UnitedHealth Group (UNH), one of the largest insurance and health care services companies in the U.S., has had a tough start to 2025, with the company losing ~40% of its market value so far. However, Warren Buffett’s Berkshire Hathaway (BRK.B) seems to have spotted a turnaround opportunity as the latest SEC filings revealed that Berkshire has scooped up over 5 million UnitedHealth shares in Q2, valued at close to $1.6 billion.
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After deconstructing the bear case for UnitedHealth, I believe the challenges facing the company are mostly transitory and, therefore, temporary. On the other hand, UnitedHealth is gearing up for price increases in 2026, setting the stage for margin expansion. I am Bullish on UnitedHealth as these findings suggest a mismatch between the economic reality for UnitedHealth and its market valuation.
The Bear Case Rests On a Few Pillars
Before laying out the case for my bullish outlook on UnitedHealth, it’s crucial to first examine the bear thesis that has weighed heavily on the stock this year. The central issue is cost control—or rather, the lack of it. UnitedHealth has admitted to missteps in its pricing strategy, resulting in eroded margins. In its Q2 earnings release, management disclosed that medical costs are projected to run $6.5 billion higher than initially expected in 2025, according to TipRanks data. The Medical Care Ratio—representing the share of premiums spent on medical expenses—jumped 430 basis points year-over-year to 89.4%, a stark confirmation of mounting cost pressures.
The Medicare Advantage business, UnitedHealth’s profit engine, reveals an even deeper problem. Management badly underestimated cost trends. As CEO Stephen Hemsley admitted after Q2 results, 2025 plan pricing was set on the assumption of a 5% cost trend—only to be revised up to 7.5%. Looking ahead, 2026 looks worse still, with medical costs expected to spike another 10%.
And the headwinds don’t stop there. UnitedHealth is also grappling with collapsing margins in Optum Health, the looming threat of a DOJ investigation (as reported by The Wall Street Journal), and continued weakness in its commercial insurance segment.
Aggressive Pricing in 2026 May Revive Earnings Growth
My bullish outlook on UnitedHealth is anchored by several factors, with the most critical being the anticipated plan price hikes in 2026. On the Q2 earnings call, management emphasized that its 2026 pricing strategy will prioritize margin recovery.
After underestimating medical costs in both 2024 and 2025, UnitedHealth now expects the Medicare Advantage cost trend to approach 10% next year—paving the way for meaningfully higher premiums compared to the current cycle. The company has also flagged upcoming adjustments to employer-sponsored plan pricing, signaling margin improvement in its commercial segment as well.
The pressure from rising Medicare Advantage costs was already visible in Q2, with UnitedHealthcare’s operating margin shrinking to 2.4% from 5.4% a year earlier. Yet, with aggressive repricing on the horizon, 2026 could mark a sharp rebound in margins—potentially setting the stage for a broader recovery in UNH stock.
UnitedHealth’s Scale Advantages Are Unmatched
Beyond the upcoming pricing adjustments, UnitedHealth’s massive scale—bolstered by the integration of Optum Health—further reinforces my bullish thesis. By the end of Q2, the company had a staggering U.S. membership base of more than 50 million, giving it powerful bargaining leverage in contract negotiations with hospitals and physicians. In total, UNH has put out over 400 million health-adjusted scripts in 2025, and is on course to breach the 1 billion mark by the end of the year.
This scale is challenging to replicate and should allow UnitedHealth to keep costs structurally lower than peers, translating into more substantial returns on equity and, ultimately, premium valuation multiples in the market.
Equally important, the Optum Health integration has created a competitive moat that most pure-play insurers cannot match. While rivals may compete on price, few possess an integrated care delivery platform of this scale. By marrying financing with care delivery, UnitedHealth has positioned itself as a differentiated insurer with access to vast patient data—an asset that can drive smarter pricing decisions and improved healthcare outcomes.
Is UnitedHealth a Buy, Sell, or Hold?
Wall Street analysts have taken a cautious stance on UnitedHealth given the numerous risks weighing on the business this year. Among 22 analysts covering the stock, the average price target stands at $314.55—suggesting the shares are fairly valued at current levels with only 2.6% potential upside over the next twelve months.
Despite no recent price target hikes on Wall Street, UnitedHealth has been attracting several high-profile investing gurus and funds. In addition to Berkshire, Lone Pine Capital, Michael Burry’s Scion Asset Management, Jim Simons-founded Renaissance Technologies, and Eminence Capital added UnitedHealth stock to their portfolios in the second quarter, suggesting the stock is attractively valued.
At a forward P/E of just 18, I also believe that this market leader’s scale and growth potential have been ignored by the market due to short-term challenges.
UNH Investors Prepare for Short-Term Pain and Long-Term Gain
UnitedHealth shares saw a modest lift last week on news of Berkshire Hathaway’s investment, but the stock remains down roughly 40% year-to-date. While the market continues to focus on the company’s near-term headwinds, the outlook for 2026 is far brighter, supported by planned premium hikes that should drive margin recovery.
That said, the looming DOJ investigation has the potential to reshape UnitedHealth’s business profile and warrants close monitoring. Still, I believe the company is well-positioned to navigate regulatory pressures, which underpins my continued Bullish stance.