UnitedHealth Group leans into discipline as growth slows and costs bite

A reset year yields solid 2025, but at a price

UnitedHealth Group closed 2025 with financials that mask a year of deep surgery on its portfolio and operations.

For the full year, revenue reached nearly $448 billion, up 12% from 2024, driven by U.S. membership growth of more than 415,000 and continued expansion at Optum. Adjusted EPS of $16.35 came in slightly ahead of expectations, underpinned by a medical care ratio (MCR) of 89.1%, modestly better than guided.

Beneath the surface, the company booked a $1.6 billion net after‑tax charge (about $1.78 per share), “largely non‑cash and primarily related to actions within Optum.” That bundle comprised:

• A true‑up for cyberattack‑related exposures, including about $800 million tied to provider loans and other balances.
• A $440 million net gain from portfolio optimization as non‑core assets were exited or marked for exit.
• Roughly $2.5 billion of broad restructuring and other actions, including contract reassessments, real estate rationalization, and workforce reductions. Within that, $625 million relates to loss reserves for structurally unprofitable Optum contracts that cannot be exited in 2026.

Operating discipline was evident but not costless. The operating cost ratio of 13.3% came in slightly higher than anticipated, in part due to about 40 bps of charge‑related items and approximately $800 million in discretionary employee incentives and funding to the UnitedHealth Foundation.

Cash generation remained a strength: $19.7 billion of operating cash flow in 2025, or about 1.5x net income, gives the group ample capacity to absorb restructuring and continue investing in technology.

Management reiterated its long‑term debt‑to‑capital target of ~40% and expects to reach that before year‑end 2026, with a return to more traditional capital deployment in the back half of 2026 if the operating environment stabilizes as planned.

UnitedHealthcare: trading volume for margin

The health insurance arm, UnitedHealthcare (UHC), is being deliberately slimmed down in favor of profitability.

Medicare: margin over membership

UHC’s Medicare book is at the sharp end of the sector’s pressures:

• 2025 Medicare cost trend ran at about 7.5%, consistent with revised mid‑year expectations.
• For 2026, UHC now assumes ~10% medical cost trend in Medicare, reflecting sustained high utilization, higher physician fee schedules, and greater service intensity per encounter.

Against this backdrop, UHC has repriced and reshaped its Medicare portfolio with a clear priority: margin recovery over membership scale.

Key points:

• 2026 Medicare Advantage membership is expected to contract by 1.3–1.4 million, including group, individual and dual‑eligible (D‑SNP) members. Losses are “greater than originally anticipated,” as aggressive market competition spurred more plan shopping in the latest Annual Enrollment Period.
• Similar repositioning in Medicare Supplement and standalone Part D also favors margin over volume.
• Management expects Medicare margins to improve by about 50 bps from 2025, despite the membership decline.

The rate backdrop remains hostile. Executives criticized the 2027 Advance Notice as failing to reflect current utilization and cost trends, warning that if finalized as proposed it would imply “very meaningful benefit reductions” and possibly further footprint rationalization. While they declined to frame 2027 margins or membership, the signal to investors is that MA remains economically viable for UnitedHealth only with careful market and product pruning.

Medicaid: rate relief still lagging acuity

UnitedHealthcare’s Medicaid business remains under pressure as state funding lags acuity and trend:

• For 2026, UHC expects aggregate Medicaid rate increases of 6–7%, below underlying medical trend.
• Management still anticipates margin contraction in Medicaid due to “dislocation of rates and continued elevated medical trend.”
• Membership is expected to fall by 565,000–715,000 in 2026, reflecting eligibility redeterminations, D‑SNP movement, and exit from at least one state.

Despite some rate relief, UHC is not assuming a near‑term margin snap‑back in Medicaid.

Commercial and ACA: repricing hard, shrinking risk

UnitedHealth is also recasting its commercial footprint:

• In the group fully insured market, 2026 renewals have largely been priced to reflect continued elevated utilization; January performance was described as “firm and competitive,” supporting both rate yield and persistency.
• In the individual ACA market, the company has repriced nearly all states to reflect higher trends and the elevated needs of ACA beneficiaries, with the aim of returning the book to sustainable economics.

