UnitedHealth Group Incorporated (UNH) Earnings Call Transcript & Summary

Good morning, and welcome to the UnitedHealth Group Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Here is 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 that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call may 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 is contained in the press release we issued this morning dated May 13, 2025, which may be accessed from the Investor Relations page of the company's website. I will now turn the conference over to the Chief Executive Officer of UnitedHealth Group, Mr. Stephen Hemsley. Please go ahead, sir.

Thank you, Lisa. Good morning, and thanks very much for joining us on short notice. This morning, I'll offer a few introductory comments, and then John Rex will walk through some key points, and we'll open up for a very, very brief Q&A. I'll start by conveying on behalf of the UnitedHealth Group Board, our fellow employees, and myself, our deepest thanks and appreciation to Andrew Witty’ for his leadership of this company. A vital role he played with real integrity and compassion during one of the most difficult periods any company could endure. We understand his decision, and I'm grateful he has agreed to serve as a senior adviser to me. I am humbled to return to the mission of this company and to the thousands of employees dedicated to that mission. I have every confidence in the leadership team and the capacities of this enterprise to continue to create and pursue significant opportunities to make substantial contributions to health care in this country and to return to our long-term growth expectations. To all stakeholders, including employees and shareholders, I'm deeply disappointed in and apologize for the performance setbacks we have encountered with from both external and internal challenges. Many of the issues standing in the way of achieving our goals as well as our opportunities are largely within our control. I am optimistic about our future as these issues are within our capacity to resolve. We will approach them with humility, rigor and urgency. As we have done over the years, the people of UnitedHealth Group will adapt and evolve to the ever-changing circumstances, challenges and opportunities and perform to our fullest potential, guided by our mission to help people live healthier lives and help make the health system work better for everyone. The announcement this morning regarding our guidance is a necessary step in this process. It enables us to focus even more closely on the actions essential for our success in the months and quarters and years to come ahead. Our strategy and structure are the right ones for this era. They are designed to help more people more comprehensively through value-based care approaches that are integrated and holistic in response to a health system that can be frustratingly disconnected, inconsistent in its quality and inequitable in access. We have made meaningful progress through value-based care approaches to overcome these issues and intend to execute far more urgently and precisely along this path moving forward. I believe and expect we can also be in the forefront of modernization and innovation across the health system. With that, I'll ask John now to offer some high-level perspectives.

Thanks, Steve. When we left you in April, our revised guidance was built on the data we had at that time, which we believe fairly reflected the cost pressures and trend. I'll give you a sense of what we are seeing now, which I would put into 3 principal categories: one, greater-than-expected impact in UnitedHealthcare from the health status of new members; two, further acceleration of utilization within Medicare Advantage; third, indications of a broadening of this higher trend to other areas, and we are prudently anticipating these trends may go even further. Together, these factors are driving care activity levels that continue to exceed our expectations. We are incorporating these higher cost experiences and expectations in our 2026 Medicare Advantage bids that are due in a few weeks as well as our pricing in other markets. We remain committed to providing stable and high-quality medical offerings to the members we are privileged to serve. But we will also appropriately price and adjust our offerings to return to our long-term target margin range. Steve?

Thanks, John. Our intention in these next weeks, months and quarters is to take the actions necessary to deliver the performance we are capable of so we can once again meet the expectations you have of us and the higher performance standards we hold for ourselves. As I said, this company has both the opportunities and capabilities to deliver exceptional services and outcomes for customers, consumers and care providers and to continue to reliably generate the earnings growth that align with our 13% to 16% long-term growth range. With that, we will be able to take just a few questions this morning. So operator, whenever you are ready, we're ready. Thank you.

[Operator Instructions] Our first question comes from [John] Raskin with Nephron Research.

I guess how much of the guidance revision in this sort of execution imperatives that you're talking about are around external trend pressures? And how much of it is related to the commentary around to better organize the enterprise and really understand what's going on internally?

