UnitedHealth Stock

Good morning, everybody. Our presentation today contains forward-looking statements within the meaning of U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of certain of these risks and uncertainties can be found in our reports filed from time to time with the U.S. Securities and Exchange Commission, including the cautionary statements included in our annual reports on Form 10-K and quarterly reports on Form 10-Q. Thank you.

Yes. So thanks, everyone, for joining us this morning for the second day of the conference. Really pleased to start off with UnitedHealthcare. As I'm sure almost goes without saying at this point, United operates an industry-leading managed care plan and a number of services business within its Optum unit. With us from the company, we have Wayne DeVeydt, CFO; Krista Nelson, CEO of OptumHealth; and Ben Eklo, who's the CFO of Optum, and that was Julie from Investor Relations that we heard of to kick us off. So thank you guys very much for being here. Of course, I want to offer you a chance to make any introductory comments, but can also just go right into Q&A, if you prefer.

I'll make some very brief comments. We continue our turnaround. I think everybody has been watching us over the last year as a team. Continue to be optimistic about '26, but probably really more into the velocity that we are seeing going into '27 and into '28 as we start preparing for the multiyear outlook. Nothing has changed from our 2Q earnings call. I would say trajectory of things continue to be positive with Medicare performing better than expected. Caid seems to be performing very much in line and rates seem appropriate that we are receiving and a little bit of pressure on the commercial as we talked about from the IDR process. And then OptumHealth continues to have an incredible turnaround. A lot of wood to still chop, but optimistic about the trajectory that we're on.

Okay. Fantastic. Yes. And to kind of continue on that point, it's been nearly 2 months now since you did report second quarter results. Cost trend is a very front and center issue with everything the industry has gone through over the past couple of years. Can you give us an update on, as you saw some claims development on Q2, how that might have looked? And any initial visibility that you have in Q3 that you might be willing to share as well?

Yes. So what I would say, though, is the trends that we saw happening through Q1, we obviously wanted to see some more development in Q2 to see if those, in fact, were durable. While I won't comment on our Q3 results at this point, I will say that, that durability has not dissipated. And so we continue to see that similar momentum that we saw coming out of Q2 continue into the last 2 months.

Okay. And then you highlighted, obviously, Medicare Advantage as a key source of outperformance in the first half of the year, at least so far. As we think about the drivers of that outperformance, can you maybe speak a little bit to why you're outperforming your Medicare Advantage initial margin targets? And as we think about how you approach that business and guidance for the second half of the year, whether you think there's opportunities for outperformance there if trend remains at the levels that it's been at in the first half?

Yes. So a couple of comments I would make on this. I think probably the most important one was how we repositioned the book coming into this year. And really that positioning in terms of how it impacts us into '27 to '28, we really needed to make some tough decisions around the durability of the products we had, coupled with what we thought were sustainable margins over time. As we had said when we started this year, we thought we would be in the 2% to 4% range, but in the upper half of that range is where we thought we could land the plane this year. And I would say that what we saw through the first half of the year supported that conclusion.

What we continue to see in the second half really at this point now is really anchoring on where we fall out on that upper half at this point. But I would say all trends are pointing in the right direction, which also then gives us a lot more opportunity as we think about '27 and products. And we've rolled those out. We know what we're going to be going in open enrollment with. But as we think about commission strategies, unique investments we can make in Q4 around Stars for our future years, I would say we're positioned well to be able to make those investments.

Yes. And it's a natural pivot to talking a little bit more about 2027. I guess it would be really helpful to understand how did you approach bids for 2027? I guess any way you could contrast that to the way that you approached the bid process for 2026? And then I guess if you started to get some color on competitor position, maybe it's a little bit too early on sort of broker strategy, have you started to form an expectation on what enrollment growth may or may not look like for next year?

Yes. So maybe first on the bids, and I'll ask Krista and Ben to comment a bit as well since they help support the bid process for us on our broader Medicare book, but also, in many ways, support the bid of others. As you think about as we approach this upcoming year, we continue to be very respectful of trend. I think it's one of those items though that you just cannot ignore the surprises we saw back in 2025. That being said, we -- as many folks know, we had an additional point of pricing for what at the time were a lot of unknowns, right? There were -- at the time, there were tariffs that were pushed through. Obviously, those subsequently got overturned. There was a lot of uncertainty around AI and how that may impact the businesses and the ability for us to adapt quickly to that. But a lot of that has ultimately stabilized.

And so the way I would say it is we think we're going to be very competitive in terms of our pricing for next year. We think our benefits will be competitive. A lot of the medicine that we took in benefit redesign was coming into the '26 year. And we saw that in our CAHPS scores when you remove benefits and change benefits, it will impact your CAHPS scores. But ultimately, we think it was the right decision. We still have a few markets where we're rightsizing some of the products, but I think we'll be well positioned for 2027. I don't know, Ben or Krista, anything you want to add from the Optum side?

Yes. I would just say from an OptumHealth perspective, we've talked a little bit about this in the past, where we entered the year really working with all of our payers on a strategic plan to ensure that we're well positioned for 2027, whether that's benefit design, benefit construct, a PPO, HMO, which markets, what part of our network are we taking risk on, et cetera. And so I would say those conversations have been extremely productive, super helpful. And I think the payers that we're working with are deeply committed to value-based care and are making the adjustments in partnership with us to make sure that we're well positioned for '27.

Okay. That's great. And then to come back to Star ratings, it's obviously been a more volatile input for the industry over recent years. And then obviously, there's been a lot of litigation that's added to the complexity. I guess how is the company thinking about managing this key driver? I guess how do you think about the range of potential outcomes and how that plays into the achievement of the company's financial targets?

So as you think about Stars, and it's a constant moving target in many ways, we approach it with really 3 lenses. The first lens is purely operationally, which is what are we doing that's completely in our care and custody operationally. So as you think about coming into this year, we knew what our Stars were for 2026. We knew what we would have to do to improve on those operational items to be able to hold serve going into '28. And those items, we're very happy with. So we improved on all 4 of our pharmacy metrics.

We improved on 10 of our 12 HEDIS metrics, the other 2 held serve. But we went backwards on CAHPS, and we knew that we would do that because of some of the benefit changes we made. But that's bucket 1, which is it's in your care and custody, you aggressively manage your operations, you drive towards the high Star ratings. Bucket 2, though, is you don't really know what cut points are going to be. And for that reason, you have to actually take a proactive approach towards your administrative cost structures, and really your sales approach. And so we are spending a lot of energy today, positioning ourselves for not just '27, but '28 and '29 around G&A initiatives.

And then the last bucket is really it's a legislative environment where the rules will change constantly, but it's also a legal environment where the interpretation of those rules will change constantly. And that's an option that's out there, but it's not one that necessarily we are pursuing at this stage. To us, we want to work with the administration. We want to develop rules that work for everyone. But I would say, in general, that's how we tackle it, and we're pleased with our execution on the first bucket and the execution to date on the second bucket.

Great. And then I think just broadly, there's an acknowledgment that at some point, like, there will be changes needed to the Stars program. I guess as you're engaged in those discussions, like how is the company philosophically thinking about what could make this a better and likely more stable program moving forward?

Probably the biggest thing I would add is the administration, and I would say both sides of the aisle, very much recognize that value-based care is really the wave of the future, right? And that is really what Stars was trying to accomplish, right? It was trying to accomplish how do we actually measure improvement in individual's health, how do we measure compliance with the proper protocols around that health. And so the question is, to me, it's not a question of if value-based care becomes a bigger component of how Stars are evaluated or a new measurement. It is just a question of when. And I would say the dialogue would continue to enforce the value-based care model. But Krista, anything you'd like to add?

Just to reinforce exactly what you just said. I think what we're hearing is folks in this administration are looking to see how we can expand value-based care to more people and make sure it's expanding outside of Medicare Advantage and even getting into traditional Medicare. And things like the Star program give us a lot of good insight into how to drive improved outcomes, but it also gives us insight on maybe where there's more administrative waste or burden into the system. And so we're bringing some of those ideas to make sure that we're kind of creating a sustainable program that allows seniors to have really comprehensive care, strong benefits and stability in the marketplace. And I think whether it's traditional Medicare or other programs informing Stars, I mean, there's a lot of insight going into the program and how to design it for the future.

Okay. That's great. And maybe then we'll switch to Medicaid. And you came into the year expecting margins negative 1.1% to negative 1.7%. Obviously, it sounds like you're tracking to that. Maybe we could first say, is there any bias within the range after you've seen the first half of the year in the early part of Q3? And then secondarily, as we think about the components that make up that margin, how has the rate side of the equation developed versus your initial expectations? And has there been any adjustment to the cost side of your expectations on the other end?

Yes. So maybe to unpack that a bit, when you think about Medicaid, there was really 2 primary concerns. The majority of it, though, was around the rates we were provided, right? So it really was a funding issue around Medicaid, less than it was a trend issue. But there was a trend item that we saw specifically around behavioral health as well that really spiked back in '25. And the question was, what are some of the things we can do to either manage the affordability or work with states on modifying their benefit programs that they have established.

So relative to those 2 components, I would say we were really looking for rate increases in the 6% to 7% kind of on a blended basis across the book. Those have materialized very much as we would have expected. And where there have been off-cycle increases, those have materialized as expected as well. And of course, it's much easier to have that discussion when you can show the states the underfunding that's currently occurring and the impact on their own programs. But all in all, I would say that, that was a trough year on the rates at least for this moment, and it appears that we're getting the right dialogue going into '27.

As you think about trend, trend really wasn't spiking, but the question was what we saw in behavior, would that continue? And then more importantly, would that create a bigger halo effect on trend. We have not seen the halo effect on trend. And if anything, we've actually been able to mitigate some of the trend on the behavioral health. So I would say both items are performing at expectations. And that's super relevant because if you think about our range that we provided of losing 1% to 1.7%, that assumed a range of outcomes on a continuum of both of those. The fact that both of those are at expectations really pushes us to the low end of that range, which is why, again, we feel this will be a trough year on Medicaid margins and then moving back to breakeven or profitability going into next year.

Just because we're dealing with negative percentages here, tracking closer to the 1.1% or tracking closer to the 1.7%?

1.1%. So the 1.0%.

Got it. Okay. And then as you think about 2027, obviously, you've been confident a number of times that this does represent a trough year for margins. As you think about the positives going into next year for Medicaid, which would be rate catch-up and the things that you're working on in terms of cost of care initiatives, but also the negatives like things like potential incremental acuity pressure and potential for trend to be continued to be under forecasted. I guess how are you thinking about the net of those things to get to that level of confidence on the trough margin?

So there's a combination of things. I think clearly, the OB3 work requirements and how those will impact states, there's a lot of uncertainty, which lends itself to a very fair question, which is why do you get some degree of confidence. That being said, we have been able to work with states not just on the rate increases needed, but really spend a lot more time on the education about how the risk pools are being impacted. And states have been very open to understanding those risk pool impacts and have been very open to a lot of benefit design changes. And the more that we can work with them on even specific design changes, we know where the pressure points are when it comes to trend.

And so there's clearly -- there's utilization, but there's also benefit design that can impact those pressure points. And so we've had a lot of good dialogue, I would say, good contractual understanding around what needs to happen. And a lot of those benefit changes are happening. And we're going into the new year knowing that the states have agreed to some of these changes.

And then couple that with, in many cases, where we didn't get the full rate relief that we needed within a state, but there's an understanding that if the trends were to persist that, that rate relief would then be trued up as we got into the new year. So I do think that, that's an important item. And our state partners are generally all very good partners. They do want to get to the right answer, and they understand the importance of sustainability of the programs. And the last thing they want is volatility of individuals pulling in and out of markets. But unfortunately, it is something that we have to do occasionally as do our peers.

Okay. And then I know, obviously, costs are a big focus across the entire company. But as you think about the components of generating better Medicaid margin in 2027, I guess how do you think about kind of what you need to happen on the MLR line versus what you can drive purely through G&A?

So you always plan for the worst and then you try to execute to a better outcome. So we do believe we should be able to positively impact the MLR in and of itself next year. And we've seen some of that -- some of our own activities this year are having positive momentum on that. That being said, you should assume that the state budget pressures are going to persist and you should prepare by taking out the necessary G&A cost to support the programs that are there.

So we have a multiyear program. It started this year. We're not talking about hundreds of millions. We're talking about billions that we plan to take out of the system. And we're in a very unique world where AI becomes an incredibly positive catalyst to remove a lot of administrative inefficiencies and really provide for those initiatives to either, one, serve as a safeguard against margins; or two, provide more flexibility in how we drive top line growth over time. So I don't know, Ben, you're leading kind of the broad Optum initiatives around G&A. Anything you would want to share around the momentum and where we're at and kind of how we're viewing it?

Yes. Yes. As Wayne said, we're on a multiyear journey to really get after what the cost structure of this organization looks like and modernize it, technology-enabled, AI-enabled kind of future infrastructure of Optum. And so we're working through things like call and claim where we can automate and eliminate back office and positions that don't create the best experience for our consumers. We're looking at automating approvals, clinical documentation, leveraging technology in the places where there's just a lot of time and energy, manual energy that's being used. And so we're digging in there.

We're using it in many of our OptumHealth workflows in our clinics, ambient listening, getting -- freeing up time for recording and documentation for our physicians so that they have the opportunity to spend more time with patients doing the things that they enjoy. So working through many different angles in our OptumInsight space, some of our legacy programs there on payment integrity, risk and quality, RCM, looking into ways that we can more tech-enable those businesses to automate and find those efficiencies.

And then really partnering across the organization in many of our corporate functions. So finance and accounting, marketing, communications, HR, finding different ways for many of those functions for us to use technology to largely automate a lot of the work that gets done today. And some of the momentum we have early on in some of our legal and HR and marketing functions and then kind of a fast follow-up. Wayne and I, in partnership with some of our other folks are pushing to get finance to kind of a fully automated function by the end of next year.

So we're working across the organization in many instances to try and find those opportunities where we can take cost out, make it more efficient, make it a better experience and let us operate kind of how we believe we should in the future.

Okay. Great. And then a couple of commercial questions, and then maybe we'll switch over to Optum after that. Obviously, IDR was one of the issues that came up with the second quarter. And I think you provided some framing that it's added like 100 basis points of cost. And I think that's off of a base of maybe 50 basis points in 2025.

So I think on one hand, like obviously, this is a clear problem for the system that needs to get addressed at some point, but it doesn't seem obvious that it's truly incremental to what the cost trend was if it's 50 basis points in the base and 50 basis points incremental this year. So maybe just as you could step back a little bit and help us understand maybe a better framing for that and how to think about why IDR is holding up commercial margin improvement this year?

Yes. So 2 things to anchor on. First and foremost, we held serve on our margins year-over-year, but our goal was to actually expand our margins coming into this year, into '26, and that did not happen. And again, the IDR was roughly 1 point on it. But it's also fair to say that the broader risk pools are changing, at least versus our expectations and our assumptions. And that was part of it. And as we continue to see more individuals move to self-insured, as we continue to see the residual impact of all the legislative changes, whether it be what OB3 did or individuals coming off the Medicaid ranks and moving into the exchanges, it's having a very difficult to predict effect on the broader commercial market.

Again, that being said, we held serve on margins this year, but our expectations for growth did not come to light. We are performing better than expected, though, on the public exchanges. But as a reminder, we are refunding and rebating back this year as a commitment we made to Congress that we understand the affordability issues that are impacting the markets. And so we said for this year, we would refund those. Had you included those, I think we would be more balanced around the impact on commercial. But by pulling that out, you look at it as more of that like true small group, large group market that we're seeing that pressure, but not as much on the public exchange side.

Okay. Yes. And then maybe just kind of take us through how you're going to deal with this and the pace of recovery that might now be expected in the current environment. And I guess, specifically, I guess, how you're thinking about just the core cost trend, the IDR pressure incrementally and potential for continued maybe degradation of the risk pool.

Yes. So the one benefit with commercial is you have chances to reprice the book throughout the year. And so we've already started many of those initiatives in Q2, Q3 and as we move into Q4. And then you'll still have a relatively decent renewal cycle in January. But that process of pricing for where we think trend is going to be kind of where the puck is going to be, has already started. The one thing I would emphasize though, is IDR we're pricing for what we're seeing out there, but that's going to require a change from Congress around what's happening.

And so separate from that is we are putting a lot of sunlight on the IDR process. It's the greatest disinfectant is sunlight. And the idea is let's shine a lot more light on this. This is not a rampant industry item where every provider is doing this, right? This is a handful of individual companies, roughly 5 that make up 60% of all the IDR, right? It is a mechanism that they figured out an opportunity to take advantage of a legislative loophole that was not created for the purposes that's being utilized.

And so we're sharing that data with Congress, and we want Congress to understand what these companies are doing and why we think there should be a legislative solution. So -- but in the interim, until that happens, we have to price for it. And that unfortunately puts more pressure on affordability for the consumer.

And you mentioned that, obviously, you're not recording the exchange profitability this year, but it's running better than expected. Maybe characterize what you've seen so far in the exchanges relative to the initial expectations that you had. And then maybe speak for a minute just about how you're approaching next year in terms of your pricing strategy and maybe expectation around like what the book size could potentially look like?