The trade‑off is fewer lives:

• UHC expects total membership contraction of 2.3–2.8 million across its lines in 2026, driven by MA, Medicaid and ACA reductions.
• In commercial specifically, over 500,000 lives of the expected risk‑based decline are from exchanges, with the balance from general market attrition, deliberate pricing to support margin recovery, and migration to self‑funded and level‑funded options.

Commercial margins, however, are expected to improve meaningfully:

• Management plans to close more than half the gap between 2025 performance and its historical commercial margin range in 2026, targeting full normalization in 2027.
• For UHC as a whole, adjusted operating earnings are expected to grow about 13% in 2026, with operating margin expanding by roughly 40 bps, though still “slightly below” the historical range.

On the ACA exchanges, UnitedHealth underscored that the market has “never been a significant contributor of earnings.” Repricing for 2026 should return the book to positive margins, but management guided to only ~1% margin (±1%), and noted its public pledge to rebate ACA profits back to customers in 2026 while policymakers address affordability.

AI‑driven efficiency: material savings in 2026

UnitedHealth is leaning heavily on automation to offset cost pressure:

• It anticipates nearly $1 billion in operating cost reductions in 2026, “many AI‑enabled.”
• Over 80% of member calls now leverage AI tools for faster and more accurate responses, freeing human advocates for more complex interactions.

This technology push, while still early, is central to management’s assertion that the group can restore historical earnings quality amid structurally higher medical trends.

Optum: stabilizing a shaken growth engine

If 2025 was about acknowledging missteps at Optum, 2026 is about methodical repair. Management framed the coming year as one of “relentless focus on improved and consistent execution,” particularly at OptumHealth and OptumInsight, while OptumRx consolidates recent gains.

Across Optum, adjusted operating earnings are guided to grow in the low to high single digits, with margin expansion of 20–90 bps by segment.

OptumRx: winning on transparency and execution

OptumRx enters 2026 with momentum:

• The pharmacy benefits business expects operating earnings growth of about 2% in 2026, entirely driven by ~20 bps margin expansion.
• That margin lift comes off a strong external selling season: OptumRx is implementing or expanding relationships with over 800 new customers, offsetting membership headwinds from UnitedHealthcare’s contraction.

Key elements of the OptumRx strategy:

• Pricing model changes: new constructs emphasize transparency and cost‑based reimbursement to pharmacies.
• Reduced friction: prior authorization requirements have been removed for 180 drugs, cutting overall prior auth volume by about 10%.
• Rebate transparency: OptumRx is committed to passing through 100% of manufacturer rebates to clients; over 95% of customers have elected full pass‑through for 2026, with the remainder expected to follow by 2027.
• Affordability impact: members using OptumRx save over $2,200 per year on prescriptions on average, according to management.

Executives highlighted record‑high Net Promoter Scores in mail‑order and specialty channels, leaning on service quality as a competitive differentiator as the PBM market shifts toward more transparent, lower‑spread models.

OptumInsight: fusing tech and payments

OptumInsight is being retooled as UnitedHealth’s AI‑first technology and financial infrastructure platform:

• For 2026, the segment expects earnings growth of more than 4% with margin expansion of about 90 bps.
• Growth is driven by new sales, commercialization of AI‑enabled products, volume growth in core services, and tight cost control.

A structural shift begins this year: Optum Financial Services is being realigned from OptumHealth into OptumInsight. The rationale is to integrate AI‑driven revenue cycle tools (notably from OptumReal) with payment and financing capabilities to move healthcare transactions from the traditional post‑service reconciliation model toward real‑time, point‑of‑care approval and settlement.

For investors, the integration is intended to:

• Move OptumInsight further up the value chain, beyond pure transaction processing.
• Create new fee pools tied to liquidity, advance payments, and analytic services for providers and payers.
• Anchor OptumInsight as the commercialization channel for the group’s broader AI investments.

OptumHealth: back to basics in value‑based care

OptumHealth, the physician and care delivery arm, remains the most scrutinized piece of the Optum story after a string of disappointments. Management argued that 2025’s painful reset has now created a cleaner foundation.