Well, Josh, it is early, but I think to be sure, it is not just one thing that we are really focused on. We certainly have our share of external challenges and distractions. But I do think we have gone beyond that. And I would also say that this is an enterprise that's also trying to advance along many fronts including value-based care, which is really the early days. And really, I would just say, I think, the first year of that, but also driving innovation, modernization agenda, a very robust digital agenda and simplicity. So there is a broad portfolio of activities. And I think in that, we also have to be mindful that we have to execute with precision and intensity and urgency on the fundamentals and can't take those kinds of things for granted. So it is, I think, just a focus on energies and priorities. I don't think it is just one thing. But I would also offer, at the end of the day that people make a difference and at the end of the day, I think they make all the difference. And we have an abundance of really good people with really good ideas and great energy and real grit to go after the challenges that are both external into the marketplace and internal to us and to go at this kind of very intensely every day. And so that I'm very optimistic about our way forward here. So the more of a philosophical answer at this point in time. But I have kind of spent enough time in the last few weeks to really be impressed with the capacities and the quality of the people we have here, the leaders as well as those that are executing key functional things for us. And I think that I'm very much encouraged by the potential to improve our performance.

And our next question comes from Lisa Gill with JPMorgan.

John, I'm wondering if you could help us to maybe just quantify the difference between what you said last quarter and now you put it into 3 buckets, but...

I think, operator, we didn't get the rest of the question.

She, I think disconnected. Would you like me to move to the next question or dial back to Lisa.

Go ahead and move to the next question, please.

All right. Our next question comes from A.J. Rice with UBS.

Just maybe trying to get John to expand a little bit on what he's calling out this broadening out of some of the excess utilization and other things you're seeing. Is that still largely confined to Medicare Advantage? Or are you seeing this in Medicaid and commercial? And maybe just a little more description of exactly what you're seeing? Is this more on the outpatient side as it's been so far? Or is it broadening out in other areas? How is it impacting you?

So yes, at this time, it is still mostly concentrated in the populations that we talked about before. But what we've seen over the last weeks is movement into other populations also. So call it maybe adjacent populations, so people with complex conditions. We're seeing some of these things and very similar trends. Yes, it is still largely in the outpatient and physician side in terms of where we're seeing most of the increased utilization. So those are elements we're continuing to see, I would say also in terms of just what we're seeing in terms of people new to UnitedHealthcare also and in terms of the intensity of care that we're seeing with those individuals. And a view that anticipates that this could also spread into other populations. So that's part of what we're doing here this morning in terms of incorporating that view for spreading. But you're correct in your assumption in terms of where we're seeing it right now. And operator, when Lisa comes back in, you can bring her back on too.

I think she just dialed back in, I'll wait till she rejoins the queue. Our next question comes from Justin Lake with Wolfe Research.

Wanted to see if given you're just about to put in your bids, I know you pulled guidance, but can you give us an idea of where trend is or maybe where Medicare Advantage margins are in your mind right now versus where you're going to kind of bid to? And do you think you can get back to your target margins in one bidding cycle given where you are right now? Or is it going to take multiple?

Yes. John, go ahead.

So yes, so we certainly trend higher than where we were talking just a month ago. As we look towards submitting our bids for 2026 and I would tell you, just looking right now, the view that certainly, we're not -- we wouldn't be performing in our -- within our target margin range at the moment in terms as we look at 2025. We think we can return to our target margin range in 2026, albeit somewhere within that range, that 3 to 5 points that we typically think so. So we do believe we can improve the performance of that business in 2026.

And our next question comes from Lisa Gill with JPMorgan.

I'm going to try this again. I think my first question was asked and answered, John. But just curious, as we think about Optum and some of what you saw last quarter. Can you maybe talk about the trends there and what you're working on to maybe perhaps turn that around as we move into '26?