Yes. I would say the membership was much more durable than I think we would have anticipated with the initial increases that were put forward on the public exchanges. And so from that perspective, we found not only a greater degree of stickiness within our membership base, but the underlying medical trends were very much aligned with our pricing, meaning that we were able to expand profit margins. Remember, though, this is a low single-digit margin business, right? So we're not talking about 1 moving to 5. You're talking about moving 1 point, 1.5 points.

But I do think this is a particular business that over time is going to have to trend to that level of profitability, right? This is a government-supported program as you think about Medicaid being a 2% margin business over time, you think about Medicare being 2% to 4% margin business. Similarly, I think you think of public exchanges this way. And so I would say both the stickiness, durability, but also the underlying trends seem to perform well, especially with all the unknowns that were happening with those that were being disenrolled.

Okay. Great. Maybe this is a good time then to kind of switch over to the Optum discussion. I guess, first, just kind of address this off the top. There's a news article last night discussing sale of some assets like value-based care assets in Florida to private equity. I think this is something the company has alluded to previously. Could you just help us think about strategic rationale and what makes this the right decision and what it means or doesn't mean for the rest of the portfolio?

Yes, I'll let Krista comment. I'll start by just indicating that it's really old news. We've had this partnership since 2011. And it's an opportunity for us to really accelerate investments in different markets, but maybe talk a little bit about what we're doing there.

Yes. I would just point to 2 things. First, like Wayne mentioned, in addition to having a partner for a long time, we've also talked quite a bit about some of the restructuring in the fourth quarter that we intended to do this year, and that was one of those transactions. And second, on the strategic side, we're not exiting Florida. In fact, this is actually an opportunity to make the right investments and be well positioned for growth with a partner where we still have ownership and we still have incentive to ensure that we can kind of position that market for growth in the future.

And so I think strategically that this is planned. We -- obviously, we're making a number of those same strategic investments in a handful of other markets. And so Florida was an opportunity where we had a partner, and it was a great way to ensure we're making the right investment.

Great. And then obviously, the OptumHealth outperformance in the first half has been pretty notable. I guess how much of this would you characterize as coming just kind of directly transferable through improved MA underwriting and outperformance there versus other actions that you've taken? And I guess, how do we think about the second half in terms of opportunities for outperformance and maybe also opportunities for reinvestment, too?

Yes. First, I would just say, really pleased with the execution and the outcomes that we're seeing in the first half of the year. And second, really just the pacing of the work of the turnaround. Really pleased with the progress. The vast majority of our outperformance is truly driven by clinical management and operating execution. We talk a lot about clinical excellence and operating excellence inside this business. I've given some examples of things that -- programs that we've launched that we can directly tie back to the outperformance.

And so again, that's why we feel confident saying the vast majority of the actions that we've taken to improve, whether that's transitions of care, clinical management, care coordination, support for our patients. We're seeing it in inpatient. We're seeing it in lower readmissions. We're seeing it in lower SNF admissions, length of stay. All of our clinical metrics are really performing better than we expected. So it's kind of a first bucket driving it.

Second, on the operating side, 2 things, really, operating cost management has been a really big theme for OptumHealth this year. I would say, driving significantly more cost savings in the business than we've done in the past. That's going to be a theme that continues in the second half of the year and also into next year and years beyond. But then truly just operating performance, things like physician productivity, scheduling, how we're creating more access in the system. We've talked about expanding patient-facing hours by over 12% or 200,000 hours in the first half of the year. Those operating initiatives are driving better performance in the business. And again, we will continue.

All of those efforts are going to be a significant contributor to second half of the year, but also going to contribute to margin expansion inside '27 and again, inside 2028 for this business. So again, pleased with the performance pacing ahead of schedule, and we're going to continue to focus on those elements because those also will help us drive investment in the business in the second half of the year.

Okay. And then as we think about the key levers that we need to believe in terms of you to drive up margins to targeted levels, it sounds like, hopefully, by 2028, still the right way to think about it. I guess what are the key levers there? Another question would be where does some of the recontracting efforts with external payers stand? And any kind of broad thoughts about when this part of the business might be able to return to more of the top line growth we've seen historically?

Yes. So first, I'll just start out with some of the payer work. We spent the first half of the year, like I mentioned, working with all of our payers to make sure we're positioned, managing the loss contracts that we've talked about. I would say, really pleased with the progress there, where the vast majority of all of our addressable contracts for '27 have been addressed and/or mitigated. So feeling really good about now we're heading into the planning cycle, right, getting ready for open enrollment and kind of getting ready for 2027.

You asked about some of the levers. So we still had some work to do around some of our benefit construct, around some of our rates, around even just some of the contract dynamics, what we're taking risk for, what we're not. And so I would say that's been addressed in some of that contracting, but that is going to be a contributing lever to 2027 as you think about maybe some additional PPO reductions as an example that will help improve performance for 2027.

Another lever for 2027 in addition to what I mentioned around clinical and operating excellence is just how we take our performance standards that we drive inside our employed practices out to our network. OptumHealth was really on a kind of a growth trajectory in the past few years. And I wouldn't -- I would say there was an opportunity around just network performance management. What are the tools we're bringing to our network, how are we performance managing, how we're making sure quality, we're managing costs, but we're managing affordability inside our network. And those are things that are going to expand inside '27 to drive continued performance improvement.

So again, as I think about '27 and '28, it's that core performance. There's new strategic initiatives that we'll be launching to ensure that we're driving affordability in the system, that we're improving quality, that we're in a position to expand margin by points inside '27. And then that momentum continues inside '28. Top line growth is probably not going to be the focus next year. Really, we're talking about earnings growth kind of pacing appropriately towards our 6% to 8% margin target. But 2027 is also positioning us really well for growth inside '28.

Okay. Great. And then last year, as part of the kind of the broader update on the subcomponents of OptumHealth, the company noted that the fee-for-service primary care and multi-specialty practices were losing, I think, hundreds of millions of dollars. I guess, first, has there been much change in kind of the operations and performance there? And what is assumed in those businesses as part of the financial targets going forward?

Yes. Yes. So fee-for-service was an opportunity for us. I think maybe we were very focused on appropriately performing in value-based care. And I would say maybe took some of the focus away from fee-for-service. But like I've mentioned before, fee-for-service is actually a core contributor to our value-based care agenda, our integrated value-based care system. All of our fee-for-service businesses are a lower total cost of care setting. They still focus on quality. You still get the benefit of a value-based care model even when the payment model is fee-for-service.

But we did have to do some things to really make sure that we are driving fee-for-service performance improvement, whether that's physician compensation, some of the scheduling enhancements I talked about, making sure we're improving access for our patients, whether it's some of our net collections and RCM improvement, coding accuracy, things like that. I would say we're making really good progress on that this year, cost management being another lever as well, but still more work to do as I think about our fee-for-service turnaround, kind of pacing along the same lines as the value-based care turnaround, maybe getting there a little bit faster in fee-for-service just because it's a little bit easier to pull some of those levers around basic blocking and tackling, but still more work and more opportunity as I think about heading into next year.

In terms of just expectation setting, I would say all of our fee-for-service businesses are performing in line with our expectations. And in fact, maybe, I would say, slightly favorable in some cases where we're seeing really good year-over-year growth, really good mix and acuity inside those practices.

Okay. Great. And then maybe to ask on OptumInsight, maybe one for Ben. I guess as you think about reformatting, I guess, maybe some of the products to be truly relevant in the AI era that we're in, I guess what are the key milestones there? And I guess as you think about the financial profile of this business over time, like it seems like ability to impact cost structure might be among the highest of any of the businesses with inside the company. I guess how do you think about how maybe the margin profile of this business could evolve over the next several years?

Yes. Yes. So maybe on the second part of your question first. Today, we're at an 18% -- kind of an 18% to 22% margin range in OptumInsight. The business is performing in line with our expectations this year, and we expect that we'll finish the year closer to the top end of that range in 2026. Importantly, inside of '26, it continues to be an investment and innovation year for OptumInsight. And so we are -- as we're modernizing some of these solutions that OptumInsight has had a long-standing place in the market with for majority of providers, majority of payers. At the same time, we're innovating on what the future of those products look like.

So to your question on what are those key milestones, we are in the process of building, developing and selling a lot of these new products. And so kind of the runway to get to those sales at times can be long because there's just so much change in the marketplace right now and so many different products and opportunities, and so we're working to get those kind of core tenets to these new models and these new products that we sell. And we have a handful of those, and we're seeing good progress in the marketplace. But in many of those instances, the sales cycle does take a little more time.

But I think as you see us land some of these, then they rapidly get deployed in the marketplace. And so I think those are the milestones you'll see as you may have a product like Optum Real or Crimson or Optum AI, where you've heard of it, but there's not -- those are the things that are gaining momentum right now. And I think you're going to start to hear a lot more about those as we pace into 2027 and in the future years. And at the same time, we're innovating, and I'm sure there will be products that we're in the process of developing right now. The good news is we have a very good partner in UnitedHealthcare that we are working closely with on a lot of these products. And in most cases, they are using them, deploying them before we even bring them to market. So we have an opportunity to test quickly and kind of learn and fail if we need to, to get those to market.

Okay. Great. Maybe just the last question then on capital deployment. And as the company is increasingly able to deploy capital again over the next couple of years, I guess what should we think about as the key priorities and maybe how to contrast that against the capital deployment profile of the company that we've all kind of seen over the past 15, 20 years?

Yes. I think you'll see a similar approach to our historical deployment of capital. I think you should anticipate -- our first goal was to get our debt to cap much closer to the 40% range. If you go back to last year, at this time, we were closer to 45%. We should be tapping on 40% by Q4 of this year. So we've been aggressively paying down our debt and growing our earnings, which has helped with the debt to cap. That being said, that now allows us the flexibility to get back into the market in a much more aggressive way.

When we started this year, we had anticipated deploying about $2.5 billion of capital for buybacks. We've now said we'll do at least $5 billion this year. And that's relevant because we're doing that while achieving our debt-to-cap goals. We did recently raise our dividend. So as you think about the next 5 years, in my mind, we're going to have a balanced return of capital approach again. We would expect to continue to raise our dividend. We would expect to deploy buyback at a much more aggressive pace.

And we would expect to be reengaged in the acquisition space as we have historically been, albeit a lot more focused on what we think are the big growth drivers over time. We think value-based care is a massive opportunity for us, and we think these OptumInsight innovations are a massive one. And that's where our capital will be pursued.

Okay. Well, fantastic. I think that's all we have time for. So thank you so much for being here.

Great. Thanks.

Thank you.

Good morning, and welcome to the UnitedHealth Group Second Quarter 2026 Earnings Conference Call. A question-and-answer session will follow UnitedHealth Group's prepared remarks. As a reminder, this call is being recorded.

Here are some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings.

This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on the financial and earnings reports section of the company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated July 16, 2026, which may be accessed from the Investor Relations page of the company's website.

I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.

Thank you. Good morning, everyone, and thank you for joining us. Our second quarter results and updated full year 2026 outlook demonstrate continuing progress toward delivering more consistent and dependable performance. They are a sign of stronger broad-based performance disciplines taking hold in each of our businesses and a restless desire to drive mission-aligned change across the enterprise and advance our social impact.

UnitedHealthcare has improved performance in its Medicare businesses through thoughtful benefit planning and design, all while remaining respectful of persistently elevated medical costs. Our Medicaid business is in line with expectations as we continue to work with states on ensuring appropriate rates. Our commercial benefits business, consistent with the broader and more diverse commercial market it serves, continues to experience higher-than-expected cost trends due to factors Tim Noel will discuss shortly.

At Optum, we're seeing building momentum from Optum Health as the business recenters back to its integrated value-based care delivery model. This resulted in another quarter of improved care management and greater operating discipline. OptumRx continues to perform to plan as transparency initiatives we announced early this year resonate well in the marketplace. Optum Insight also on plan remains on a multiyear path of reinvestment and innovation as we bring modern, intelligent technologies and services the areas of various need in the health system. We believe Optum Insight is exceptionally well positioned to help modernize and simplify the health system as it brings AI-enabled tools and services to market.

Across the enterprise, we're focused on serving consumers and care providers in ways that are reliable, affordable and transparent. That requires us to pay close attention to areas where the system isn't working well enough. Areas including care approvals, accuracy of information and speed of response, access and scheduling, digital services, care path navigation and more. We are committed to making the health system work better for all stakeholders by simplifying processes, by being clear more consistent and faster in the experience we offer and by redesigning and modernizing that experience altogether.

AI technology is helping us move faster. We're using it to improve service interactions, reduce administrative burden and support better decision-making, always in service of improved experiences and outcomes for both patients and care providers. UnitedHealth Group has a long history of evolving to meet the needs of a constantly changing U.S. health system. That evolution today includes a tech forward view actively and appropriately embracing an AI paradigm for our businesses. A management team with skills and vision to help in building a more advanced health system and an ever-evolving organizational structure and culture aligned to that system.

Our operating structure today broadly reflects a set of highly regulated benefit businesses and a complementary set of products and services for patients, care providers and customers. We will continue to look to build and evolve ahead of the health system itself. We're making solid early progress both in how we better approach those we serve and in our results. We have much more work ahead and need to continue to get better by focusing what matters most with solid management and execution disciplines aligned to our mission to better serve people and the health system itself.

With that, I'll turn it over to Tim Noel.

Thanks, Steve. The pricing benefit design and market actions we've taken over the past year have been central in supporting our second quarter results and improved full year outlook. As you have seen, UnitedHealthcare's overall performance in the second quarter exceeded expectations, driven by better results in Medicare Advantage, while commercial benefits remain pressured.

I'll start with medical costs. Through the first half of the year, we are seeing divergence within our portfolio. Medical cost trends in Medicare are still running well above historical levels, but below our expectations so far in 2026. The primary reason for trending below our expectations in Medicare is our own initiatives, including benefit design, care management models and network curation.

Other factors have an influence as well, including prior year development, a more favorable respiratory season and weather patterns. We expect the 2026 Medicare medical cost trend to come in below our initial estimate of around 10%. Commercial costs are stubbornly high, rising above expectations, which we believe is consistent with what is being experienced across the sector.

Turning to the overall performance of our individual benefit offerings. Medicare delivered a strong second quarter. Membership retention was better than previously anticipated. We now expect full year Medicare Advantage enrollment to decline by approximately $1.1 million and Medicare margins to finish 2026, above 3%.

Looking to our 2027 bids, our benefit planning remains disciplined and grounded in the current trend environment. We will continue to support program and margin stability through actions, including benefit adjustments and selective changes in market participation. In Medicaid, overall performance during the quarter, including cost trend was broadly in line with expectations. We are beginning to see early signs of improvement from initiatives, including those targeting elevated behavioral health cost trends, but we expect Medicaid margins to remain pressured for 2026.

Our focus is on closing the gap between lagging reimbursement rates and underlying medical cost trends, while continuing to partner closely with states to support the long-term sustainability of Medicaid benefits and support them in identifying and reducing fraud, waste and abuse. Within our commercial offerings, as I noted, we are not yet seeing evidence of cost trend moderation. In fact, it is the opposite with medical cost trend modestly above 11% level we previously saw.

The primary drivers of pressure from the independent resolution process under the No Surprises Act which applies only to commercial plans and more aggressive billing practices among providers, especially higher service and coding intensity and higher cost per encounter that result from the more fee-for-service orientation of commercial plans. At this distance, commercial margin recovery will remain a focus area longer than originally anticipated.

Returning to UnitedHealthcare as a whole. We are confident in being able to deliver meaningful earnings growth in 2026 and into 2027. We with the reinvestments we are making in the business to build a stronger, more durable foundation for 2027 and beyond. Of equal, if not more importance, we remain intent on modernizing essential health care experiences to improve how consumers and care providers experience the health system. For example, in the quarter, we committed to eliminating by the end of this year, 30% of prior authorization volume and nearly 2/3 of prior authorization requirements for pediatric care.

We continue to take concrete steps to reduce complexity and increase speed by further simplifying prior authorization, increasing consumer responsive digital experiences providing greater support to rural hospitals and care providers, offering more consumer-centered product innovation and much more. AI is both an enabler and accelerant to this effort. We're early in this work, but clearly on the path to improve the health care experience and strengthen relationships with our stakeholders, starting with consumers and care providers. And we're confident these efforts will bolster United Healthcare's long-term performance and market position.

And now let me hand it to Patrick Conway.

Thanks, Tim. As Steve noted, we are seeing positive momentum across Optum, with all 3 business segments performing in line or ahead of plan through the first half of the year. OptumHealth is intently focused on improving its clinical care and operational experience to better serve the 20 million people we care for through primary and specialist care, ambulatory surgery and home health.

Over the last year, we have made significant changes in how we operate this business locally and nationally and are seeing the initial benefits of this approach. We are steadfast in our intent to optimize an integrated value-based care system that benefits patients, care providers and taxpayers.

