UnitedHealth Earnings Call: Growth Outlook Amid Reset

Unitedhealth Group Inc. ((UNH)) has held its Q4 earnings call. Read on for the main highlights of the call.

UnitedHealth Balances Strong Earnings Outlook With Membership and Policy Headwinds

UnitedHealth Group’s latest earnings call painted a picture of cautious optimism: the company delivered solid 2025 results and issued reassuring 2026 earnings guidance, backed by meaningful operational improvements in its Optum and UnitedHealthcare businesses and aggressive investment in technology and AI. At the same time, management was candid about material near‑term headwinds, including steep membership declines in key government programs, sizable restructuring charges, and persistent medical cost and funding pressures that will likely delay a full margin recovery until 2027.

Adjusted EPS and 2026 Guidance

UnitedHealth reported adjusted EPS of $16.35 for full-year 2025, coming in slightly ahead of expectations. For 2026, the company set an initial outlook for adjusted EPS of more than $17.75, implying at least 8.6% year‑over‑year growth, and GAAP net earnings of at least $17.10 per share. Management framed this as evidence that the core earnings engine remains intact even as the business absorbs restructuring, regulatory and medical cost pressures, signaling confidence in the underlying profitability trajectory.

Strong 2025 Revenue and Cash Generation

Revenues for 2025 reached nearly $448 billion, a roughly 12% increase from 2024, underscoring the scale and resilience of UnitedHealth’s diversified model. Operating cash flow came in at $19.7 billion, or about 1.5 times net income, although management guided to at least $18 billion in operating cash flow for 2026, or roughly 1.1 times net income, reflecting the earnings mix and timing of working capital. While lower than 2025, the expected 2026 cash generation still supports investment needs and the company’s long‑term capital deployment framework.

Optum Segment Improvement Plans and Wins

The Optum platform remains a central driver of future growth and margin expansion. Across OptumInsight, OptumHealth and OptumRx, UnitedHealth is targeting low‑ to high‑single‑digit adjusted earnings growth in 2026 with incremental margin gains: about 90 basis points for OptumInsight, 30 basis points for OptumHealth and 20 basis points for OptumRx. OptumRx, in particular, highlighted strong commercial traction with more than 800 new customer wins and over 95% of customers choosing full rebate pass‑through next year. The unit also removed reauthorization requirements for around 180 drugs, positioning itself as a more consumer‑friendly and administratively streamlined pharmacy benefits manager.

UnitedHealthcare Operating Earnings Recovery

UnitedHealthcare, the insurance arm, is expected to deliver roughly 13% adjusted operating earnings growth in 2026, with operating margins expanding about 40 basis points. That recovery will be driven by deliberate repricing and product repositioning, particularly in lines under pressure from medical cost inflation and funding cuts. Management emphasized it is willing to accept membership losses in the near term to restore sustainable margins, suggesting a shift from volume to value in its underwriting strategy.

AI and Productivity Initiatives

UnitedHealth is leaning heavily on AI and automation to offset cost pressures. The company expects nearly $1 billion of operating cost reductions in 2026 tied largely to AI and machine learning initiatives, with more than 80% of member calls already leveraging AI tools. To support this, the company plans to invest roughly $1.5 billion in technology in 2026, with a similar level anticipated for 2027. These investments are central to the company’s thesis that digital tools can meaningfully bend its cost curve over time.

OptumHealth Operational Progress

OptumHealth continued its multi‑year overhaul to improve consistency and performance. The segment has narrowed its affiliated provider network by about 20% and reduced risk‑based membership by around 15%, aiming to concentrate on markets where it can manage care more effectively. It also consolidated electronic medical record usage from 18 systems to just three across nearly all employee provider groups, a move that should support smoother operations and faster deployment of AI tools. Management cited mature OptumHealth markets where total cost of care has dropped by up to 30% and customer satisfaction, reflected in net promoter scores, is near 90.

Balance Sheet and Capital Targets

On the balance sheet, UnitedHealth signaled continued progress toward its leverage goals, targeting a long‑term debt‑to‑capital ratio of around 40% by the end of 2026. Management also indicated an intention to return to its historical capital deployment practices in the second half of 2026, after working through elevated investment and restructuring needs. This suggests scope for an eventual normalization of buybacks and other shareholder returns once current headwinds are digested.