Yes. So largely in the same zones that we talked about last quarter or a month ago in terms of the impacts that we're seeing Optum in terms of new populations, new patients that Optum is serving and how they presented in terms of both their health status and how they came in, in terms of the -- where the reimbursement levels were for those people. So those efforts fully underway in terms of making sure we're able to address the needs of these people. And so very much -- it's something that's already activated as we work with these new patients in 2025 to engage with them, make sure we understand their health status and their needs and address those needs. So we can -- as we turn into 2026 that we can appropriately address those. And so that's a process that began now some weeks ago and very much underway. And again, a process that we have all of 2025 to actually accomplish those needs. What we need to do is really get in and be engaging with these people. And you may -- we may have mentioned this last time. We were already more than half of those people we've been able to engage with so far this year. For those people with the most complex needs, we're above that level. We're in the 75%-plus range in terms of that level. And we have all year to make sure that we're out seeing them, whether we're seeing them in homes and in clinics, all the elements will try to do to make sure that they're getting the appropriate care they need and that we're able to get that all -- that set for 2026. So very much underway as an organization, and that's where the focus of the OptumHealth is at this point as we look to meet those needs.

Yes. And John's response kind of triggers a thought. I hope that people understand that. There are a whole host of remedial responses in motion across this enterprise on both the UnitedHealthcare side and the Optum side. So we are gaining momentum on these things, and we're just going to continue to intensely pursue these efforts and to kind of accelerate those efforts, to make sure that we, one, understand in a more precise level, exactly what's going on to those that we're serving and in our business that we can get in a position where we can be with confidence, have good predictability on our performance outcomes, both clinical and quality and our financial outcomes and grow and grow again in '26 and continue to drive to improve the profitability of our business in '25. One more question.

And our next question comes from Stephen Baxter with Wells Fargo.

Just to follow up a little bit on the Optum Health discussion. I just want to be very clear. In terms of the incremental pressure that you're talking about today, is this an entirely medical cost trend phenomenon? So essentially, Optum Health trajectory beyond the flow-through of medical cost trend into Optum Health is unimpacted. And then just would love to just get any initial thoughts you can provide. Obviously, you're coming back to this potentially with a different perspective. What does the Optum Health business look like upon finalization of V28 in the risk-adjustment model? Do you still think that the margin targets and the growth outlook for that business are intact? Or do we need to think about that differently going forward?

I'll start, and then John can -- but I do. And I think the notion of value-based care and Optum as a platform for value-based care are as strong today as ever. I recognize the influence of V28, but the premise of that initiative strategically was that is potentially a better platform for care. It is more integrated. It is more holistic. It considers a population across the spectrum of its engagement with the health care system. And it facilitates that system taking kind of a broader ownership in managing people, most effectively to the age-old core of the right care at the right -- in the right setting at the right time. And value-based care, a caregiver-centric platform is precisely built for that. I think it will be better in terms of managing populations and managing their overall health and better in terms of managing the cost and the appropriate use of the system. That has always been the premise of it. And to bring risk-based capabilities to bear, I don't think those things are diminished at all. But I do think we are in the early stages of execution. If you think about this going forward, I think value-based care should be the predominant approach to care across the country.

Stephen, it's John here. So yes, so -- much of what we're seeing, this is care activity, and it's also just presenting status of new to UnitedHealthcare members that we're seeing here. So the view that we're taking here this morning, much of that is driven -- the majority of that will be driven out of the UnitedHealthcare businesses that we're seeing right now. But part of what we're doing in terms of the guidance, the outlook that we spent this morning has to do with creating potential for that to spread into other areas also as we're seeing this care activity. So the potential for that to continue further in the other areas. So that could impact areas such as you suggest, and we're taking a prudent approach on that as we think about the rest of the year and such and making sure we understand that well and the drivers. Well, I would say a lot of kind of view -- the view from a month ago is what we're seeing emerging in the -- some of the UnitedHealthcare populations here, more concentrated in that level.

Well, unfortunately, I think that's probably all the time we have this morning. And I hope you can appreciate that this was basically to connect with you and make this announcement and not necessarily get into the financials too deeply. So again, thank you for joining us, and thank you for -- I apologize for the short notice. And we look forward to engaging with you in the weeks ahead. So thank you again for joining us.

And ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect, and have a great day.