On the clinical side, we are advancing approaches that better support care providers and drive measurable improvements to patient care at lower costs. I'll offer a few examples. First, enhanced support for patients during key transitions of care has resulted in approximately 10% reduction in hospitalization since implementation late last year in the Western and Southern regions of OptumHealth.

Second, home health initiatives to better support patients as they return home where they can be managed more comfortably and effectively have reduced readmissions. In pilots, the effort has driven a more than 20% improvement in timely care delivery alongside reductions in acute care utilization and shorter skilled nursing facility stays.

And third, in rural health we've expanded access to care by integrating house calls and home-based care capabilities, coupled with treat in-place offerings for patients with complex chronic and behavioral health conditions. Today, OptumHealth reaches nearly 90% of U.S. counties and conducts approximately 2.5 million rural patient home visits annually. We will expand these programs across our OptumHealth footprint by the end of 2026.

On the operational side of Optum Health, we have established a clear regional and national management focus. This gives us greater and more timely visibility into performance, driving consistent, best-in-class standards across the portfolio and deploying technologies to support clinicians and the important work they do. There is real progress on the rollout of AI-based ambient listening capabilities available to 70% of our employed providers today and on track to exceed 90% by year-end. Collectively, these actions are yielding tangible results.

Patient experience in our care delivery sites is up approximately 5% year-over-year, and patient access has expanded by nearly 200,000 and more patient-facing hours. We are in the early stages of these efforts. Optum Health will build upon this foundation with additional investments in clinical workflow improvements and network performance. more deeply embedding AI and automation to further improve operational performance and clinician experience.

Additionally, we entered the 2027 benefit planning season very differently than years past starting with much earlier proactive collaboration with all our payer partners. This will translate to greater care coordination for patients while more appropriate aligning rates and risk. As our plans and initiatives begin to mature and scale with disciplined execution, we expect margins to continue to steadily improve.

Turning to Optum Rx. For a few years now, we have been leading an industry-wide shift towards transparency and fee-based services, where we are delivering affordability and better outcomes regardless of pricing structure. That's why we continue to win new customers and retain existing ones with retention rates in the high 90s. In May, we announced a new pharmacy care approach based on a monthly per member fees with full PBM and GPO fee transparency and enhanced consumer tools.

Client feedback has been positive and focused on how greater transparency and clinical alignment can address trend challenges shifting the conversation to affordable health outcomes versus economic guarantees. This all builds on our industry-leading commitment last year to pass through 100% of manufacturer rebates to customers by the end of 2027. We are well on our way as we expect to end 2026 with more than 95% of clients on 100% pass-through.

Moving to Optum Insight. AI-enabled approaches continue to gain traction as more payer and provider customers seek differentiated capabilities to drive better performance. The emerging suite of products include solutions such as AI-enabled coating, real-time payer and provider interfaces and clinical quality and safety support. These products are driving real impact for customers, making health care simpler, faster, better and more affordable.

For example, Value Connect is an AI-driven insights platform, integrated into provider workflows and electronic health records to improve value-based care performance. Early client results include a 17% reduction in pharmacy costs. Bringing this all together, halfway through the year, we have made steady progress in each of our Optum businesses and we'll continue to find ways to better serve patients, providers and customers.

I'll now turn it over to Wayne DeVeydt.

Thank you, Patrick, and good morning, everyone. I will briefly review second quarter results then discuss expectations for the remainder of the year as we refresh our 2026 guidance. Overall, the quarter and full year outlook reflect improved performance across our businesses with notable improvements in UnitedHealthcare and Optum Health.

UnitedHealth Group reported adjusted earnings per share of $6.38 compared to $4.08 in the prior year. Total revenues were $112 billion largely consistent with the prior year, while operating earnings of $8 billion grew 55% year-over-year. This improvement reflects product and portfolio actions taken over the past 12 months along with more focused and consistent management disciplines.

Turning to medical costs. Our reported medical care ratio of 86.7% includes $860 million of net favorable prior period medical development, the majority of which is in year development. This compares to 89.4% in 2Q 2025. Days claims payable was 47 days, up approximately 2.5 days from a year ago. The operating cost ratio was 12.7% for the quarter compared to 12.3% a year ago, as we continue to focus on operating discipline, while making targeted investments across technology, AI, care delivery enhancements, customer experience and advance in healthier communities through the United Health Foundation.

Moving to cash flows on our balance sheet. Operating cash flows in the quarter were approximately $11 billion or 1.9x net income, reflecting timing of substantial government payments and strong earnings. This provides capital to strengthen the balance sheet, invest in growth and return value to shareholders. Through mid-July, we have deployed $4 billion for repurchases of 11.4 million shares. We now expect to complete total share repurchases of at least $5 billion in 2026 compared to initial guidance of $2.5 billion. During the quarter, we returned $2.1 billion to shareholders through our dividend which our Board increased to $9.28 per share on an annualized basis. And lastly, on July 2, we successfully closed the previously announced combination with Alegeus.

Our debt-to-capital ratio was 41.2% at the end of the quarter compared to 44.1% 1 year ago and 170 basis point sequential improvement from the first quarter of this year. We remain on track to reduce our debt-to-capital ratio to approximately 40% by the end of 2026. As you saw earlier this morning, we have updated our full year 2026 guidance to reflect performance through the first half of the year and a more mature understanding of expected membership mix and utilization patterns for the remaining 6 months.

We continue to be respectful of medical trend and we believe this refreshed outlook appropriately balances risk and investments with durable run rate earnings. A few areas of this outlook to highlight. We're providing new adjusted earnings per share guidance range of $19.50 to $20 with slightly more earnings in 3Q relative to 4Q. We are increasing the full year operating earnings outlook for UnitedHealthcare to at least $12 billion and for Optum Health to at least $2.2 billion. These changes reflect operational improvement underway across the enterprise.

We now expect a full year medical care ratio of 88.1%, plus or minus 25 basis points. We expect the operating cost ratio to come in at the higher end of our previously discussed range as a result of investments in our people, communities and AI. The overall earnings cadence for the year remains consistent with prior expectations. UnitedHealthcare earnings continue to be weighted approximately 75% to the first half of the year.

Similarly, we expect nearly all of Optum Health earnings to be recognized in the first half with modest profit in 3Q and offset by modest losses in the fourth quarter due to the seasonality of the risk-based businesses. In contrast, Optum Insight and Optum Rx remain more heavily weighted towards the second half of the year. with each expected to generate approximately 55% of their full year earnings during the back half as client implementations, growth investments and normal business seasonality progressed through the year. So overall, we're seeing a 2/3, 1/3 first half to back half next.

Steve, back to you.

Thanks, Wayne. Over the last few quarters, this enterprise has undertaken a broad-based effort to improve how consumers and care providers experience the health system, while addressing the chronic cost trend issues driving the everyday challenges of access, affordability and complexity. Our press release this morning has a sampling of these initiatives. Our efforts focus on essential themes: affordability, transparency, modernization, simplicity and convenience.

As the U.S. health system continues to evolve, we will evolve our approaches and our businesses as a scaled and diverse enterprise driving integrated value-based care anchored in the first principles of the right care at the right time and in the right setting. A system where incentives are aligned to those first principles and the better health and the better cost trends that drive. Value-based care approaches are a key component of the effort to make health care more affordable by bending the cost trend by better aligning incentives for both consumers and care providers.

Artificial intelligence technologies applied in practical ways that help people can be an accelerator to achieving that goal as we use them to literally reimagine our enterprise. You should expect us to continue along that path and pick up momentum as we better fulfill our mission with accountability to you and all stakeholders in health system.

Now we'll go to questions. Thank you, operator.

[Operator Instructions] And we'll take our first question from Justin Lake with Research.

Just wanted to touch on a couple of numbers. First, on Medicaid, you had talked to minus 1.1% to minus 1.7% margin. previously curious. It sounds like you're seeing some improvement there. Maybe you could give us some color on what you expect the year to end up.

And then on commercial, can you talk about the magnitude of the cost trend pressure you're seeing here versus that 11% expectations and maybe update us on how we should think about commercial margins this year and the trajectory versus the previous assumption? I think you assume you're going to get back to target in 2027.

Sure. Thanks, Justin. Mike, do you want to take the first one? Medicaid?

Thanks, Justin. Yes, our Q2 Medicaid performance was in line with expectations. The first half of the year has benefited from execution on affordability actions, including network curations, payment integrity actions, fraud waste and abuse and identification of operating cost disciplines. Trend remains elevated versus prepandemic levels, but stable with continued pressure in specialty pharmacy, home and community-based services and behavioral health care services.

We're also seeing a bit of an increase in trend in inpatient SNF costs as well for our complex populations. An aggregate year-to-date rate actions through 71 accounting for approximately 80% of our annual revenue we're within our expected forecast. We continue to work with our state partners on-cycle and all cycle rate actions and are in active conversations for our [ 901 and 101 ] rates. We continue to believe annualized 2026 rate impact will be in the zone of around 6% to 7% and still lagging elevated medical trend. Overall, our '26 margins will be within our previously communicated range, as you've indicated, negative 1% to negative 1.7%, and we expect to hit that expectation for the year. Thank you for the question.

Thanks, Mike. Dan Kueter, do you want to comment on commercial?

Yes. Thanks, Steve. Justin, thanks for the question. Let me unpack a little bit for you what's going on in the commercial business is obviously a trend and margin are tied together. I think it's pretty straightforward. First on trend, modestly above 11% that we were expecting, as Tim shared.

There are multiple drivers. First, the ineffective IDR process that's associated with the No Surprises Act is being exploited by select providers in select geographies. It's contributing 50 basis points or so of incremental trend in 2026. And now totaling at least 100 basis points of total cost. Additionally, provider coding intensity with office visits, emergency departments and selective other care sites, being the primary drivers is also contributing incremental trend to last year and to our expectations.

Some consistent drivers continue to be pharmacy costs, I'd highlight specialty drugs, reflecting both higher net costs and growth of newly covered indications. Anti-inflammatory and GLP-1s are part of that mix, as you would expect. And lastly, we're on the utilization and care patterns, we're not seeing any other areas of meaningful offset or pull back in those categories.

So now the impact of that trend environment on our margins. We came into '26 planning for margin expansion as you highlighted. And simply put, we're not yielding the full margin expansion for which we planned in 2026. I see '26 as a delay to that margin recovery trajectory, not a setback. So the sticky nature of the persistent and elevated trend is extending the time frame for full margin recovery past 2027, as we've previously discussed and you highlighted.

We remain on a multiyear journey. We remain confident that, that journey will result in a return to our historic margin performance of 7% or greater for the commercial group business. That performance is pacing and that recovery is built on a few things: improved administrative cost efficiency AI-enhanced fraud waste and abuse efforts and diligent focus, as always, on medical cost affordability. So thanks for the question.

Thanks, Dan. It's an area we're clearly focusing on going forward.

Our next question comes from A.J. Rice with UBS.

Obviously, the turnaround from a year ago when you came back, Steve, and restructured the team has progressed very nicely. As you sort of assess here a year into all of this, maybe just broadly, where is the turnaround pretty much done, where they're still in your mind opportunities and -- because I have to ask you a numbers question, how about the thought of getting back to the 13% to 16% earnings growth trajectory. I know the goal had been to do that by 28%. Do you feel like you're going to do, obviously, better than that this year. Do you think you're on a sustainable track now to have that 13% to 16% growth going forward?

Yes. I would say basically 2 things in that. I would say we'll probably never -- we'll remain restless. We are never going to not be an improvement and urgency mode. So I don't see this kind of approach really changing. And I think everybody is aligned with that. And so we have a great deal of work to do in front of us. This is not just about returning to a growth rate. This is also about making this company perform in levels and in areas and spaces consistent with its mission and to really provide a positive impact to all those we serve and across the health system. So that broader mission is a restless one. It's a journey, and that's not going to stop.

The second is in terms of the growth rate, I don't ever believe I ever didn't believe in the 13% to 16% long-term growth rate. We will have moments along the way when we don't perform to our potential. But if you take a look, I think, at this business approach and the challenges in the health care system, I think that we can grow in that growth rate, particularly recognize that it includes productivity gains and use of capital. And if anything, those things have -- particularly on the technology side, the opportunities there are even greater than they have been in the past.

So we continue to be in that mindset of that 13% to 16%. I definitely believe we can perform in that range. really never believed otherwise. We did obviously have challenges in the last couple of years, but we are addressing those challenges and returning to a form, and that's kind of the way we think of it. Is that enough for response?

That's great.

And we'll go next to Stephen Baxter with Wells Fargo.

I wanted to ask about cost trend in the Medicare Advantage business. You bid for 2026 cost trends to be 100 basis points above 2025 level. So I heard you in the prepared remarks saying that trend is coming in kind of below where you bid to, but trying to understand where you see trends sitting versus 2025, at least in the first half of the year. And then just as we think about what you assumed in the bids that you finalized a month or so ago, was that closer to the first half experience for trend or something closer to what you saw in 2025 or expected to see, I guess, going into 2026.

Sure. Tim Noel, can you comment on that?

Steve, thanks for the question. So I'm going to just start off with just a high-level view kind of across UHC and then turn it over to Bobby for a little bit more supplemental detail on Medicare. So to start, trend remains very high across the board within UHC all product lines when you compare to historical levels. As you know, in our benefit planning, pricing and forecasting, we broadly planned for a continuation of what we saw last year. And as noted in my opening remarks, how this is playing out across the businesses is a little different when you think about commercial, Medicare and Medicaid.

Dan highlighted some of the drivers leading us modestly above the 11% we're seeing there. Medicaid, again, largely in line with expectations. And for Medicare trend is coming in lower than our planning assumptions. However, it's really important to note this does not represent an inflection point in trend, we're continuing at those high levels, but it's coming in lower than our benefit planning assumptions.

One of the key point before turning over to Bobby that I wanted to raise, is on our exchange business, our exchange business is coming in better than our planning expectations as well. However, it has no financial impact inside of the quarter or the full year because we've made the pledge to return our profits to consumers for 2026. But that is separate from the commercial trends that we've been talking about of the greater than the 11% that we historically had been guiding to.

So with that, I'll just turn it over to Bobby for some detail and color on Medicare.

Yes. All right. Thanks, Stephen. So maybe to go one click deeper on the Medicare piece. So important to remember how we built up the 2026 medical trend, Steve and I'll maybe frame it in 3 ways for you First, we saw elevated levels of core utilization in '25. We talked a lot about that, and we assume that, that would continue into 2026. That was kind of the foundation. Second, we adjusted for no year-over-year increases in things like the fee schedule changes and calendar impacts. And then third, we accommodated for some level of potential unknown risk elements. So we've mentioned tariffs and other things of that nature.

Now there are a few things I'd point to in terms of why trends to date are a bit lower than our original expectation. First, we've had some positive claims experience as well as any year benefit from things like the lighter food and respiratory season and winter storm impacts that Tim mentioned in the prepared remarks. And we've also not seen the full emergence of material unknown elements at this stage. However, it's also really important and highlight that while medical trends remain high versus the historical levels the improvement we're seeing is also the result of targeted actions that we've taken. And we've done that through benefit design, product positioning that's resulted in a more favorable membership mix.

We've had network curation activities focused on high-quality, low-cost opportunities with providers for our membership. We've had broad affordability initiatives, and then we continue to invest in aligned provider models like value-based care. So overall, I feel good about our assumptions for '26, where we currently sit versus our expectations and yet remain intensely focused on affordability given the still elevated levels of medical trend versus the historical baseline.

And then to your question on '27, still probably a little bit too early to talk a lot of specifics there. But at the highest level, we did plan reflective of our current experience with appropriate adjustments then for things like fee schedule updates and other natural year-over-year changes, but foundationally not expecting a meaningful deviation from the still elevated underlying core trends.

And we'll move to our next question from Kevin Fischbeck with Bank of America.

Great. Maybe just kind of following back up on an earlier question about the growth rates. As we think about 13% to 16% is kind of being, I guess, like a North Star growth rate for you guys. I mean, the outperformance this year was -- is pretty dramatic. And just want to make sure that it's not something that we should be adjusting out of this baseline. Is this a good baseline to be thinking about for 2027 if you kind of assume normal growth from here? Or is there anything we should be thinking about either whether it was prior period development or outperformance that in MA that gets rebid to next year? How should we be thinking about that?

I think the quality of earnings is exceptional. Wayne, maybe you want to comment?

Yes. Kevin, let me start by saying I do think, as Steve highlighted, the earnings are quite durable. And we do think the $19.50 to $20 is the right stepping off point, albeit it reflects prior period development. We would say as well that as Steve commented on the 13% to 16% growth algorithm we personally have never deviated from. And we believe that is the right starting point as you think about our stepping off point.

And we'll go next to Lisa Gill with JPMorgan.

Kind of following up on that question. Throughout your prepared comments, you've talked about investment spending, the SG&A of -- in the quarter. How much of that is potentially onetime and where you could see a benefit to that going into 2027? How should I think about the investments that you're making and the benefits that you could see? And again, to your point, Wayne, is there anything that's onetime in nature?

