, a lot more confident, recognizing a strategy now 1 year in, planning it for year 2 and really comfortable with what we're putting in the marketplace for next year. So I'm pleased with how we're performing and what the opportunities are on the horizon for '25 and '26. This has been about being disciplined and thoughtful, what I call and being fit and ready for 2027. And that's how we've looked at it from the very beginning.

Yes. I mean I guess it's interesting because you were the first company to kind of flag that there was a cost trend issue. So it kind of makes sense if you caught it more on your pricing for this year. But we've consistently seen other companies still kind of lag and even more recently just kind of take up their MLR guidance. I mean, as you see, some of your competitors see these issues and you turn around and you kind of kick the tires again. I mean, like, is there something to kind of explain where there seems to be the dichotomy between what you're seeing and what they're seeing?

I don't know that I can make any comments on competitor positions and posture. I can only comment on what we're seeing. And again, it's, thus far, consistent with what we had expected. I'm always respectful of what I don't yet know. But from this distance, I feel good about our supplemental benefits, feel good about where trend is playing out. We've talked before about outpatient being higher last year. We made a bet that it would remain high, and that was perhaps a conservative assumption at the time, proved to be a very good one. It is consistent with what we had expected. And the other elements of trends are largely playing out as we had thought. And again, as you get farther away from COVID, things start to stabilize. As I kind of compare year-over-year, last year, we were dealing with capacity and what does return to normal look like? We're a whole year departed from that now. So I believe there's a level of consistency and normalcy, perhaps, in our planning as we look forward this year that just wasn't there a year ago. So I would say, comparatively, I feel more confident in the unknowns than I did a year ago.

And so you guys seem to be ahead of the [ track ]. I guess, from a margin perspective, you guys are saying you're at the higher end of your longer-term margin target in MA. Is that [indiscernible].

I think what we said just is we continue to stay in the same margin target we've had for MA over the long term. We really haven't changed our outlook for that.

Okay. So everyone else around you has to reprice for margin on top of the rate pressure that they're seeing, but you don't have to reprice for margin. So it seems like you're in a pretty good spot. We've now, actually today, this morning, CVS said they could lose 10% membership and they'd be fine with that. Humana said they could be down 5% membership. Like, what does that mean for you guys? I mean you guys -- are you guys going to be up 20% membership next year? And if so, are there problems with that? I could see the market starting to get freaked out about 20% membership. But I think part of the reason Humana has their problems is because they grew high teens last year. CVS has a problem because they grew 20% this year. If you go 20% next year, would that be a bad thing, or can you manage that? How does that work?

I think the key for us, and it comes back to the way we've laid out really all the way from February of last year, is we're looking for -- to plot a course through relative -- a notch up in external volatility through things like V28, IRA implications and those sorts of things. We're trying to plot what is a fundamentally sustainable pathway through all of that change. And you've seen that this year, I think, so far. Right now, as Brian just suggested, we continue to expect that to play out very much in line with our original plans. And as year 2 and 3, which were really conceived a year ago -- we're refining those, but we're not making huge changes to our expeca- our plans for the next couple of years as we try and navigate through. But I think the thing we don't want is unsustainable ups and downs in our performance in any particular regard. We want to be absolutely rock-solid driving through this period because on the other side of '26, '27 is a decade phenomenal market opportunity, and we want to be in the strongest possible position across all the key metrics. So of course, we want to continue to be a leader in this marketplace, but we also want to be able to invest in it for sustainable, improved outcomes for patients. So, for us, honestly, Kevin, this is -- at some level, it might be not the most exciting statement you're going to hear, but you should just expect more of the same from us, right, in terms of what we're doing. And we laid out a game plan last year in the fall. We're executing it. We feel good about it. We're obviously watching how others are moving around. There's a lot to take into consideration, not just trend but V28, Part D. You know, I back this team every day of the week on making the right calls to deliver sustainable performance through that. And that's what we're doing.

I guess to kind of [indiscernible] that type of growth, I mean, I guess there's different ways you grow. If you grow too fast because you misprice, that's one thing. If you grow too fast because everyone else is pulling back, that's potentially something else. But is there something inherently wrong? Like, if we see a 15% growth number, a 20% growth number, is there a number that -- where you start to say, this is too much operationally, it impacts STARS or the ability to manage well against those things? Or is...

Again, Brian should go deeper. But my view is it's all about sustainability, right? So -- and whatever makes growth unsustainable -- and you've seen a little bit of that this year in different parts of the marketplace -- that's not great. I mean, it's a kind of [ peri ]-victory, right? You win and then yoOu lose. And that's not the business we're in. We're in a position to try and be sustainable, make sure we're constantly strengthening the capability of the company, constantly delivering for patients in this regard the best possible outcome year in, year out. We want them to feel good about the stability of the promise that they get from us. And so I do think there are elements where too much growth is a bad thing, but it's because it drives instability of your ongoing performance. That's why. Right now, I think trying to pin the tail on the donkey of who gets what next year, I'm not sure there's much mileage in that, honestly.