Large Membership Contraction in 2026

A notable negative theme was the scale of expected membership losses in 2026 as the company reprices business and reacts to funding and cost trends. UnitedHealthcare membership is projected to shrink by 2.3 million to 2.8 million members overall. Within that, Medicare Advantage membership is expected to fall by roughly 1.3 million to 1.4 million lives, Medicaid membership by about 565,000 to 715,000, and exchange business by more than 500,000. Management framed these declines as the cost of resetting the portfolio on healthier economic terms.

Significant Charge and Restructuring Items

The quarter was weighed down by a largely non‑cash net‑of‑tax charge of $1.6 billion, or $1.78 per share, tied to Optum‑related actions. These included approximately $800 million in reserves linked to collection expectations on cyber‑related provider loans and receivables, around $625 million in lost contract reserves for unprofitable third‑party relationships, and substantial restructuring costs across workforce, real estate and contract reassessments. While painful in the near term, management framed these moves as necessary to simplify the business and refocus on higher‑return opportunities.

Medicare and Medicaid Funding Headwinds

Public program economics remain a major concern. The company is facing a third consecutive year of Medicare funding reductions, alongside ongoing state Medicaid funding shortfalls. At the same time, Medicare medical cost trend is running hot: about 7.5% in 2025 and expected to rise to roughly 10% in 2026. This gap between rising costs and constrained funding is pressuring margins and may require further benefit reductions or geographic footprint adjustments as early as 2027 if proposed advance rates are finalized. Investors should expect continued volatility in government lines until the funding environment stabilizes.

OptumHealth Volatility and Q4 Underperformance

Despite clear strategic progress, OptumHealth delivered a choppy fourth quarter, underperforming management’s expectations due to restructuring and other one‑time items. The company now sees the fourth‑quarter adjusted baseline for OptumHealth at about $1.5 billion, excluding restructuring charges and the move of Optum Financial. Management acknowledged that the segment still has work to do on operational execution to reach its longer‑term margin goals, underscoring that the turnaround remains a multi‑year effort rather than an immediate fix.

Near-Term Margin and Membership Tradeoffs

UnitedHealth stressed that its priorities are shifting toward margin quality and sustainability, which will come at the expense of membership in the near term. Repricing and product “rightsizing” across commercial and individual ACA lines, along with the company’s voluntary pledge to rebate profits in ACA markets, will weigh on enrollment and keep operating margins slightly below their historical range until 2027. Management nevertheless expects some margin expansion in 2026, framing 2025–2026 as a reset period ahead of a more normalized profitability profile later in the decade.

Medical Care and Operating Cost Ratios Impacted by Charges

Cost ratios reflected both operational performance and the impact of charges. For 2025, the medical care ratio was 89.1%, slightly better than expected, while the operating cost ratio was 13.3%, higher than anticipated in part due to roughly 40 basis points of charge‑related effects and about $800 million in employee, incentive and Foundation funding. For 2026, management guided to a medical care ratio of 88.8% plus or minus 50 basis points and an operating cost ratio of 12.8% plus or minus 50 basis points. These targets suggest ongoing sensitivity to medical inflation and restructuring, but also some improvement as charges moderate and productivity gains kick in.

Forward-Looking Guidance and Outlook

Looking ahead, UnitedHealth guided to 2026 adjusted EPS above $17.75 and GAAP earnings of at least $17.10 per share, with revenues around $440 billion and operating cash flow of at least $18 billion. The company expects roughly two‑thirds of its 2026 earnings to be realized in the first half of the year, alongside a modest improvement in medical care and operating cost ratios relative to 2025. UnitedHealthcare is projected to grow adjusted operating earnings by about 13% with modest margin expansion despite a 2.3–2.8 million membership contraction; Medicare Advantage margins are expected to improve by roughly 50 basis points. Optum segments are forecast to deliver low‑ to high‑single‑digit earnings growth with incremental margin gains, supported by new business wins at OptumRx, margin expansion and portfolio repositioning at OptumInsight, and steady improvement at OptumHealth. Management reiterated its goal of moving toward a 40% debt‑to‑capital ratio by year‑end 2026 and resuming more typical capital returns in the second half of that year.

In summary, UnitedHealth’s earnings call blended evidence of durable earnings power and operational discipline with a clear acknowledgment of sizable near‑term risks. Strong 2025 results, solid 2026 EPS guidance, progress at Optum and ambitious AI‑driven cost initiatives are all positives for long‑term investors. Yet the expected membership contraction, ongoing Medicare and Medicaid funding pressure, and delay in margin normalization until 2027 underscore that the path forward will be bumpy. For investors, the story is less about rapid near‑term growth and more about whether the company can execute its reset and emerge with a more resilient, higher‑quality earnings profile.