Lisa, similar to the PPD while that benefited us in 1 direction, we continue to invest in our foundation, which you could argue is 1 time. We don't believe that's onetime though. I think one of the things that we are targeting as a team is continuing to build that foundation out over time. We are now up to $1 billion in the foundation, which is a very important part of our commitment to our communities. That being said, Lisa, we have a number of positive momentum items, but the durability of the underlying run rate is strong, and you can see that in our cash flow. So I don't think there's anything you should be carving out in either direction.

I think the $19.50 to $20 is the right baseline. And I think you should be thinking about the growth algorithm from that point forward. And I think as you heard, recovery on commercial is going to be a little bit longer than we had anticipated, but that should be a tailwind that we are reflecting in the future as well. along with many of our other businesses that are still not at the optimal margins.

And we'll take our next question from Andrew Mok with Barclays.

Wanted to follow up on the commercial market comments. The IDR process has been in place for a number of years now. So can you help us understand why costs are accelerating now? Is that a function of win rates, dispute volume or resolution timing? And is IDR something that you have confidence that you can price for? Or are there idiosyncratic considerations that make it harder to incorporate in pricing?

Dan.

Andrew, Dan Keter again. Thanks for the question. As I said earlier, the IDR process as part of the NSA is ineffective, and we think there's multiple reasons behind it. It has existed for some time, but it continues to accelerate in the volume of disputes and that has highlighted the deficiencies of the IDR process. Just a couple of things to point to upwards of 40% of all claims that enter the IDR process are ineligible for one reason or another.

So as volume has increased, obviously, this creates cost and delay for all involved. Roughly 60% of all arbitration cases are brought by 1 of just 5 entities. That, again, is a recent concentration of disputes in a narrow number of of entities that is different than it has been in the years past. And then I guess further evidence of the weaknesses of the IDR process, and some of the things that continue to evolve, making it dynamic and why it's changed from what it's been in the past. The average payout from arbiters when they side with out-of-network providers is now 11x what Medicare would pay with some of those decisions ranging up to 30x what Medicare would pay.

So these numbers continue to evolve. They have accelerated. There are, of course, geographic variations to that as in certain states, their process supersedes the federal process for insured business. So it's variable across the country, but these trends in the aggregate apply to the federal IDR process associated with the NSA. So Hopefully, that's clear evidence. It is certainly to employers of all sizes that the IDR process is not working. Certainly not as Congress intended it, and it needs to be reformed. So those are some of the inside numbers and their accelerations into this year and where we think it needs to go.

And we'll go next to Ann Hynes with Mizuho Securities.

I just want to circle back on Medicare. I know you -- in the original guidance, you said trend was 10%. And if you break out the levels, I believe that like that elevated core utilization assumption was around 7.5%. And had just regulatory changes like the doc fix, which was like another 1.5% and then you had maybe 100 basis points of unknown risk. And I think you said that unknown risk is not happening, which is probably a tailwind for you. But I just want to focus on that first part, that 7.5% versus 2025. Can you give us what that's tracking after the first half of 2026? And I'm not sure if I missed it, but I know your original guidance had 10% cost run in MA. What does the new guidance assume?

Tim, do you want to start?

Yes. Thanks for the question, Ann. So you're right, anchoring to the 7.5%, which is what we saw in 2025. And how that has restated somewhat favorably. In Bobby's remarks, he did acknowledge that we did have an accommodation for some unknowns with respect to the environment that we saw last year as we planned for 2026. Things like tariffs. We haven't needed the full accommodation for that in 2026 so far but we're still only about halfway through the year. So we're going to wait to provide a new point estimate around the 2026 trend, probably until the next call. when we've seen more of the year develop.

But I think the bottom line is that we are seeing trend that's a little lower than what those planning expectations were. I mean we are also -- feel good about our ability to take actions both in benefit planning and some of the other elements that Bobby talked about, to influence that and to manage that and to promote affordability in this key program. But we'll -- more to come on specific point estimates as we pace through the year.

And we'll go to Lance Wilkes with Bernstein.

I wanted to talk about Optum Health. And could you just talk a little about where you're seeing margins for your capitated higher value-based care portion of that business sort of a run rate level this year? Is that a trough? Or is that up a little from last year?

And then what are the actions you're taking as you're moving forward into the second half in '27 to improve upon that as far as changes in contracting changes in risk taking or footprint? And then in general, how are you refining that model there? Are you seeing a different demand for services from maybe the employer segment other managed care companies as well.

Krista.

Yes. Thanks for the question, Lance. A couple of things in there. First, I'll just start with your first question around just our value-based care kind of risk margins. Overall, I think the performance in the first half of the year has been strong and slightly better than we expected. Maybe I'll just kind of provide some drivers of that.

The first is just overall medical. You heard in our prepared remarks, us talk about the work we're doing on care management and clinical management. the efforts that we launched in the West that we talked about last quarter, scaling, maturing and expanding into other regions. Those efforts continue to provide meaningful improvement in the business.

And kind of to your question around second half, those things will continue. That was just really 1 example that's providing about a 10% reduction in inpatient admissions, but there are a handful of other initiatives that we continue to deploy to improve care management and medical performance.

Another driver is our operating performance. And again, we talked about that in the prepared remarks, but it's worth noting all the investments we're making to improve whether it's provider productivity, scheduling enhancements, access to care, we've expanded patient-facing hours by 200,000 hours in the first part of the year. We've again, expanding access, while we're also improving patient satisfaction. Our patient satisfaction is up about 5%. And then we've also increased patient engagement with our high-risk population about 6%.

So a handful of items that -- again, I would just say we'll continue in the second half of the year. So our value-based care margins performing in line, but slightly better than what we would have expected. It's really coming through in our medical performance, and our operating discipline. Those items will continue. I think you also just asked about efforts with our payers and our contracting.

So those continue to go very well. I'm most pleased with their commitment to value-based care. I think we are very strategically aligned with our payer partners, that value-based care improves quality. It lowers the total cost of care. It improves the experience for our patients, and it improves the experience for our clinicians. So through those commitments, the first half of the year, we focused on 2027 benefit planning making sure we're aligned on footprint, on rates, on benefit designs.

Our contracting efforts are going really, really well with the vast majority of those addressable for '27 really complete. But the second half of the year is really going to be focused on some of those post bid strategies and making sure that we're aligned on how we go to market for '27. Thanks so much for the question.

And up next is George Hill with Deutsche Bank.

I kind of have 2 quick ones. I guess, number 1 is, could you talk about the surgical volumes that you guys are seeing in outpatient surgical volumes as that seems to be a trend that has concerned investors across the space? And I had a quick follow-up on the Optum Insight business. which is where you guys -- at least our expectations pretty handily in the quarter, but guidance didn't kind of increase commensurate with the beat, would you be interested in comments on cadence as it relates to Optum Health.

So Krista, do you want to take the first?

Yes. I think specifically to the question on surgical volumes, again, those actually are pacing in line with our expectations. I think just as I spoke about the operating performance in the business and the last question, the work we're doing around operating discipline, I think, is not just in our risk-based business, but it also applies to our fee-for-service businesses. And again, a reminder, all of our fee-for-service businesses are really pointed towards and operated at higher value sites of care like ASCs which are generally about 1/3 of the cost of hospital-based procedures.

And again, inside that ASC business specifically, earnings are growing in line with expectations. Volumes are in line, physician recruitment, provider productivity and really our mix of services is all in line to slightly better than what we would have expected.

Thank you. Sandeep?

Thank you, George. And you're right. We -- at Optum Insight, we are slightly ahead of expectations for Q2. But overall, we remain on track for our full year guidance. Q2 performance was driven by strong operational execution. Some of that actually due to the early AI investments we made in AI efficiency gains. But there's also some client transaction volume that moved earlier into the year from H2 to H1 more than we expected.

And then we continue to invest even in the back half of this year into new AI products and services where we see early positive momentum from customers. So a combination of all this, we remain confident in our full year guidance. Overall, Optum insight remains on a multiyear path of reinvestment and innovation and we're looking forward to the future with excitement.

And we'll go next to Erin Wright with Morgan Stanley.

Great. Can you speak a bit more specifically on AI? And can some of your AI initiatives actually accelerate or drive upside to the long-term margin targets, for instance, across Optum Health, in particular, are some of that more of the near-term blocking and tackling that you're doing there? And just are those benefits from an AI perspective, is that -- I would assume that, that builds into 2027, and it's more material in 2028 and beyond? Or I guess, how should we think about those efforts driving even more upside relative to your long-term targets?

Sure. Well, we'll take this one like -- we'll take this as a team activity because actually, AI is a very core initiative for us we are really thinking of it in terms of reimagining our entire enterprise, virtually everything that we do, and we see it basically as the operating infrastructure of the future. And so it really is occurring across the spectrum of our businesses. And as you are suggesting in your question, this is the beginning, but it will have compounding effects as we make these investments.

We continue to get this change driven into our business. And it's also a real catalyst and a real opportunity in terms of the Optum Insight business to take everything that we're doing here and bringing commercial versions to the marketplace. So maybe I'll start on the UnitedHealthcare side with Tim Noel, but then we'll move to Optum and also to talk -- maybe Wayne will comment a little bit at the corporate group level. So Tim?

Yes. So deployment of AI and other advanced technologies like it are a key and critical focus area across UHC, also a big enabler of our modernization agenda that we're advancing rapidly. It's unlocking a lot of game-changing opportunities to improve consumer and care providers experiences and make the system operate a lot more efficiently at the same time. And I agree with your kind of commentary on the pacing where we're going to see that accelerate into 2027 and even go deeper in terms of the efficiencies provided kind of across the board into 2028.

But as we're focused on this, you would imagine that we obviously have large-scale capital projects that we're deploying, but perhaps more importantly and significantly, we're infusing AI across all of our administrative activities. And a couple of examples just to kind of bring that to light across UnitedHealthcare. First, virtually every provider and consumer interaction uses AI. AI gives us the ability to empower our advocates with predictive insights, real-time data which all leads to more productive interactions and importantly, also lend itself to translating some of those experiences in the digital experiences that are oftentimes and most times come with better provider and consumer satisfaction as well. Also key to our ability to proactively identify members that are in distress and reach out to them with concierge-like service models to help them through those moments.

Second area is it's providing step function enhancements in our core operations, things like very complex claims that we never before thought we would be able to automate. We're able to automate those and process those with higher accuracy than we have been able to before which eliminates cost and also increases turnaround times, which is very important. And a very encouraging element to all of this is this is facilitating interoperability with health systems and care providers. And we've seen a really great appetite on 4 health systems to partner with us in these efforts, and it's providing the opportunity on both sides to eliminate latency with some of this real-time information sharing that's now enabled and now going on.

That all comes to light in our commitment to process 80% of our prior authorizations in real time by the end of 2027. And in doing so, it creates kind of a touchless environment, which eliminates a lot of the back and forth between health systems, care providers and health plans which not only improves experiences, but you can imagine the elimination of the abrasion unlocks a lot of operational efficiencies for both health systems and health plans.

And the last area to note is it's giving us the ability to provide better data insights because we're able to, in a more real-time basis, look at data sets far broader than what we've been able to look at in the past. This gives us better understanding around our business performance and also lends itself to things like real-time underwriting across both our commercial and Medicare business.

And as we think about our modernization agenda, one of our focus here is to focus on outlier activity and be able to customize our utilization management programs to reduce prior authorizations and other programs for the broad population because we have the ability to more customize some of those approaches. A couple of key reminders though, as we think about how we're approaching this and UHC is, number one, clinicians will always be involved in these processes. If services are not authorized, that decision will ultimately be made by a clinician. And the second thing to note and remind folks of is that our contact centers are getting far more efficient, but they will never be fully automated.

Engaging with the health care system that we play an important role in will always be deeply personal. We see great opportunity to invest some of the savings that we're getting from these efficiencies and actually enhanced and more concierge service like models. So we're going to always have options for human interactions as we approach this.

So maybe Patrick, do you want to just comment briefly and then maybe Sandeep comment because I don't want to spend that much time on this.

Yes. So on Optum I'd call out AI in a few ways. First, it is transformational durable way to change our business. Maybe most importantly, though, I'd call out, and the modernization frame is we use AI, it delivers better patient experience, better experience and results for our customers and a better experience for clinicians and care providers. So I'll hit on a few examples there because it's really about helping the health system work better for all stakeholders.

So I'll call out 2 areas and then I'll let Sandeep call products and services, so the third area. First area I'll call out is administrative efficiency, where we're using AI to summarize cases, for example, for care managers makes it 40% faster for that nurse care manager more efficient also allows him her to spend more time with patients, more time delivering care in the home or whatever the setting may be.

Second, in the Optum Insight business, digital prior authorization powered by AI, producing 96% first pass approval, so now enabling humans. And as Tim said, same on the Optum is a UHG principle. If something is not approved, we have a human look at that, but 96% first pass approval using AI, making the system simpler, better, faster for the people involved, the providers and the patients.

The second area I'll call out is clinical support. This is AI supporting humans and clinicians delivering care. We talked about ambient clinical documentation and the uptake of 70% in employed Optum health clinicians today going to 90% by year-end. Let me give you a stat on burnout, 90% reduction using AI and the cognitive burnout for the clinicians. So when you go visit these clinicians and they talk about how it helps them deliver care better to patients, incredibly meaningful. And then the scheduling, which Krista talked about, we're using AI to make sure that people get access to specialist care in a timely fashion. So an example of improving access using AI.

I'll turn it over to Sandeep to hit the products and services, which is the third major area.

Yes. And really one quick example that probably strings through everything that Tim Noel and Patrick described is that about 1/3 of our investments this year are going into commercializing all these internal use cases to external products. The prior example that Tim described that Patrick described has been converted into our digital prior auth product, which we launched about a quarter ago under the Optum Real family of products. And year-to-date, it has for external entities to UHG, processed about 69,000 dryer arts and processed about 0.5 million prior auths and saved 69,000 administrative hours.

So this is in real life in real-time and internal use case, which we are investing in giving us internal efficiencies that is being converted into a commercial external product helping improve the system and making it better for everyone.

And the only thing I'll say at the group level is every function, HR, finance, legal, everything is really being reimagined in an AI context, which we think will drive much greater precision, greater efficiencies, responsiveness. We think there are significant opportunities there. So thank you for the question.

And our next question comes from Whit Mayo with Leerink Partners.

I just wanted to take your temperature on Starz. I'm not sure if you can comment on expectations or what you know at this point in time or just any thoughts on the recent industry lawsuits?

Sure. Good question. Bobby.

Yes, thanks for the question. So maybe just to start. Like I've said before, we view quality is absolutely critical and we never take anything for granted with Starz. We're restless when it comes to seeking opportunities to differentiate, and we're always focused on delivering the greatest quality experiences and outcomes for our members. As you can appreciate and as you kind of alluded to, given where we sit in the current cycle as well as the ongoing industry activity, it wouldn't really be appropriate to speculate on final start year '26 results or what might happen for start year '27 or further into the future.

It's also worth noting the Starz program has continued to get more challenging in recent years as evidenced by 2026 industry scores at the lowest level in about a decade. So as we navigate through the next few months, our preferred approach is to continue to partner with CMS as we appreciate the challenging situation here to balance many critical priorities. And we want to help identify solutions that ensure program stability, clarity for industry and, of course, the best outcome for beneficiaries. And we do believe there are solutions that can meet those objectives.

All that said, I want to be really clear that we remain fully committed to our quality agenda, and we're investing in that more than ever, including in the second half of this year. and we're going to do that to support our various quality programs and initiatives for our members and our providers.

And our last question will come from Dave Windley with Jefferies.

I wanted to ask a question on Optum Health profitability and the progress you're making there. The margins were pretty comparable sequentially, but well ahead of what the market was expecting. I think there was some expectation that margins would seasonally decline through the year. And I wondered if you could comment on what did happen or perhaps what didn't happen in 2Q to allow those margins to hold up. And as part of that, I noticed that the, call it, the subtraction in your reported to adjusted margin bridge for the PDR appeared to decline. And I wondered if that had some influence on the margin in the quarter.

Sure, Krista?

Yes. I'll point to just a couple of things that are maybe just different this year. As we've talked in the past, the seasonality really mirrors a risk business. So the majority -- vast majority of our earnings are going to be in the first half of the year versus the second. But a couple of elements that are a little bit different. First is just the timing of our restructuring efforts. So in the fourth quarter, we laid out plans to restructure the business. We had originally assumed a significant portion of those will be complete in the first half of the year. And there are a couple of those, 1 in particular, that is really shifting into the second half of the year. That does create an impact in second half versus first half.

The second thing I would point to is just investments in the business. as we're launching new clinical or operational initiatives as we see those successful, we are investing in technology, workflow enhancements to make sure that those are actually durable and scaled across the infrastructure. So some investments in the second half of the year. And then third is just, I think, really being respectful of the trend environment, even though we're seeing some of that moderate in the first half of the year and medical performing slightly better than we would have expected. Trends are still well above historical levels, and we're being respectful of that.

Wayne, PDR?

Dave, thanks for the question on the PDR. No, it did not impact the durable margins that we're seeing. The one thing I would remind investors to consider is that as we are divesting items that we had in our year-end charge, we'll move the PDR associated with that item along with the benefit that would have been unwound from that. So as we continue to execute on that, you'll see that number kind of slowly edge downward, but I don't expect it to change. And our goal is to show you what real durable earnings are, which is why we do the adjustment.

