UnitedHealth Group announced its third-quarter results on Tuesday, which significantly exceeded market expectations, and raised its full-year profit forecast as the company continues to cope with high healthcare costs while seeing the benefits of its investments in value-oriented healthcare and artificial intelligence begin to materialize.
The largest private insurance company in the United States stated that it expects adjusted earnings per share of at least $20.50 for the fiscal year 2026, which is higher than the previous forecast of $19.50 to $20.
As the company has performed strongly for three consecutive quarters this year, its transformation plan is gaining momentum. UnitedHealth is stabilizing its profit margins by reducing its membership base, exiting unprofitable contracts, and increasing investment in artificial intelligence and value-oriented healthcare. Value-oriented healthcare links the compensation of doctors and institutions to patient health outcomes, quality of care, and cost-effectiveness, rather than paying based on the volume of medical services provided.
In an interview, Chief Financial Officer Wayne DeVeydt stated: "This quarter, you will see that we not only continue to manage the financial aspects of our business in a more streamlined manner, but we are also making significant investments in value-oriented healthcare."
The company's stock price rose by about 3% in pre-market trading.
The following is a comparison of UnitedHealth Group's third-quarter performance with Wall Street's expectations, based on the survey of analysts conducted using LSEG.
- Earnings per share: $4.69 after adjustment, expected to be $4.14
- Revenues: $112.69 billion, expected to be $111.4 billion
The company's net profit for the third quarter was $4.11 billion, or $4.56 per share; in the same period last year, it was $2.35 billion, or $2.59 per share. Excluding items such as business divestitures, reorganizations, and the expected reduction in provisions for unprofitable contracts, UnitedHealth's earnings per share were $4.69.
Revenues decreased from $113.16 billion in the same period last year to $112.69 billion. According to StreetAccount data, both the company's insurance business UnitedHealthcare and its healthcare department Optum exceeded analysts' expectations in terms of operating profits this quarter.
High cost pressures remain.
It is worth noting that UnitedHealth's medical cost ratio in the third quarter was 88.4%, which represents the proportion of medical expenses paid out compared to the premiums collected. StreetAccount data shows that analysts previously expected this ratio to be 89.9%. Generally, a lower ratio indicates that the company collects more premiums than it spends on benefits, thereby resulting in higher profitability.
However, DeVeydt told CNBC that medical costs this quarter “are still higher than historical norms,” a problem that has plagued insurance companies for over the past two years, especially those operating privately managed Medicare Advantage plans.
He said, "I think this is something we should continue to pay attention to. I believe you will see that our medical cost ratio has improved a lot, but I don't want this to cause any misinterpretation in terms of [medical cost trends]."
He stated that the independent dispute resolution process under the "No Surprised Bills Act" ( IDR ) has increased the total medical costs by at least 100 basis points, which is equivalent to 1 percentage point. This federal law came into effect in 2022 with the aim of protecting consumers from unexpected medical bills.
IDR The program allows medical service providers and insurance companies to resolve disputes over payments outside of the network. DeVeydt It indicates that these changes are driving up the company's claims processing costs, which may ultimately be passed on to consumers in the form of higher premiums.
DeVeydt added that the costs of inpatient services and pharmacy medications are still relatively high, especially for the expensive specialty drugs used for cancer and rare diseases.
However, he emphasized that the company's value-oriented healthcare initiatives are helping to control medical costs by directing patients to appropriate healthcare providers and by focusing on preventive care to achieve this goal.
He stated that as of the third quarter, the number of acute inpatient admissions for UnitedHealth members decreased by 15% year-over-year, while the number of inpatient admissions for family medical services increased by 10% year-over-year, indicating that more patients are receiving treatment in an environment with lower costs.
"You'll find that more members have actually ended up in a care environment with lower costs, but more importantly, they've entered the kind of care environment they truly desired," he told CNBC. "So we believe that we have indeed achieved a balance between quality and cost."
UnitedHealth is also launching an artificial intelligence-driven environmental dictation tool to reduce the administrative burden on doctors and free up more time for patient consultations. DeVeydt indicates that appointments arranged by patients themselves, without the assistance of healthcare providers, have increased by 27% year-over-year.
He expects that as these projects expand, by the fourth quarter and by 2027, these measures will have a synergistic effect on medical cost management.