And I'll add to that quickly. For me, our strategy has been the same for years. Growth will be an outcome of responsible product positioning that we hope seniors want sustainably for a long period of time. And if we do that right, there shouldn't be a level of growth that we're concerned about. And our second mantra is make sure that you're dealing with the headwinds that are in front of you and not those that potentially you create that are behind you. And in this environment, those are difficult things to manage, but feel very good about where we're at here through year 1. So we'll put product in the marketplace where growth will be an outcome of responsible positioning.

And I guess it's pretty safe to assume, given the growth you're looking for this year, you're going to accelerate growth next year. Like, it's just really interesting to me that the valuation that you're trading at right now doesn't seem to be factoring in that 2025 should be a much better growth year than what 2024 is from a membership perspective. Well, we haven't seen any other product design yet, right? So it's hard to make that call until you actually see product design in the marketplace that we can comp up against our product design. So I think it's, at this point, until you actually see those designs that are going in, I think it's hard for us to really -- we can have a point of view on where we think they're going to be. But until those are out there -- and then can you just talk a little bit about the [ capitation ] business? MA, it feels like you're getting 85% of what the market is doing and half the market appears to be struggling. And so how does that impact your ability to generate margins in value-based care in 2024? It feels like it's a tailwind in '25 and '26 [indiscernible] price. But in 2024, how are you managing that? You're looking for margin improvement in OptumHealth.

Yes. And as you saw in Q1, we started off well this year in OptumHealth. And again, obviously, we're absorbing and we're dealing with the impact of V28 in that -- in the way it flows into that business, as much as it flows into Brian's business. And yet you're continuing to see strengthening and strong performance of that organization. And I think, again, it's a case of a little bit where I started the conversation, really, Kevin. You're seeing the benefits of maturation of what is a pretty important combination of different capabilities, which have, over the years, been brought together to allow us to manage, both in the clinic and at home, risk in a way which allows us to deliver great care for people. It delivers better physician experience, less burnout, better quality of care, lower cost. And it delivers a return for the shareholder which is in line with the kind of expectations that we've always laid out. And I -- and as much as there's been a lot of new entry into that marketplace in the last few years, OptumHealth is kind of the overnight success that took 15 years to build. And there is just a truth to that. It's been a long journey with varying steps along the way, some of which were home runs, some of which were missteps and had to be recalibrated. But over time, I think the company has figured out how to make those different elements super-effective for all the stakeholders I just described. And that's shining through. And we're seeing -- I think, obviously, you're going to see very strong extension of multipayer capability of OptumHealth in the next few years. I think you're going to see it continue to grow extremely robustly because it's delivering something that very few others, if anybody else, can deliver in the marketplace. And we're very -- we're super excited about that. It's why value-based care is our driving strategic focus for the whole corporation alongside a deep commitment to be the best we can be for consumers, because we do genuinely, genuinely think it transforms health care. It makes it better for individuals. We think it's a good deal for payers. We think it's a great outcome for physicians and care providers. And you'll see, in I think this year, continued evidence of that.

And it was -- I thought it was interesting how you were talking about multipayer, multipayer within MA. But I guess multipayer also within commercial and Medicaid seems to be the next kind of leg to that growth. Is the opportunity there, as strong as it is within MA? It feels like MA is the place where it is most mature, but it feels like there's reasons for that. Maybe there's risk adjustment, there's individually-sold products where you can maybe steer people into narrower networks. And so is the opportunity in commercial and Medicaid really robust? Is it only half of those markets because it only applies to certain populations? How do you think about where that is?

Yes, it's a good question. So there's no doubt. I think the MA opportunity is more uniform. There are clearly geographies and there are clearly concentrations of commercial -- commercially insured lives where there is real viability. And you see that across our book. We have a very substantial commercial capitated book of business. But it is more geographically dispersed and a little bit, obviously, reflective of employers and their interests. And of course, over time, it ebbs and flows a little bit with the willingness of folks to be part of a managed program as opposed to having more individual choice. And that does ebb and flow a bit with kind of employment, market dynamics and those sorts of things. I think, in the long run, it fee- I'd say, over the next 5 to 10 years, this is a marketplace opportunity which is really substantial for us and coming on the side, if you will, or behind the MA risk capability development that obviously we've built and continue to build. It's something which we think is extremely logical, right, in terms of an extension of our capabilities. And leverage is a lot of the ways of thinking about how to manage folks and manage people throughout their life in terms of trying to prevent illness, not just get fixated on symptoms, trying to make sure we're getting issues resolved quickly, not just managing volume. Those are all elements which are common across all of these different sorts of capitated risk models. I think it just comes -- it's a little bit more patchy and it's a little behind, but it's coming. And we're going to continue to lean into that.

Is there something about your model that allows you to be successful? To your point, it seems -- there was a lot of money being thrown in this space 4 or 5 years ago when money was free. And for the last few years, it seems like most companies have kind of pulled back on this. You guys seem to be talking about earnings stable margins, improving margins this year relative to last year. Is there something about the model, the vertical integration aspect of it? Does that help? Why are you able to kind of keep investing? You're out there buying another large practice in the middle of all this stuff and everyone else seems to be pulling back. So it's just interesting. Is there something you could point to that differentiates you in the market?