Thanks, Wayne, and thank you all for joining us today. We appreciate your time and your trust in us as we continue to both improve our performance and modernize our company. And I can assure you, we will stay restless and urgent as we go forward. Thanks for joining us.

This does conclude today's conference. We thank you for your participation.

All right. Great. It's my pleasure to be kicking off the healthcare conference with UnitedHealth Group. With us today, we have Wayne DeVeydt, who's the CFO of the company. We have Ben Eklo, who's the CFO of Optum; and we have Tim Noel, who's the CEO of UnitedHealthcare. So I think you want to jump right into Q&A or do you have anything you want to start off with?

No, look, I'll just make a couple of very, very brief comments. First quarter was a strong quarter for us, high-quality metrics, feeling very good about the turnaround and the actions we've been taking. The one thing that we said on the call was that you have to be respectful of trend in this current environment. And it was 2Q of last year when I think the industry really got a lot of surprises. And so for us, it's important to see how April and May evolves. We'll get a lot of the claims from Q1 actually paid in that window and understand with a little more clarity. But I would say that if the trends we saw in the first quarter were to continue, this will be a very strong year.

Okay. Great. Maybe just starting off with kind of a theoretical question. Just I want to understand the mindset. I think everybody here in the room probably thinks that you're operating well below what your earnings potential is. And so when we think about the ability to kind of recapture that, is there a view within the company that it's the priority to get back to that target margin as quickly as possible? Or is it better to slowly kind of get back to that target and kind of make sure you reinvest every year? And how do you think about managing that return to normal target margin?

Yes. So the first thing I would say is we still believe in the long-term growth algorithm, which is the 13% to 16%. And ultimately, that algorithm is in place whether we are at our starting point or not, meaning our effort is to get back to our target margins as quickly as possible to run this business the way we have historically and really get back to that kind of growth algorithm of 13% to 16% on a regular run rate basis. The one thing that's probably a little bit uniquely different is we're in an era of AI and this year, we've announced we're investing over $1.5 billion. So I think to the extent that we have continuous outperformance, we'll be able to put more of that to work along the way and make those investments. But at the end of the day, I wouldn't view it as managing to an expectation as much as driving to what the asset is capable of doing.

Yes, on the UnitedHealthcare side, just to chime in, I think our targeted margins that we have in each of our businesses reflect points that we believe to be also indicative of kind of rational and responsible pricing in each of those businesses. So those are targeted margin ranges that we're interested in pacing back into because of what that represents as well. And it varies a little bit by business. However, our intention is to get back to those targeted margin range largely by 2028 in all the UHC businesses.

Okay. And then that 13% to 16% growth algorithm, I think back for a decade or so, certainly pre-COVID, it was pretty clear how to get there because MA was growing high single, low double and Optum Health is growing 20% plus. Like what is the driver to 13% to 16%? What's the building blocks that gives you confidence that 13% to 16% is still the right number?

Yes. So if you think about the basic drivers of this growth algorithm, roughly 1/3 is just capital deployment, the idea that we are deploying both for buybacks. We're doing M&A growth and the synergies that come from that. And obviously, we pay a dividend on top of that. When you take the other 2/3, it's a combination of margin expansion. So returning back to not only historical margins, but where we believe margins can be in the long term around our Optum Insight segment. And then, of course, it's top line growth. It's kind of that 7% plus that you've got to get back to with top line growth over time. And so from our perspective, we see in the current environment, especially with the lower margin profile that we have and our desire to just get back that the margin component, I would say, has an easier path to it.

The top line growth is one that we have a lot of high confidence in. But I think the way the algorithm was in the past will look different in the future because you're going to see us shift a lot more to AI. You're going to see the infrastructure savings of that will come through margin. But more importantly, we'll productize that into Optum Insight, and we'll be able to offer services that become really kind of a monthly subscription over time versus the historical of what I'll say, total contract value, kind of the backlog that was there historically. So the pieces and parts will shift around slightly, but the core basics of it are pretty simple, right? You've got to get high single-digit revenue growth. You've got to expand margins 20, 50 basis points a year, and you've got to basically have capital deployment.

Yes. I guess when we think about the high single-digit growth, like is that what you think UHC could be doing over time? And like which businesses are we talking about?

Yes. And if you break it down into a couple of components. One, we certainly need to return back to our targeted margins, which as I just talked about. We have a path to that in all of the businesses. Then as you also think about maintaining those margin ranges with revenue growth outside even of the volume component, that drives a portion of the overall growth towards those high single digits. And then lastly, we do continue to see opportunities for growth in Medicare Advantage and also in totality of the commercial business.

It's really an imperative of ours to maintain cost competitiveness, leaning into AI is going to be an increasing focus there on the way in which we generate affordability, probably pivoting more towards administrative opportunities because we see greater opportunities there with how we're deploying AI and being competitive in the marketplace will allow us to see some of the volume growth that will supplement getting back to the margin areas that we want to be and just some of the overall revenue growth that occurs on a unit basis as we will price to maintain those margins and targeted margins into the future.

I mean I think that United is such a big complex company. Is there a way to kind of focus in on 2 or 3 businesses where you say like these 2 or 3 businesses catch the way we think we're going to, then 13% to 16% is pretty well set up.

Look, I would summarize that the 2 businesses you need to spend a lot of focus on prospectively are going to be Optum Health. Value-based care is even more critical today in the environment that we are in as a country and where the government wants to take things. Today, we serve around 20 million members in Optum Health on a kind of fully vertically integrated VBC model. But I think you will see a fair amount of growth within that asset, both margin recovery happening fairly quickly and then you'll see the top line growth really move from there. I think the other one is Optum Insight. And being in this industry for 30-plus years, this is the first time we really do have the tools, meaning AI to kind of revolutionize the business and remove a lot of friction points that exist there.

And because we have the ability to understand how the providers think and the needs that they have because we serve in that space as well as the payer, we really have a unique opportunity for AI to create the connectivity that others cannot do. You have to actually have all pieces of this puzzle to make AI work in what I would call a high-functioning way. And we also have the cash flow to be able to make those investments in AI. And so by doing that, we create products internally that we know our providers and our payer businesses want. And then ultimately, we monetize those through selling those back out into the broader market. And so I think what you're going to see is it's going to be a little bit of a longer window because we are decommissioning all the historical non-AI products right now, and we are reinvesting in those, but we are getting sales pipeline already, and those are growing already.

I think you'll really start to see that kind of extend more into 2027. But back half of '27 and '28, that will really be differentiated. I think in the near term, we said Optum Health was a multiyear journey to getting our margins back. We are ahead of schedule on that. Still expect to be there by 2028 to the low end of our ranges. And I do think you'll start to see the top line growth from that happening as well. So those 2, I would put a lot of specific focus on.

And then candidly, with Tim and UnitedHealthcare, it's a very mature business. It's one that has been built over 40-plus years and one that really matured over the last 20-plus years. And so you can see how quickly that area can be resolved within a year, right? You benefit design, products, et cetera. So this year, we've already said that we'll be within our target margin range and a bias towards the upper half, and we expect to be in the upper half for next year relative to those target margins. So I think that will recover quickly and the focus needs to be on Health and Insight.

Okay. And then what kind of growth can Optum Health deliver longer term? Like can we get back to 20% now that you've done the value-based care repositioning? Or is it still kind of TBD as to what growth we should be expecting there?

I don't know that I would call TBD. I'll ask Ben to go into a little more detail. I would say that late last year, this year is all about just refocusing back to basics, getting back to the core of what we did, removing distractions from the business that were not part of the core value-based care model, which meant pruning certain assets. We are substantially through that pruning process. The businesses are refocusing back on where they were at before. There's another party involved in this, which is our third-party payers that we work with for value-based care.

But we're having probably some of the best dialogue we've had with them in a long time around benefit designs, the new world we're entering, target margins for them. So I don't want to say that next year will be that top line growth year because, again, I need to see how this open period with payers works through. We're encouraged. But I don't know, Ben, if you want to add as well. We recently did some 5-year planning as well. So maybe you can highlight a little bit of our views.

Yes. Yes. So as Wayne said, we're serving over 20 million patients throughout Optum Health right now, and that's across an entire integrated value-based care system. So primary care, specialty care, home health, hospice, surgery, behavioral, labs, imaging. And that's really how we're focusing on managing the business. And if you don't look at the full 20 million, you're missing the opportunity of what Optum Health has the potential to do. And I think as we also come to market, as Wayne talked about with our payers, there's a lot of different risk appetites for payers. And also on our side, it needs to be the right benefit design. It needs to be the right footprint, the right network and the right rates. So we're coming to market with approach with providers where we might do fully accountable. We might do a professional cap, we might do a shared savings or in some places, we might do fee-for-service.

And so we're going to have that optionality within Optum Health as we think about the future and focus of value-based care. And as we sit here today, Kevin, there are some of those services that are performing well above our 6% to 8% target range, and we will obviously continue to lean into those. And there are some that will and are performing below that target range, and that's where we have our highest and most intense turnaround plans, operating discipline, but those places are also key feeders into the rest of that integrated value-based care system. So I guess too early to say exactly what that long-term growth rate looks like, but we do feel confident in the 6% to 8% target margin and see a lot of growth potential within Optum Health.

Okay. Great. I guess one of the things that just came up recently, you guys announced last -- I guess, yesterday, the new Optum Rx model. Can you talk a little bit about that model? It seems like every company has announced something in the last year or 2. Like how is this different than what else is out there? And should we be expecting any changes, any investments to get to that model or any impact to margins on the PBM side when you get to the other end of this model?

Yes. So I'll answer your last question first. We don't expect any big upfront investments to get to the model, and we do expect Optum Rx to continue to operate in the 3% to 5% margin range. As far as the transformation goes, we have been out there and proactive in anticipating the transportation -- or excuse me, transformation that needs to happen for the PBM and have also been leading the industry in transparency. I mean we're right now passing through 98% of our rebates to consumers, expect to be at 100% over the course of the next year. And so this is something that was kind of the next evolution of how we make the PBM more transparent and provide that visibility to our stakeholders. And really, what it means for them is more visibility, more predictability, more affordability in how they contract with the Optum Rx PBM. And so we're really excited about it.

It's not mandatory right away. There will be an option of do you want to enroll in this model for new existing and retained members as we go through that cycle. But it will be something that brings a lot of visibility, transparency to any GPO fees that are in there, any rebates paid from pharma, that information will be shared. And then we will be paid based on the value of the services that we're delivering to our constituents. And so they'll have full visibility into that.

We're also bringing affordability and transparency to the consumer at the point of picking up the prescription. So we'll have Shop MyScript, which is when a prescription is written, you'll be able to go in and see where can I pick it up? Is it mail? Is it retail, which is the cheapest, what's the best option for me? And also price-wise, which is a cash option that gives you the exact cash option, plus a small transaction fee that will all be completely visible to the consumer. So the organization that's partnering with Optum Rx gets the transparency and visibility and predictability of the fee. The consumer gets that point-of-sale affordability options with Shop MyScript and Price Wise.

Okay. And then just to be clear, we talked about no impact on margins. You're talking about within the PBM business itself because Optum Rx is a big business in specialties there. And so you're saying within the PBM business, you don't expect the margin impact.

Yes, we expect this to be relatively margin neutral. I mean, 3% to 5% is Optum Rx overall. Within the PBM business, we don't expect that to change.

I guess there's always a little bit of skepticism just because PBMs are hard to understand from the outside looking in, like you said you're starting to offer this. And do you have any contracts that are at similar margins now that as a proof point to that? Or is that still kind of TBDs to...

So maybe to put a finer point on all of this, we, as an organization, have come to the decision that we have an obligation to be transformative in this new window. I think it's fair to say that regulators want to see our business model be performed differently, both state and federal. I think it's fair to say that the American public wants to see a different mechanism that removes friction from the system. So on the PBM side, one thing that was very evident both from regulators and our customer base and others was they wanted full transparency, full transparency. And even though we had already passed on 100% of rebates, even though we thought we were being transparent, we realized that full transparency truly meant that they could see every aspect of your cost of goods sold and what's happening, and then we should get paid for the value of that transaction.

We decided to pilot this with a few new customers to see how that would actually work in the market. And so these were customers that were with some of our larger competitors. We were able to go to market, provide full transparency on the GPO, show them their options if they wanted a GPO, if they wanted full rebates, if they wanted a fee-based approach, but allowing them to have those components, and we were successful. And the #1 reason we got was essentially for the first time, I actually understand all the parts and pieces that make up the PBM. And what we've come to the conclusion on is we need to be transparent. We need to kind of demystify this idea that we're not transparent. We need to be easier to work with.

So you probably saw last week, Tim rolled out across the entire country, a substantial reduction in prior authorization. And I think a lot of folks wonder like, well, doesn't that mean that payment integrity is not going to work as good. Well, quite the contrary. The tools are available today that you can pin in quickly on where you have a prior auth problem and don't. But maybe, Tim, just elaborate for a second because I want folks to understand this is a movement, and we have an obligation to lead this movement. And you're going to see much more transparency around what we are doing in our interactions and more emphasis around removing friction versus defending the old business model.

Yes. Our mission -- part of our mission is to help the health care system work better for everyone. And we're leading the modernization of how that health care ecosystem works. And there's been some commitments that you've probably heard about prior to the more recent one around standardizing prior authorization requirements, which today or prior to this, physicians didn't really know what had to be submitted to render a full and complete prior authorization and a lot of that friction in the back and forth was created because of that. We've also made a commitment that by the end of 2027, all of our prior auths will be processed in real time. And then this most recent initiative that we announced was a 30% reduction in all of our prior auth volumes. It's actually more than that on a code basis, but of the volumes, what patients and providers will experience, there's a 30% decline.

And we're leading here on eliminating abrasion, eliminating latency, making things predictable and more real time and believe that this is a direction that we need to go to differentiate ourselves in becoming a carrier that's easy to work with, that shields patients and providers from some of the abrasion that has historically existed in the system. And we know does this come at a cost? It does. This is an investment that we're making. But there are also many opportunities, as Wayne was alluding to, to do this differently. We have much better early signaling capabilities to understand where we're seeing hotspots, and we have the ability to treat the sources of those hotspots with the attention needed and where it's not needed to allow some of these transactions to flow abrasion-free.

It's also already generating some different conversations with providers as we sit down and talk with them about more exciting topics around interoperability and how this flow of data and how the automation of these transactions allow for large efficiencies in our operations, but also large efficiencies in the operations of health plans as well. So I think of the investment that we're making is really one that's probably short term with lots of opportunities to offset the cost of some of these things because you've taken out abrasion and with the abrasation you're taking out, you're taking out a lot of administrative steps on both the payer and the provider side and also starting a different conversation with the provider community. That's one that's much more -- it's partner, more partnership based. And that's both good and bad in areas where we're seeing challenges.

Those are resulting in conversations about what are the drivers of these things and us getting after those things very real time and focusing on elements of our network in ways that we probably haven't been able to do before and some of the new technologies are allowing us to get at affordability in different ways. And we're not talking about pain chase here. We're really more talking about partnership models and more in-depth interactions where the sources of hotspots are very quickly as opposed to kind of having everyone experience the same level of authorization requirements.

And then I guess, when at the beginning, you kind of talked about Q1 data points coming in well. And is this caution -- normal Q2 caution? Or is there something about the way Q1 developed that says even in a normal year, this is a little bit unique for me, whether the storms or the flu in January kind of lower your visibility or whether it's just normal dynamic? And I guess it's been a few weeks. Is there any color on what's happened in the last couple of weeks?

Yes. So maybe first to start with historical dynamics that we would see what I would call normal trend and normal patterns have really changed quite a bit in the last several years. You had the Inflation Reduction Act, which created some turmoil in how things would develop around Part D. You had the BBB, President's kind of flagship budget and what that did. And so one of the things that we are trying to do is, one, be respectful of the fact that historical trends do not necessarily reflect current trends and how things evolve. The second thing is we're in an active AI environment. And parties are learning how to code differently. They're learning how to categorize services differently outside of a DRG. And so we want to be respectful of the fact that these trends are occurring. And so you have kind of what I'll call the macro overlay, but then you have the micro overlay of what individuals are doing.

That being said, January, February and March were all very strong months for us. There was not an anomaly month in there. We did have a lower respiratory quarter than normal, but it was not a huge driver of our performance. And those trends in April have continued. And so I think getting kind of one more month under our belt in May would do a couple of things. One is it would give us a better feel on what I would call those kind of micro things that are happening in the market where people are using AI to code differently and manage differently and make sure that our own systems and processes to capture this and understand the trends that are occurring. But right now, 4 months in, we're feeling pretty good. And then I think on the macro, as we look at the Big Beautiful Bill, and I think we've kind of got the seasonality of that figured out now. And so a little bit abnormal this year. I think in the future, we'll be in a better spot, but I think one more month will be helpful.

