After a year marked by guidance cuts, DOJ scrutiny, and missteps at Optum, UnitedHealth (UNH) has finally cleared an early credibility test. Preliminary Stars data indicate that roughly 78% of Medicare Advantage members are enrolled in 4-star or higher plans—a significant milestone, as Stars ratings directly influence bonus benchmarks and rebate percentages, with meaningful implications for profitability.
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The stock has suffered immensely, lagging the S&P 500 (SPX) by ~60%, considering that the index has risen almost 20% while UNH has dipped almost 40% since May this year.
That said, the positive Stars outcome is tempered by ongoing weakness at Optum. With medical cost pressures persisting and regulatory headwinds mounting, UnitedHealth’s turnaround is likely to be a gradual process. For now, the risk/reward profile supports maintaining a Neutral stance on UNH.
From 57 to 7: The Collapse of 5-Star MA Plans
For insurers such as UnitedHealth, the CMS Star Ratings program is a critical driver of profitability in the Medicare Advantage market. Plans rated 4 stars or higher out of 5 qualify for a 5% quality bonus payment on government reimbursement benchmarks—an incentive that, at UnitedHealth’s scale, can determine whether a plan operates profitably or at a loss.
In recent years, however, CMS has adjusted its methodology, making it more difficult for insurers to earn top ratings. By 2025, only about 62% of MA members were enrolled in 4-star or higher plans, while the number of plans achieving a perfect 5-star rating collapsed from 57 in 2023 to just 7 in 2025.
UNH Balances Ratings Wins with Growing CMS Friction
In a September 9, 2025, SEC filing, UnitedHealth disclosed that preliminary data suggest roughly 78% of its more than 8 million Medicare Advantage members are expected to be enrolled in 4-star or higher plans for 2026. Given the more challenging industry backdrop, this is a notable achievement. The company has driven improvements in clinical outcomes and member satisfaction to lift scores, while also pursuing legal and administrative challenges against CMS rulings it views as unfair.
Although UnitedHealth and other insurers have scored some legal victories, the dynamic with CMS has grown more adversarial. Early signs suggest that CMS is responding by reshaping rating methodologies to better withstand legal scrutiny. In effect, UnitedHealth finds itself in the uncomfortable position of contesting the very system that underpins its profitability.
Optum Reality: Margins, Not Missions
Meanwhile, the crisis at Optum continues to cast a long shadow. UnitedHealth is still grappling with the fallout from the 2024 ransomware attack on Change Healthcare, its Optum subsidiary that serves as a key data clearinghouse for the U.S. healthcare system. The breach has already cost the company billions and sparked investigations, class-action lawsuits, and heightened regulatory scrutiny.
At the same time, Optum’s core engine—Optum Health’s value-based care division—has seen profitability erode sharply, with margins falling from nearly 8% in 2023 to guided levels of just 3% in 2025. Optum CEO Dr. Patrick Conway noted that 2025 earnings are running about $6.6 billion below expectations, driven by a combination of rising medical costs, higher-acuity patients, and headwinds from changes to the Medicare risk adjustment model. Together, these pressures underscore the severity of the challenges facing Optum.
Optum’s Flywheel Stalls as UNH Prunes and Reprices
UnitedHealth’s turnaround strategy centers on portfolio rationalization—exiting Medicare Advantage plans that cover more than 600,000 members—alongside decisive repricing to reflect higher medical costs and cost-efficiency initiatives such as leveraging AI for claims processing.
The broader message is that a “V-shaped” recovery is unlikely. Optum can no longer be regarded as a perpetual hyper-growth engine; instead, it must be seen as a mature, moderately growing business recalibrated for tougher economic and regulatory conditions.
The self-reinforcing flywheel—members using Optum’s own services to drive incremental growth and profitability—has lost momentum. Management’s decision to exit plans is a clear acknowledgment of these limits, underscoring that growth will need to be managed with greater discipline going forward.
UnitedHealth Trades at a Historical Discount but Peer Premium
With that said, UNH’s valuation likely accounts for these new realities. Its P/E ratio of 15.3x pales in comparison to its 10-year historical average of roughly 22x. On the other hand, UNH still commands a premium valuation compared to its most direct competitors, such as Molina Healthcare (MOH) and Elevance (ELV).
Can UNH be both cheap and expensive at the same time? Yes—and that suggests the stock sits in a kind of valuation limbo, caught between a troubled present and a once-storied past.
Is UnitedHealth a Good Stock to Buy Now?
On Wall Street, UNH earns a Strong Buy consensus rating based on 16 Buy, two Hold, and one Sell ratings in the past three months. UNH’s average stock price target of $328.47 implies a downside potential of 5.5% over the next twelve months.
Did Warren Buffett Buy UNH Stock?
Last month, Warren Buffett’s Berkshire Hathaway (BRK.B) identified a turnaround opportunity in the beleaguered healthcare giant, as the latest SEC filings revealed that Berkshire acquired over 5 million UnitedHealth shares in Q2, valued at nearly $1.6 billion.
UNH’s Valuation Gap May Narrow if Headwinds Persist
Pending October confirmation, UnitedHealth’s 78% Stars result supports bonus and rebate assumptions, easing concerns over 2027 reimbursement levels. Combined with a steadier Optum and reaffirmed full-year guidance, these developments could help rebuild credibility and begin to close UNH’s valuation gap to historical levels.
That said, risks remain significant. Medical costs may continue to run above assumptions, pressuring margins. Ongoing DOJ investigations into Medicare Advantage coding and PBM practices add further uncertainty, while the timeline for Optum Health stabilization is still unclear.
Overall, I maintain a Neutral stance on UNH. Credibility has improved, but execution remains at a low point. Any recovery is likely to be gradual rather than rapid, making patience and close monitoring essential for investors.