Headline guidance for 2026:

• Operating earnings growth of ~9%.
• Margin expansion of about 30 bps, off a new “baseline” of roughly $1.5 billion of adjusted earnings (excluding restructuring and the shift of Optum Financial).

Core actions taken through 2025 and into 2026 include:

1. Market focus
   OptumHealth is concentrating on markets where it has sufficient scale and full “wraparound” services—primary care, specialty, imaging, surgery, home health, behavioral health—to deliver on its integrated value‑based care model. In its best markets, management claims:

   • Up to 30% lower total cost of care versus local alternatives.
   • Patient Net Promoter Score around 90.
   • Margins already in the 6–8% long‑term target range.

2. Network pruning
   The affiliated physician network has been narrowed by nearly 20% year‑over‑year to ensure tighter alignment with Optum’s value‑based strategy. The aim is fewer, more committed partners under risk‑bearing arrangements.

3. Risk portfolio rationalization
   OptumHealth has streamlined risk membership by ~15%, by:

   • Dropping unaligned PPO contracts.
   • Repositioning certain markets.
   • Handing back risk (payer “de‑delegation”) where viable sponsor contracts could not be reached.
   • Removing ancillary services risk and refocusing on core medical risk.

   The majority of these changes were effective for 2026, with a residual tranche to complete in 2027.

4. Operational standardization
   A significant operational move has been migrating nearly all employed providers onto just three strategic electronic medical record (EMR) platforms, down from 18 EMRs in recent years. This is intended to:

   • Enable consistent workflows and quality metrics.
   • Accelerate deployment of AI‑enhanced tools at the point of care.
   • Improve data timeliness and reliability for care management and risk adjustment.

Management acknowledged that Q4 2025 OptumHealth operating income, adjusted for restructurings, landed around $1.5 billion, below prior guidance and described as “slightly disappointing.” Executives framed this as the starting point rather than a new problem, stressing that most of the restructuring and portfolio clean‑up is now behind the segment.

Critically for investors, UnitedHealth reaffirmed its long‑term OptumHealth margin target of 6–8% and argued that a meaningful subset of its value‑based cohorts—about 30% of mature value‑based patients—already operate at or above that level.

Medical trend and margin arithmetic

Across the enterprise, UnitedHealth is not assuming any near‑term relief on medical costs:

• Medicare: trend exited 2025 at ~7.5% and is guided to ~10% for 2026.
• Commercial: trend is running near 11%.
• Medicaid: management avoided publishing a point estimate but said the qualitative pattern—elevated, persistent trend exceeding rates—remains similar.

For 2026 at the enterprise level:

• The medical care ratio is expected to be about 88.8% ±50 bps, with seasonal skew similar to 2025 (lower in 1H, higher in 2H), reflecting the structure of Part D benefits and business mix.
• The operating cost ratio is guided to 12.8% ±50 bps, reflecting a mix of disciplined cost management, early AI‑enabled productivity gains, and continuing investments in people and technology.

Taken together, the guidance implies net and adjusted EPS of at least $17.10 and >$17.75, respectively, translating to at least 8.6% adjusted EPS growth despite sizable membership reductions and stubbornly high trend.

Governance, transparency and the trust agenda

Against a backdrop of political scrutiny of insurers and PBMs, UnitedHealth is seeking to demonstrate greater transparency and governance rigor.

Two strands stand out:

• Independent reviews: In December, the company published external assessments of business practices and risk management in pharmacy and care management. Management described these first reports as broadly positive on oversight and controls. A second wave of reviews in 2026 will focus on risk assessment accuracy, clinical policy accuracy and pharmacy services.
• Public metrics: Beginning in 2026, UnitedHealth plans to publish operational metrics covering prior authorization and claims approval rates, rebate practices and pricing, and key performance statistics and policies across core businesses.

These steps are explicitly framed as part of a broader effort to “advance greater trust and transparency” in how the group operates within public and private health systems.

For investors, the message from management is that the reset of 2025—charges, restructuring, portfolio pruning and leadership changes—was the precondition for a return to the company’s historical formula: disciplined underwriting, aggressive productivity, and scaled deployment of technology across a vast and diversified health platform.