Yes. The pieces that were maybe discrete onetime in nature, lower respiratory season as well as the storms. Those are pretty easy for us to quantify, and we've always felt good about our quantification of that. It's really just around what we have seen in Q1, is that durable and persistent and every month gives you more confidence in that, and we certainly saw that in April, which points to not only what we saw in the first 4 months of this year, but also how you're seeing 2025 complete as well, which is certainly part of the conversation. But pointing to durability and what we talked about in Q1 of modest favorability in the government programs business, Medicaid and Medicare, we feel like that's a pretty good read on what we're seeing.

Okay. And then maybe shifting gears to MA. Obviously, the rate notice, the final rate notice was much better than the proposal, but it was still well below, I think, what you guys were talking about is necessary. So how do you think about closing that gap between trend and rate next year? You did a major overhaul this year. Should we be thinking about something more stable into next year? Or how are you thinking about dealing with that?

Yes. We're going to look at all the same types of things that we looked at for benefit planning for 2026, close look at our plans, the footprint, the plan configuration, network versus non-network. We're going to look certainly at all the benefit levers inside of those plans. And we are in a posture of pricing for some level of margin expansion for 2027. So given the dynamics around rate and trend, it would be logical to assume that there's going to be some level of benefit trimming that's going to be needed to achieve that. So a posture, not a lot different than last year. However, I think there's 2 things that are different. One, we made many decisions in 2026 to make sure that we took care of plans that were poor performing that we didn't see having a role in the future.

And the second area is we're starting from a really, I would say, healthy position in terms of the financial performance of our plans. The corrections we made worked out. So we don't have a lot of plans that we were sitting in a position that require a significant change as a starting point. So we're really just kind of contending with the dislocation of rate and trend. We're not looking at deferred maintenance from decisions made in the past. So I think we're coming at this from a good starting point. So we're feeling good about our ability to achieve all those objectives for '27.

I mean you guys did exit a lot last year, but it sounds like things are coming in better this year. Is there a chance that you cut too much last year or would be going back?

No. There's none of that going on. When we look at the plans that we exited, that we're comfortable that it wasn't within -- if you get some level of favorability on your core assumptions, it wouldn't have made us change our posture there. These were plans that if we had, we probably would have stuck with those things on the margin because we have opportunity to obviously improve plan performance. So these plans were plans that we needed to address, and we did.

Kevin, one thing I would add is I really would say in hindsight, we've looked at could we or should we have done things differently. And I think we've concluded that these were really no regret decisions. And that even had we changed our pricing posture even slightly, we still would be down about 1.3 million lives, right? Like what we can't control is competitors and how they respond in the market. What we can control is what we believe the right product design and the right pricing is at an appropriate durable, sustainable margin. And so I think we have no regrets for a couple of reasons. One is we don't think pricing would have changed the outcome. In fact, it would have simply left margins lower and left the industry, we think, weaker in many ways because there's less sustainability to the product, especially with the forward-looking rate environment that we're seeing.

I think two is because of the forward rate environment that we saw from CMS, we feel very fortunate that we took the aggressive moves we took this year because that means next year, we've already taken the hard hits, and we can be a little more surgical in how we look at benefit design in markets that we're participating in. So -- but it's a really fair question, but one that we've looked at and concluded, we actually think these were the absolute right decisions.

Okay. And then it seems like CMS has obviously had some concerns about risk adjustment and the potential overpayment within the industry. I think, in particular, they kind of cited that the larger companies have an advantage on this, and they want to kind of narrow that gap. There's been some questions about the 2% or almost 2% that got pushed out and whether you guys are impacted more by that? Or if there's -- so I guess, a, answer that. But then b, is there anything on the horizon like if CMS does go after home risk assessments or goes after linked chart reviews, like is there something out there where you would feel like it would be disruptive to the business?

Yes. So to answer your first question, in the 2% that was proposed, we don't see a disproportionate impact for us. And I know Ben has the same perspective. As you think more broadly about the modernization of Medicare Advantage, we could talk about lots of different zones there. But we are engaged actively in dialogue with the administration on ways to modernize the programs. And we have the perspective that this program will modernize. It will move forward just like everything that's happening in health care. And our posture is to make sure that we have a seat at the table like a lot of other carriers, and we're coming with ideas that are ideas that make risk adjustment better, that make the Medicare Advantage program better and are thoughtful about how technology can be used and will be used to change and evolve the program.

So we're -- we believe that many of these elements of the Medicare Advantage program will change, and that's probably a good thing. There's opportunities to make this more efficient, reduce the administrative cost burden on the health plan as well as on the provider organizations as well. So there's -- I think the path forward is one where this will modernize, and that's a good thing.

And I'll just mention on the risk model for Optum Health. I mean, we absolutely don't see ourselves as disproportionately impacted by the model. There's a lot of different components that go into the model, obviously, the HCCs, but there's also the tailwind and normalization. And our book at Optum Health is a very diverse and mature book. There's chronic conditions, obviously, chronic special needs dual special needs, but we also serve community members. So across the Optum Care portfolio, we have a diverse book. It's also a very, very detailed calculation.

There's 7 different risk models that go into how they were proposing this. So institutional disabled versus nondisabled, full dual versus partial dual. And when you look across some of the most common HCCs in the proposed model, there were some of them, diabetes for full duals as an example, where funding actually went up. So you have to look at kind of the entirety of the model, and we do our full evaluation. We don't see Optum Health dislocated from kind of where CMS published at all.

Okay. And maybe just last question here. You brought up AI a number of times. It seems like everybody gets really excited about it. So I guess when you think about the opportunity for United, where is the biggest opportunity for AI? And is there anything that people are maybe getting too excited about and getting ahead of their skis on?

No. Look, I would say that the world is not getting too excited about AI. I actually think it is advancing even faster than people can appreciate or understand. Internally, I would say our primary focus has been about speed and agility. We think there's a window here where we can lead the industry in ways that others cannot. I cannot emphasize this point enough. The power of AI is in data and in knowledge. And we have more data in health care than any other party in the world does, candidly. We have pharma data, right? We have medical, clinical data. We understand the payer and provider how they work. And on the knowledge front, the knowledge is about the ecosystem. AI will clearly disrupt the ecosystem. That's a good thing. It will remove friction. It will make the processes easier.

Our goal is not to take the current nerve system of health care and do a facelift and layer AI on top of it. That would be a failure from our perspective. Our goal is to actually take this incredibly complex nerve system and turn it into a stick man because AI should eliminate all those components of friction along the way. So for us, we have many things happening simultaneously that you, the investor will not be able to see initially, but know that we're running towards a 3-year playbook of what we want this to look like. And we've rolled out ambient listening within our medical clinics. That means the doctors now have more time to see patients. It also means that it's automatically being coded. It means you don't need to do chart reviews. It means it gets auto adjudicated real time. Those are things occurring. We announced our Alegeus acquisition.

Having a greater access to HSAs is not the playbook. The playbook is to be able to offer white label products to others so that when individuals are going to book a service or book a visit that we can have it automatically paid from their HSA or automatically paid by credit card if that's their preference. But the provider who today does not collect 60% of co-pays has the ability to collect that co-pay upfront. It's all about removing the friction points for the consumer. And I think if we do this well and do this right, we will not look like the company we are today. We will become the ecosystem, kind of the nerve system, if you will, of health care, where a member can be agnostic to whether they are a UnitedHealth Group member or candidly, a Cigna or Elevance or any other member. We want them to know that we are going to help you through that journey and the technology is going to be the forefront to do that.

All right. Great. That's all we have time for. Thank you very much.

Thank you.

Thanks, Kevin.

Good morning and welcome to the UnitedHealth Group First Quarter 2026 Earnings Conference Call. A question-and-answer session will follow UnitedHealth Group's prepared remarks. As a reminder, this call is being recorded.

Here are some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings.

This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on the financial and earnings reports section of the company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated April 21, 2026, which may be accessed from the Investor Relations page of the company's website.

I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.

Thank you, Lisa. Good morning, and thank you for joining us today. The first quarter unfolded largely as expected, reflecting actions taken in the past several months to drive consistent performance across each business. At UnitedHealthcare, pricing is improving relative to elevated health care cost trends and affordability initiatives are generating positive momentum.

At OptumHealth, operational improvements continue to take hold as we more deeply embed disciplined, integrated value-based care practices market-by-market. OptumInsight is seeing increased market interest with its AI-first enterprise approach. Tim Noel and Patrick Conway will discuss these efforts in more detail in a minute. We're encouraged by the way the year has started. We remain grounded in the need for consistent execution in managed care fundamentals and on a strategy to help build an integrated value-based health system that together makes things better and simpler for care providers, patients to customers. We are investing in AI-enabled modernization, while early, these capabilities are already improving experiences for consumers and care providers; increasing productivity and reducing administrative burden.

The application that technology has long been foundational to how this enterprise operates and how we can help others across the health system improve their operations through OptumInsight. We remain on track to invest nearly $1.5 billion in AI-related initiatives in 2026. I hope our conversation today gives you a sense of the momentum building at our company and the steps we've taken to strengthen the enterprise and position it for term success. We have refocused the organization squarely on U.S. health care exiting non-U.S. businesses. We have refreshed nearly half of our top 100 leadership roles. Our accelerated technology and AI investments are showing meaningful potential, and we're actively evolving business practices in areas such as data and processing interoperability and speed, pharmacy practices, prior authorization, product and reporting transparency and management practices more broadly.

At the corporate level, we strengthened governance by creating a public responsibility committee of the Board, naming a new lead independent director, new Committee Chair; adding a new independent director and accelerating our Board recruiting process. And we've redoubled community engagement and support with renewed focus and resources to the UnitedHealth Foundation and an expanding commitment to improve rural health care, expanding the health care workforce, strengthening maternal and children's health, addressing the challenges of behavioral health and more. We strive to be an organization of people organization of people proud to work for and with these efforts and others will remain central to those goals.

With that, I'll turn it over to Tim and Patrick to provide insights on our quarter and goals for the remainder of the year. Tim?

Thanks, Steve. As Steve said, the actions initiated last year are driving early momentum in UnitedHealthcare, both in our business results and in the experiences members and care providers have when they engage with us. Medicare & Retirement results reflect disciplined pricing strengthened by affordability initiatives in an elevated but stable medical trend environment. Community & State results continue to reflect the pressures in state-based rate environments, but we're within the overall expected range. Commercial and ACA results were consistent with pricing and trend assumptions albeit still early in the year.

Our 2026 approach prioritizes margin recovery and product stability with a deliberate trade-off on membership growth, particularly in Medicare and commercial markets. Historical care utilization trends in the quarter remained consistent with our expectations for 2026. The quarter's medical cost performance overall was driven primarily by net reserve development, better mix and enrollment dynamics and government programs. As we monitor underlying utilization trends, they remain consistent with the high levels we saw in the prior year. At this distance, we anticipate trends to remain at the anticipated levels for 2026.

In Medicaid, we remain focused on improvements in high acuity care management and operating cost management. First quarter performance reflected a combination of favorable reserve development and early in year medical cost experience. We continue to expect membership attrition and negative margins in 2026 in light of continuing high trend and insufficient funding with modest margin improvements beginning in 2027. Many state rate processes are still open for the remainder of 2026 and into 2027. Appropriately aligning rates to elevated medical cost trends in these programs is essential to sustainably serve people who rely on them. We continue to advocate for this with state partners, alongside our own disciplined cost management and operational efficiencies. We are intensifying our work with states to address areas of potential fraud waste and abuse.

For our commercial business, membership levels, renewals and trends were generally in line with the expectations we shared with you. The pricing actions we have previously discussed are materializing as intended, preserving margin while contributing to some moderation in growth. Self-funded offerings continue to perform well. We are approaching the 2027 selling season with a focus on appropriate pricing for the elevated cost environment and meeting employer needs for more modern tools to support consumer engagement and affordability. As anticipated, the individual ACA business continues to contract. We still expect total membership to decline by approximately 1/3 in 2026. Our approach in the ACA market continues to be directed towards the bronze and gold-tiered products, where member mix and utilization rates are largely aligned with plan. As a reminder, we pledge to refund any 2026 profits from these plans and our first quarter results reflect this pledge.

In Medicare, medical trends remain elevated, but in line with our pricing assumptions. This reflects continued service intensity and higher provider billing patterns consistent with what we saw exiting last year. This is an issue that we are squarely addressing. Turning to enrollment. Results from the annual enrollment to grow largely as expected, and OEP retention has remained stable. At this point in the year, we expect membership to contract consistent with previous guidance, but centering more around a drop of $1.3 million. On the final Medicare Advantage rate notice for the 2027 plan year, we appreciate that the Trump administration better align funding with increasing health care costs. It's an important step to preserving stability for the millions of seniors who rely on MA and toward ensuring this vital program's long-term sustainability.

Turning now to our efforts to improve the patient and clinician experience when they engage with us, starting with prior authorization. Prior authorization remains a critically important tool for eliminating fraud, waste and abuse and for helping ensure patient safety and quality care. We also recognize it is a source of frustration, and we are working to reduce that. Nearly 95% of product authorization requests are now submitted electronically. About 50% of those are processed in real time, and more than 90% are approved on average in one business day. We are working to enable more prior optimization submissions to be made directly within care provider workflows, in addition to the steps we are taking to further reduce the overall number of medical prior authorizations by 30% or more by the end of this year.

Member adoption of UHC AI-powered digital tools continues to grow. Almost half of all members are now registered for and using UHC digital access. We saw 73 million digital visits in Q1, up 42% over the last 2 years, reflecting sustained and growing engagement with our digital platform. Digital self-service is now the primary way members interact with us, with over 80% of consumer contacts their digital formats and an MPS on the top quartile of [indiscernible]. For care providers, digital channels continue to grow, with transaction volumes up 75% year-over-year and about 75% of in-network providers using our portal or API tools. This improves real-time access to eligibility, benefits and claims status while reducing manual outreach, enabling clinicians to spend more time on caring for patients.

We are intensifying our efforts to help independent rural health care providers. We will accelerate payments in all lines of business by 50% for rural hospitals and exempt rural health care providers for most medical prior authorization requirements. And we are building network partnerships between rural providers and leading regional health systems. Together, these initiatives will help lower costs and simplify processes for care providers and greatly enhance access to quality care for people in rural communities. All these efforts and others like them a part of our commitment to pursue and invest in new and innovative ways to fulfill our mission to help people live healthier lives and help make the health system work better for everyone.

With that, I'll turn it over to Patrick.

Thanks, Tim. Across Optum, positive first quarter results reflect strengthened operations, continued investment in growth and changes that make engaging with us easier for patients and provider and clinician partners. I'll start with OptumHealth. Adjusted earnings of $1.3 billion reflect pricing and operational improvements that began in the back half of 2025 as well as actions taken to improve contracts and reshape our value-based care portfolio to better align with the original purpose and risk profile for that strategy. As we have shared over the past 3 quarters, our efforts are focused on management and process improvements that steadily improved margins at OptumHealth for 2026 and accelerate into 2027.

A key part of the progress is OptumHealth's returned to a disciplined, integrated value-based care model with increasing prices from health systems, rising patient acuity and higher consumer expectations, integrated value-based care is the most effective way to improve outcomes and manage total cost of care over time. We are privileged to serve over 20 million patients in our OptumHealth care models across the country, including over 4 million in fully value-based arrangements. Both patients and care providers do better when incentives are aligned towards care outcomes and not the quantity of services provided. For example, new research published in the American Journal of Managed Care showed that among nearly 2 million dual eligible patients, those in value-based care arrangements had 24% fewer acute inpatient hospital admissions and 29% fewer emergency room visits than patients in traditional Medicare.

We are improving patient experience and outcomes through efforts to stabilize staffing, increase productivity, improve scheduling and standardized workflows in both our value-based and fee-for-service models. It is this kind of operational focus that improves clinical outcomes by better focus and deployment of clinical resources to the right care, time and setting. And that gives us a clear path to long-term sustainable margin levels of 6% to 8%. One example, our West region in response to rising patient acuity, we deployed more data-driven clinically led navigation in areas such as hospital admission and discharge, skilled nursing facility transitions and emergency department of counters.

Since the last quarter, clinical reviews have increased by more than 50% and with earlier patient intervention and more consistent care coordination. We're already seeing inpatient skilled nursing emissions trending sharply below historical levels, including an approximately 35% reduction in skilled nursing admissions in the first month compared to last year. These efforts are expanding to additional markets and reflect how using real-time data, strong clinical leadership and coordinated care to improve outcomes can drive more predictable performance. Within our fee-for-service businesses, we brought more managed structure and accountability, starting with clear scheduling guidelines, stronger regional leadership and better data and analytics to match supply and demand. These new standards are now in place across nearly 70% of our settings and are on track to reach nearly 80% by the end of the second quarter. They have already driven a 12% year-over-year increase in patients facing hours which is better for both clinicians and patients. We are rapidly scaling self-service digital schedule, including AI-enabled tools that guide patients to the right appointment in the right setting at the right time for them. That's improving access, reducing friction and expanding capacity without adding incremental clinical burden.

