UnitedHealth Group CEO Stephen Hemsley opened the company’s second quarter earnings call on July 29 with a candid message to investors: the organization has made pricing and operational mistakes and is now taking on a “tone of change and reform.”
“As we continue to assess the state of our businesses, it is very apparent that some require a fundamental reorientation. Others require building and nurturing, and others must be reconsidered and redirected to original purpose,” Mr. Hemsley said. “We’re acutely aware we have an enormous responsibility for providing care for millions of people and for protecting the government and private programs we partner in. As such, we have embarked on a real cultural shift in our relationship with regulators and all external stakeholders.”
The shift in tone follows a period of ongoing financial turmoil for the company, including the suspension of its annual earnings outlook in May, unanticipated care costs, and the departure of former CEO Andrew Witty.
UnitedHealth posted a net profit of $3.4 billion in the second quarter and is now projecting net earnings of at least $14.65 per share and adjusted earnings of at least $16 per share. It is also projecting total revenues between $444.5 billion and $448 billion in 2025.
10 notes:
1. In 2025, the company is expecting $6.5 billion more in medical costs than originally anticipated, with $3.6 billion of that within the Medicare business and $2.3 billion in the commercial business (split evenly between ACA and employer-sponsored). The company’s updated 2025 outlook removes about $1 billion from previously planned portfolio actions that are no longer being pursued.
2. Within the Medicare Advantage business, physician and outpatient care costs represent 70% of the headwinds so far in 2025. Inpatient utilization has accelerated and is expected to comprise a larger share of the pressure by year-end. ER visits and observation stays are also rising. The company will discontinue MA plans that currently serve more than 600,000 members, primarily PPOs.
3. In the commercial business, higher-than-expected cost increases are notable in outpatient care and, to a lesser extent, inpatient care. Orthopedic spending and pharmacy infusions are also key contributors. Membership is expected to decline, with growth projected in level-funded and self-funded products.
4. In the ACA business, UnitedHealth plans to remain in most of its 30 current markets but may exit some if it can’t achieve the rates needed to improve market morbidity. If enhanced premium subsidies expire at the end of 2025, ACA membership is likely to drop significantly.
5. The Medicaid business is facing similar elevated trends as other segments, including unexpected increases in behavioral health, pharmacy, and home health costs. The lag between state funding levels and member risk is expected to persist into 2026, leading to an expected loss in the non-duals Medicaid business next year.
6. Optum Health is dealing with three main headwinds: more complex patients (including dually eligible individuals), faster-than-expected medical cost growth (especially in Medicare and Medicaid), and underestimated risk for new members, combined with challenges in executing the V28 CMS risk model transition.
7. Optum Health is facing an $11 billion headwind over three years, with $7 billion of that occurring in 2025. Overall, the segment’s earnings in 2025 are $6.6 billion below expectations.
“A large part of the misexecution addressing the V28 funding cuts was due to non-standardized and overly localized management approach, which we are addressing with urgency,” Optum CEO Patrick Conway, MD, said.
8. Value-based care arrangements account for about 65% of Optum Health’s revenues, with 5 million patients in fully accountable arrangements. In 2025, the company planned for 20 million fee-for-service patient visits, and it is currently 5% below that expectation. Optum Health plans to cease arrangements with about 200,000 patients who are largely in fully accountable PPO plans, representing about 40% of its total PPO patients.
9. Optum Rx client retention remains stable. The segment is projecting $18 billion in revenue growth (13%) and just over $200 million in earnings growth (4%) for 2025, driven by low-margin specialty drugs. GLP-1s represent a $160 million headwind.
10. UnitedHealth is still planning to purchase home health company Amedisys, a deal originally announced in 2023.