Moving to OptumRx. We started the year by onboarding more than 800 new clients while reducing contact call center volume 25% through enhanced digital and AI-enabled self-service with member satisfaction over 95%. Our unique precheck fire authorization capability reduces prescription approval time from over 8 hours to under 30 seconds and provides a 68% reduction in denial due to missing information and an 88% reduction in appeals, easing interaction for clients, members and providers. First quarter utilization and drug cost trends were as expected, with scripts down slightly year-over-year reflecting some membership mix and attrition. As manufacturers continue to implement significant drug price increases and with more complex specialty drugs, representing over 50% of drug spend, the role of pharmacy care is more important than ever in helping patients access affordable drugs.

At OptumInsight, new AI-first products continue to gain traction. Optum Real helping payers and care providers deal more efficiently with administrative functions, such as claim adjudication and coverage validation and can reduce manual contact costs by 76%. Other AI initiatives help automate provider, payer and internal workflows, improving accuracy, reducing administrative burden and strengthening our role as a technology partner for the health system. Within OptumInsight, Optum Financial Services continues to perform well and has agreed to acquire Alegeus Technologies, a leading health financial services business. This is an important step in providing more flexible consumer-centered solutions for the people we serve. This transaction is expected to be accretive in 2027. Our AI-enhanced performance gives just a flavor of what Optum can do to help physicians and clinical care teams, payers and patients.

Wayne, I'll turn it over to you.

Thank you, Patrick, and good morning. Our first quarter results reflect improving fundamentals and a strengthening of operations across our businesses. As Steve mentioned, all our operating segments exceeded our plan for the quarter with particular strength in Medicare and OptumHealth. For the first quarter, we reported adjusted earnings per share of $7.23 well ahead of our expectations and backed by strong quality metrics, including cash flows and reserves. We continue to balance near-term performance with disciplined investment in longer-term strategic priorities. Total revenues in the quarter were $111.7 billion, reflecting 2% growth year-over-year, driven by disciplined pricing actions and member mix. We now serve 49.1 million total members domestically compared to 49.8 million at the end of 2025.

Turning to medical costs. Our reported medical care ratio of 83.9% compares to 84.8% in the first quarter of 2025 as a result of pricing discipline, strong medical cost management and favorable reserve development. The first quarter benefited modestly from seasonal dynamics, including lower-than-expected respiratory activity. Consistent with our guidance, we expect some of these dynamics to moderate as we move further into the second quarter, particularly given the impact of IRA-related changes to Part D seasonality, which meaningfully shifted the earnings profile beginning in 2025. Importantly, underlying utilization trends remain broadly consistent with our expectations, and we are seeing early signs of improved alignment between pricing and medical cost trends.

The operating cost ratio was 13.8% in the quarter, reflecting the timing of targeted investments across operations, technology and care delivery as well as incremental investments in areas such as AI customer experience, cybersecurity and community engagement. We also recorded approximately $900 million in incentive compensation for the quarter as compared to $35 million in the first quarter of 2025, reflecting our performance. We continue to expect operating cost ratio trends to normalize over the course of the year as these investments scale and begin to deliver productivity benefits. Our operating results were supported by solid operating cash flows of $8.9 billion in the quarter or 1.4x net income. Our capital priorities remain consistent: invest in growth, strengthen our balance sheet and return value to shareholders.

With our cash flow performance this quarter, we were able to bring the debt to capital ratio down to 42.9%, on track to our year-end goal of 40%. We initiated share repurchases earlier than anticipated and expect to deploy at least $2 billion by the end of the second quarter. Based on our current share price and the deep intrinsic value discount at which our shares are currently trading, returning value through share repurchases will remain a priority. And we anticipate further capital allocated into strategic acquisitions that support long-term growth. We will be measured in pursuing such assets while prudently managing our balance sheet.

One other item of note for the quarter. As previously discussed, as part of the restructuring actions taken in the fourth quarter of 2025, we will continue to remove from our 2026 adjusted results, the residual impacts of those actions. The net negative impact of these items was about $50 million for the quarter and was excluded from adjusted earnings per share. This impact includes, among other things, a $525 million gain on the sale of our U.K. business, which was successfully closed in the first quarter. We used $400 million of these net proceeds to provide additional funding to the UnitedHealth Foundation. Our intention is to improve the focus and discipline of our core operations while using proceeds from nonrecurring gains to further advance our mission by helping build healthier communities and a robust health care workforce.

In addition, at OptumHealth, we had the positive impact of the lost contract, offset by the final true-up of losses related to assets, which were held for sale as of December and divested during the first quarter. While it is still early in the year, we've updated our full year outlook to greater than $18.25 per share. This refresh view balances the performance we saw in the first quarter with a prudent level of patience to see how the remaining months evolve. Our earnings cadence for the year remains consistent with prior expectations. We continue to expect approximately 2/3 of earnings in the first half of the year and the remaining 1/3 in the second half. That said, the earnings profile varies meaningfully across the portfolio.

UnitedHealthcare earnings are over 75% weighted to the first half of the year. Similarly, for OptumHealth, we expect earnings to moderate throughout the year from Q1 levels with a significant majority of full year reported earnings occurring in the first half. In contrast, OptumInsight and OptumRx are more naturally weighted to back half with each generating approximately 60% of earnings in the second half. This pattern also similarly influenced the progression of our medical cost ratio with first half levels more than 250 basis points below the midpoint of our full year guidance and second half levels more than 200 basis points above. Overall, this has been a strong start to the year as we continue to improve our business performance and advance our mission.

Steve, back to you.

Thanks, Wayne. Before we turn to your questions, let me kind of summarize where I think our company stands today. This was a solid quarter across all segments, positioning us for similarly solid progress going forward. the historic disciplines and innovations of UnitedHealthcare are rounding back into play. OptumHealth is clearly focusing on the right basic elements and gaining traction. OptumInsight has untapped potential in an AI centered world. They're starting to sell business and building broader service relationships around that reality, but to evolve more modern scale solutions and for users to be ready to embrace them, will take more time in my mind later into 2026 and into 2027. Our enterprise-wide AI ambitions are meaningful and the agenda is in motion. We're getting after business units and functions alike and importantly, critical processes that are core to several of our businesses.

This is not just a matter of being more productive at what we already do, but a reimagining of how we organize, operate and work going forward. Few if any large organizations have ever done things like this at this scale. So we match our desire for speed with prudence and humility. We remain focused on advancing business and management processes and continue making progress in areas such as governance, transparency, stakeholder experience and more. Underpinning these steps is the undertaking to deeply reenergize our mission and culture across this company, an effort in which leaders and people are engaged avidly. This management team believes we are a long way from performing to our full potential, and we're committed to getting to that potential quarter after quarter and reporting to you on our progress.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from A.J. Rice with UBS.

Just maybe drill down on the comments around what you're seeing in trend. I know the last 2 years, I think the general consensus is the Medicare Advantage cost trend was running about 7% to 8%. I know that coming into this year, you guys described what you had been thinking about pricing for it being closer to 10%. You're saying it's been consistent so far with what you've seen historically and your expectations. I'm wondering can we focus in on is it running close to 10%? Or is it more in the 7% to 8% and if it's accelerated where -- as an accelerator, if it's moderated, where is it moderating?

Tim, do you want to take that?

Thank you for the question. So as we referenced broadly speaking, across UnitedHealthcare trend is progressing in line with our expectation. And again, our focus for 2026 was the focus on margin recovery and product stability across all of these businesses. And we continue to see the utilization patterns continuing that high elevated levels that we experienced inside of 2025. And you're correct. We were talking about a 7% to 8% trend in Medicare Advantage with pricing of assumption of around 10% into 2026. We're seeing some modest favorability in the government programs which would then include Medicare Advantage, commercial very consistent with from those expectations. It's really early right now. We'll have a more fulsome view and we talk in Q2 and can get down into some of the specific service categories. But right now, the takeaway is modest favorability in government programs, but progressing at those elevated high levels. we're not seeing any inflection point, and we're really comfortable with the pricing posture that we had coming into 2026 based on how things are playing out in the early innings.

Our next question comes from Kevin Fischbeck with Bank of America. .

Great. Maybe just following up on that trend question. I think you specifically mentioned this in context to the Medicare Advantage, but you talked about acuity and provider billing and how you're trying to address that. So can you maybe size how much of the trend component is this acuity dynamic? And then what exactly you can do to address it? And how it may happen? And then just clarify, was that really just an MA comment? Or was that a comment across all products?

Kevin, I think I can -- this is Tim. I think I can really address that across all products. When you think about trend drivers, our assumption is that the activity that we would see for 2026 will be pretty consistent with what we saw in '25. And as I just stated that's really playing out. What we've done is a couple of things. We talked in the Medicare Advantage space. of our product positioning, leading more towards HMO-based products as a means to be able to better manage outlier activity. But broadly speaking, it seems that you can think about in terms of how we're managing it as we have better tools to really identify some of the outlier patterns that we're seeing and were some of the trend drivers inside of 2025 and engage early with clinical programs with pain integrity programs, then also, in certain cases, take network actions, which we have done to be able to address those things. And we are making good progress in that area, and we'll continue to focus on affordability across all of the product lines inside of 2026 and probably be able to offer more information around that in the Q2 call as well.

We'll move next to Andrew Mok with Barclays.

Could you help us unpack what's driving the outperformance in OptumHealth this quarter, specifically such as contract or benefit driven versus utilization driven? And can you clarify what's driving the strong moderation in OptumHealth profit such that the majority of earnings are recognized in the first half?

Sure, Krista.

Yes. Thanks, Andrew, for the question. We're really encouraged by what we're seeing in the first quarter, which is really a direct reflection of intentional actions that we've taken over the past few months to improve core performance. I'll just call out 2 drivers of the performance improvement. First, we're seeing medical from prior periods restated favorably relative to our expectations. But this is actually largely concentrated in markets where we've really focused on clinical and medical management efforts. Patrick highlighted one of the examples in the West, where we saw an opportunity to help support members in key moments of transition. And as we've increased and invested in leadership and process improvement and clinical reviews, we've actually seen a pretty sharp decline and improvement in unnecessary inpatient admissions as well as SNF admissions. And again, just really pleased with what we're seeing. We expect this performance to continue and also are scaling some of those efforts across all of our markets.

The second driver I would point to is just we've seen continued improvement in operating performance, which includes cost management, which was a really big focus for us last year, but also just kind of fundamentals around operating execution. So the example we gave in our opening remarks just around scheduling. That was a key focus for us to make sure we're creating access points for all of our patients. And year-over-year, after that focus, we've seen an improvement, 12% increase in patient facing hours. That is happening actually across all of our regions where, again, we've just really focused on core operating improvement. So I would say while it's early, those 2 things are really giving us confidence that we're focused in the right places and that we would expect some of this improved performance to continue rest of the year. I think to your last question, just around pacing, with the move of OptenFinancial into OptumInsight, OptumHealth is -- really resembles our risk business in terms of seasonality. So that's really why the majority -- the significant majority really of the earnings will occur in the first half versus the second half.

Krista, thank you. So mostly utilization and the result of management.

Our next question comes from Justin Lake with Wolfe Research.

I wanted to stay on OptumHealth for a minute, and I appreciate all the details there. I wanted to make sure the -- first of all, the $1.3 billion of adjusted earnings, does that -- is that the right comparable to the guidance of $1.575 billion at the midpoint on an adjusted basis? And then Krista, you mentioned that some of the benefit was from PYD I'd like to understand what the internal expectation was because that $1.3 billion is significantly higher than I think anybody expected. I just want to understand what you were expecting internally and maybe how much of the difference versus internal was PYD versus run rate? And then lastly, maybe you could share something similar on kind of how the business is running at OptumInsight Rx versus internal expectations because those looked a little lighter than consensus was expecting.

Okay. I think that's three, Justin, if I'm counting. So maybe, Wayne, you might take the first. Yes, Krista dis the second, and then we'll maybe come back to the third.

Yes, Justin, let me unpack this. I think I can address this fairly easily. As you think about OptumHealth, yes, you should be comparing the $1.3 billion of adjusted earnings to the guide of $1.575 billion that we provided originally for our true run rate. We believe that as a clean view of looking at the business, and removes noncash accounting implications of the lost contract as well as the final disposition of assets in the quarter. The one thing I would say around OptumInsight and Rx very similar to OptumHealth. I think it's very important to recognize in the prepared remarks that these are fully burdened by incentive compensation this year in Q1, and they were not fully burdened in Q1 of last year comparing $900 million and roughly $35 million. So that really creates an unusual anomaly for our sell-side investor analysts out there that are trying to model this, and that was why we tried to call that out. I would say that all 4 segments did actually exceed our internal plan expectations. Krista, do you want to maybe address the prior year?

Yes. Yes. So to your question, just on some of the prior period development, while some of this was favorable to our expectations, I just also want to reiterate, it's really based on specific actions that we took in the fourth quarter. So the performance is coming in a little bit better, but I'm not surprised by just how it's coming in, given some of the intentional work that we've done. I also mentioned that we are seeing some improvement in our operating costs, which is also contributing. But also, it's early in the year, and we're taking a really prudent approach to make sure that we see another quarter of medical mature. And then frankly, all to just continue to focus on some of the basic blocking and tackling. There still remains a significant amount of opportunity for OptumHealth to achieve its full potential. And so Again, we're just focused on core performance and improving that consistently across our markets.

And we'll move now to Stephen Baxter with Wells Fargo.

A couple of questions about Medicare Advantage. I guess with visibility to the final rate, I would love to hear if you could discuss your confidence level on further margin recovery for 2027. And then just as add on to that specific question, I think about the moving parts. Have you indicated that you'd participate in the balance program for GLP-1s? And if you are indicating that you participate, you anticipate the industry thresholds for participation will be met.

Bobby, do you want to take that?

Yes. Thanks, Stephen, for the question. So on the final notice, maybe just to start, I do want to express my appreciation for the active and ongoing engagement that we've had with CMS. The changes made by CMS in the final notice were both important and impactful for the program and more importantly, for the Medicare beneficiaries. However, also I need to acknowledge the reality that the -- why the expected medical trend for 2027 is still meaningfully above these funding levels. So consistent with our strategy in 2026, we're going to remain focused on financial sustainability, product durability and then the path to margin recovery that we're on within that 2% to 4% long-term range that we've discussed. For 2026, maybe just to hit that as a jumping off point. We're only a couple of months into the year, but feel good about achieving the 50 basis point year-over-year margin advance that we had previewed last quarter.

And then for 2027, our aspiration is to be in the upper half of the 2% to 4% long-term range and doing that while continuing to deliver the quality the value and delivering on the full expectations that I know that our members have of us. As it relates to your question about the balance program, so we've been a good active dialogue with both and CMMI on that front. We'd like to find a path to yes, there on coverage over time, but there are notable challenges and outstanding questions with the currently planned structure. So we're still working through that process internally, and we look forward to continuing the dialogue with provided some specific recommendations that we believe would serve all stakeholders really well. As you know, we'll be participating in the bridge demo here starting in July, and I think we'll learn a lot about the best way to advance this priority through that experience.

Our next question comes from Lisa Gill with JPMorgan.

Just want to understand a couple of things. The first would be the OptumInsight and OptumRx really being back half weighted. It seems like that a little bit higher than it's been historically. So is there anything to think about there? And then secondly, since we last spoke last quarter, the PBM legislation has passed. And just want to understand, are there any incremental investments that you need to make? I know you've been a lot more transparent than others. But is there anything to think about? And if you do come to a settlement with the FTC, do we need to think about redomiciling the GPO to the U.S.? And is there any cost there?

Yes, we'll handle those separately. Wayne, do you want to talk about the slope?

Yes. The one thing I would say on the slope is for OptumInsight, I would view this as what we're doing is a couple of things. One is slowly decommissioning old products that were not AI-based and reinvesting in those products through the investments. So you're getting the slow rundown of those products in Q1 and then the investments to transfer those over into more AI based. And I think you'll see the benefits of that coming into the back half. Relative to OptumRx, we are onboarding almost 800 new clients this year, of which the vast majority of those will be going into next year in terms of [indiscernible] run rate. So you're getting the full impact of those onboarding starting early in the year. But I think as the year progresses and we begin to migrate and bring folks over, you'll start to see that subside. And I would also just remind you that we've assumed a little bit of lower script volume, obviously, due to the membership that we had. But as the year progresses, I think you'll see some of our G&A initiatives and AI investments coming through, and that will actually improve the outlook in the back half.

Thanks, Wayne. And Patrick or Jon, do you want to address PBM?

Sure. Happy to. Thanks again for the question, Lisa. So if I look at PBM, first, let me hit the -- I'll hit the plush line, which is we've accounted for these impacts in our guidance both for the remainder of 2026 as well as our out-year guidance. As it relates to the GPO, just to hit that one head on, our GPO is domiciled in the U.S. So no impact, no impact as we think about GPO. Broadly, you don't want to hit a couple of things. First, look at what's happening in Tennessee, and I would just say that we're really concerned about that legislation as we see today primarily for what it means for access. What's playing out in Tennessee is targeting at the retail pharmacy space, but the impact here goes well beyond the incentive scope of retail. Specifically for us, will harm access for nearly 150,000 Tennesseans with complex conditions. Think cancer, think HIV, think serious mental illness that rely on specialty and behavioral health pharmacies designed to uniquely serve those populations. So very concerned, and we'll continue to advocate for those that we sold in Tennessee and elsewhere.

Beyond that, with other emerging legislation, I want to say that our work over the last 2 years has put us in the leadership position in the industry, and you referenced that with the transparency comments. It goes even beyond transparency. There's 4 drivers here, Lisa, maybe just to touch on. First is the independent pharmacy stability. As you know, again, we don't play in the retail space. We rely on a vibrant pharmacy network for more than 80% of the claims that flow through our PBM. And so we're well ahead of the curve with 100% of our independent pharmacies reimbursed at a cost-based reimbursement mechanism. We're leaning into health system pharmacies through our CPS business as well and expanding the reach for those pharmacies. The second driver is consumer affordability. On that front, Price Edge now serves 14 million members. And between Price Edge, specialty savings IQ and our critical drug affordability, we'll deliver more than $1.5 billion this year and affordability to the patients that we serve through this business.

The third driver is the patient provider experience. Patrick mentioned PreCheck my prior auth on this one. We're moving that from scale with the Cleveland Clinic to serve more than 20 health systems this year. and continuing the work and the strengthening of prior authorizations for how many drugs. And I'll round out lease on payer transparency. This is what's driving our growth. Wayne mentioned a record growth year experiencing another strong selling season, and that's largely driven by a compelling 15-part transparency guarantee for those that we serve. So we feel good about our leadership position and accounted for all this in our guidance. Thanks again for the question.

Patrick, if you want to comment?

Just on overall Optum because it's come in a couple of ways. Look, all 3 segments, as we said, exceeded expectations. If you look at OptumHealth, core management of medical trend and operational execution, OptumRx has a lot of momentum in the marketplace, winning new clients. and renewals, but also ahead in the policy agenda and leading. And then OptumInsight, as Wayne and others mentioned, Sandeep and team leading AI first product and services that we're making those investments now. And those investments are starting to pay dividends. And as Steve said in the opening, we'll pay dividends in the long term.

Yes. And ahead on PBM business practices because we've been at this for a couple of years. So great question.

And we'll go to Dave Windley with Jefferies.

I wanted to come back to OptumHealth or -- yes, the OptumHealth on the PDR and the lives associated with that, I believe, are in a couple of tranches of that add up to 1 million lives that you're kind of in various stages of negotiation and scaling on I wondered if you could give us an update on status of those? And are you at a point where you're having conversations with new provider groups or new populations of members that you could add into your value-based care ACE? Or are we still rightsizing down to the logical profitable base of lives that you can manage in VBC?

Okay. If I understand that, basically, there's 2 pieces to that, the PDR and then kind of how we're engaging in the market. So Wayne will touch on the PDR and Krista will pick up the market.

Yes. Thanks, Dave. Let me just quickly on the PDR. We laid out, we estimated the PDR to be for the full year. It was north of $600 million and that was a reflection of contracts that we fully anticipate either renegotiating to appropriate rates or we will delegate or exit. You'll see the numbers actually slightly -- slightly lower in Q1. That is a reflection of some of the assets that we disposed of in the quarter that had a PDR associated with them. But the team is still in active negotiations. I'll like Krista comment on that.

Yes. Dave, thanks for the question. So we -- I mean, we are really in active negotiations and continue to partner with all of our payer partners just across our portfolio and really pleased with the progress underway. We started significantly earlier. We've put a lot more data and infrastructure and support and leadership behind this. And frankly, at this distance, there's still a number of levers we can work through with all of our payers, whether that's product and benefit design for 2027, network opportunities, looking at the markets and the footprint that we're in as well as recalibrating appropriate rates. And I think just like Wayne mentioned, I'll reiterate our confidence in making sure that we get these items settled and get into a better position for 2027.

I think that kind of reflects a little bit of the cultural change in terms of the way we're engaging and how we are working with relationships kind of across the board in a constructive way. So great response, Krista.

And we'll move to Ann Hynes with Mizuho Securities.

I just want to focus on AI. I know it sounds like you're doing a lot of investment. Can you share some maybe targets you have on how you think AI will -- from the cost side, maybe like SG&A, do you have a target internally how you think it could save? And then just also on the revenue side with OptumInsight, do you think your investment in AI could like structurally shift the growth rate of that segment?

Yes. I think true on both fronts. So Sandeep, do you want to start?

Sure. Thanks, Ann, for the question. As we said earlier, we are spending about $1.5 billion in AI across UnitedHealth Group. Think about it this way, 1/3 of this is explicitly invested into software products and platforms, accelerating OptumInsight's transition of business models into an AI-first software and services firm. The remaining 2/3 is spent across signature end-to-end processes and functions across UnitedHealth Group. Let me give you some examples. Areas like consumer member experience, you must have noticed we just launched every generative AI chatbot answering member questions for UnitedHealthcare, which will be expanded to over 20 million members by the year-end. Another example is in administrative simplification, Tim spoke about prior auths and the automation in UHC as well as OptumHealth and OptumRx. Our third area is clinical workflows. For example, ambient rollout for physicians and nurses in OptumHealth and then summarization capabilities for nurses and clinical reviews. And then functions like HR, finance, marketing, fundamentally reimagining these processes and areas.

In the end, all internal investments in AI use cases is through OptumInsight and has the potential to be commercialized outside of UHG, and we expect to return conservatively 2:1 on these programs over the next few years, many of them paying back within the next 12 to 18 months. OptumInsight AI-first products are already seeing great external traction. Example, this quarter, we launched Digital prior auth in keeping with the enterprise priority on prior auths. We already have a couple of payer clients and provide clients using them another 50 clients in the pipeline and the early results are that prior auths submitted through our software have shown a 96% approval rates on first submissions. Optum Real, an AI-first platform launched a couple of quarters ago, now has 0.5 billion transactions year-to-date and expects to close the year at over 2.5 billion transactions. And Optum AI, our new AI consulting arm has already signed its first few contracts, helping companies like LabCorp through their operational AI initiatives. So that should give you a good sense of AI inside and outside the company.

Thanks, Sandeep. So I think really good potential. I think we're going to be very measured as we go about this in terms of expectation because I think it's new for everybody. But definitely, we are leaning into this. We think it can be quite impactful to our NRIs and to this whole industry. So good question. Thank you.

Our next question comes from Erin Wright with Morgan Stanley.

Great. I wanted to just follow up on the AI and automation front. And what should we though expect in terms of the savings accelerating in 2027, '28 I guess, should we anticipate that the cost and contributions or how do we weigh the cost and the contributions of some of the efficiency gains there? And how could this accelerate or even drive up to the long-term target margins across the different segments? And then just one quick follow-up on capital deployment. Just in terms of buybacks, you announced a $2 billion today. I guess I just wanted to be clear what was embedded in guidance from a share repurchase standpoint.

I'll let Wayne handle the second one. The first one is a very good question. This is kind of uncharted territory when you think about the scope that this could have. So we aren't giving any guidance with respect to the compounding effect, if you will, of these kinds of changes across the business, but I will comment and reinforce something Sandeep said, and that is we're really deploying it kind of across the enterprise looking at our large core processes with an idea of modernizing those and then ultimately taking those to the outside marketplace. And then our -- the large overall functions typical of an organization of this size and scope. And I think the potential is great. But I think it would be very premature to offer you kind of guidance in terms of what the impact of those could be. But I wouldn't be making these investments if we didn't think that these were not only strategically important to the -- maintaining the competitiveness of our organization, but also having long-term positive impact, mostly for the consumer and the experience that others will have with us. And then secondarily, the -- with very natural productivity list that it should produce. Wayne, do you want to take the other one?

Yes. Relative to capital deployment, our original guidance was approximately $2.5 billion back half loaded. So think of later Q3, Q4. At this stage with the intrinsic value discount we see -- we thought it was important for shareholders that we would get at that sooner and the confidence we have in our results. So no changes in the guidance but view it as we are moving quicker at this stage.

And ultimately headed back to kind of where we were. So this is kind of restoring where we were in terms of this program that had been in place for almost 20 years.

Our next question comes from George Hill from Deutsche Bank.

A quick accounting question is could you quantify the PYD or the impact of the PYD in the quarter? And is there a way to break out between the UHC impact and the OH impact?

George, I think ultimately, you'll see when we file the Q -- PYD on a net basis is around a little bit north of $500 million for the organization. While that benefits the quarter, it's important to recognize that we believe we've established somewhat of a similar a level of conservatism or prudent view, I would say, at March 31. Until we can see more of this development in April and May from Q1. I think at this stage, it would just be prudent to have a bit of patience right now. But that's roughly the net number that came through from the prior year.

I do think that -- everybody needs to understand that this is the first quarter. Second quarter is usually quite informative in terms of the rest of the year. And so we're, I think, appropriately positioning ourselves based upon what we see so far. We'll take 2 more questions, please, and then we'll be available to answer questions through the balance of the day.

Our next question comes from Michael Hall with Baird.

Just a quick clarification. First, how much of the $400 million contribution to the UnitedHealth Foundation is OptumInsight? And then my real question, just wanted yes. Sorry. And then my real question I just wanted to ask about the proposed MA risk model recalibration. So I understand it's not late. But when it is eventually implemented, possibly 2028, a significant number of chronic condition code reimbursement is being cut. And the magnitude of those cuts is what appears concerning to us top 10 ACC code being chronic condition and making up the majority of [indiscernible] prevalence all across the industry and presumably higher for value-based care providers. So with the reimbursement of some of those codes being touched down to 20%. This concerns us for OptumHealth. So again, I know it's delayed, but when it is eventually implemented, how do you expect the impact to OptumHealth versus industry average? Do you still believe impact should be roughly in line with the industry average. So how do you justify that when your value-based care business is purpose-built to care for polychronic members and therefore, disproportionately exposed to these material cuts to chronic conditions?

Well, I'm not sure that's a question or a statement, but we'll respond to that. Let's take the first part.

Yes. Relative to the $400 million contribution to the foundation, we are trying to match those contributions relative to where the gains reside. So when we sold and closed our European operations. The gains were all within OptumInsight, north of $500 million and the entire foundation then came out of OptumInsight. And that is included in the reconciliation to our adjusted segments that we provided in the press release.

And that's going to be a pattern we follow to the extent we get gains and things like that, we are invested in the notion of the foundation can be used as a means to really advance health care system kind of be part of the responsibility we bear for that. We did that in the past and had kind of strayed from that in the last few years and just where we're returning to that theme with real commitment. And Bobby, do you want to talk about, start with it?

Yes. Thanks, Michael. I'll start with kind of our view modernization of the program, and I'll kick it to Krista and talk a little bit about the OptumHealth dynamic. So maybe just kind of big picture, we're again, very appreciative of the active and ongoing engagement with CMS in the zones around modernization opportunity. I'm not going to speculate on what changes could happen to the program in future years. That said, we do believe there are opportunities to improve the program. We support modernization. We for example, advocated for Chart linking, which was just finalized in the final rule and final notice. We are committed to making the system simpler, more efficient, more transparent, and Krista will get into it, but we see value-based care as a critical and foundational tool to ensuring that success long term.

In terms of risk adjustment, specifically, we actually wrote to our modernization agenda in response to both the advanced notice and proposed technical rule. The big picture, we remain supportive of a policy that advance it improves the program. But I think as you saw in this last rate cycle, it's important that we all acknowledge that this work is complicated and it should be done thoughtfully with appropriate testing and staging and with program stability at the forefront. And in that regard, we stand ready to partner in any and all respects. So maybe then, Krista, if you want to add on the value-based care OptumHealth piece.

Yes. I would just start by echoing what Bobby said just, again, appreciative of the improvements may and, more importantly, their commitment to the Medicare Advantage program and really foundational their commitment to value-based care. The direction of their comments just continue to reinforce what our patients experience and what our payers experience which is our value-based care model delivers better outcomes, improved health status, better experience and a lower total of care for the patients that we serve. And that alignment of incentives is really central to CMS' goal which they have stated is for all of Medicare, not even just for Medicare Advantage. And so again, just reiterating our commitment to value-based care has really never been stronger. Our focus is really on just improving our execution and our core operating performance in our model. working closely with our payer partners to thoughtfully expand this to more patients and more providers over time. And at this distance, it's really too early to suggest what impact could be for 2028. But I would also just say inside of some of the post changes, there were puts and takes for complex populations. And so -- and that's really where our model has a significant benefit for patients. as well as our payer partners. And again, we just remain focused on core fundamentals, improving outcomes for our patients and making sure that we can continue to scale value-based care for more patients over time.

And that's you carry the day at the end of the day. So we have time for one more question, and then we'll be done.

Our last question comes from Sarah James with Cantor Fitzgerald.

I want to try to unpack MLR outperformance under the length of cost categories. Can you speak to trends across physician hospital and drugs, how those are performing in the different books versus expectations? And then bridging that to your earlier comments on traction you're seeing from engaging members in clinical programs and network actions, can you clarify what cost categories you're seeing that move the needle on?

Sure. Tim, do you want to comment on it?

Yes. Thanks, sir, for the questions. So again, a little early to get into that level of specificity on utilization patterns. But I think generally, this modest outperformance that we've cited in government programs under the umbrella of UHC, which is largely aligned with our expectations. There's no category I would spike out as being out of line compared to what our expectations were and the modest favorability that we've talked about around government programs is really kind of across the board based on the visibility that we have at this distance in Q1?

Patrick?

Just on the Optum side of health, OptumRx is purpose-built to help payers and employers manage drug cost and we'll save billions and billions of dollars again this year, focus on affordable access to drugs as Jon described, and has been leading in the marketplace. On OptumHealth, as Krista described, these are programs that decrease admissions for patients, keep them out of the hospital, get people into their homes where they want to be and care for them across the care continuum, and it's really purpose-built for some of the most complex patients that need this care the most. And our payer partners, whether that's UnitedHealthcare or others, as Bobby said, and we hear this from external payers as well. With that care for their members because it's better quality, better experience and more affordable care.

Thanks, Patrick. So thank you all for the time today. because we kind of build on the momentum as we get started in this year, we realize there's a great deal more work to do. And I think you'll see sustainable progress to position this enterprise to serve all of its stakeholders in a progressively better way quarter after quarter. That's kind of our agenda. And so we're going to return to that, and we'll see you next quarter. Thank you.

This does conclude today's conference. Thank you for your participation.

Great. Welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mok. I'm the facilities and managed care analyst here at Barclays, and we're pleased to welcome back UnitedHealthcare to the conference. Welcome.

Thank you.

With me on stage, I have Wayne DeVeydt, CFO; Patrick Conway, CEO of Optum; Bobby Hunter, CEO of Government Programs; and Julia Murphy, Vice President of Investor Relations. Julia, why don't I kick it to you for opening comments?

Great. Thank you. [indiscernible].

Great. To kick things off, Wayne, as you look at the first few months of the year, how is performance tracking relative to expectations across your major business lines?

Yes. So maybe to start off and just kind of anchor everybody in the audience. As a reminder, we guided for greater than 8.5% growth for the year. I think it's fair to say our guidance was both prudent and hopefully conservative. We took a view that we would grow across all of our lines of business this year. We're 2 months in. It's early, as you know, and 2 months isn't a trend necessarily. But I would say that we're encouraged with our strategy. We're encouraged with our pricing and product design. And I would say things are lining up very nicely with the expectations we laid out in our January call around full year outlook at this stage. Again, early in the year, but very encouraged across the board.

Great. Well, let's dig into the Medicare segment. I think medical cost trend ran around 7.5% in 2025 and your 2026 bids and guidance assume an acceleration to roughly 10%. So can you help us understand what's driving that increase from 7.5% to 10%?

Yes. Do you want me to jump in?

Yes.

Yes. Thanks for the question, Andrew. So maybe just to ground on just one of the words you used, you talked about an acceleration of trends. So maybe I'll just kind of break it into a couple of components for you. We completed 2025, and we talked about more in that kind of mid-7% range. And then there's kind of a roughly 250 basis point expansion of that trend to get to what we have projected for 2026. Importantly, inside of that number for '26, the core utilization, what we call residual trend, we're assuming constant. So we're not assuming acceleration, not assuming deceleration, a constant assumption there.

And then when you think about the bridge to where we landed for 2026, it's really kind of simplistically about 2/3 known rate elements. So I think the physician fee schedule is a great example of it, right? The return of the doc fix for '26 after not having it in '25 creates a bit of a meaningful kind of trend turnaround as you step into the year, maybe inpatient rates with where those ultimately came in is another good example.

And then the other 1/3 we've talked about is more of an accommodation for some of the unknown risk elements. And obviously, those unknown risk elements come to fruition in different ways. One of them that we had in our mind certainly was around tariffs. More to play out there. We're 2 months into the year. So I'm not going to predict what's going to happen on that front, but I feel good about the accommodation we have there on that unknown piece. So I think to maybe kind of just play off what Wayne said, we took a very prudently conservative approach when we thought about pricing for '26, when we thought about the assumptions for '26, really early in the year, 2 months in, but I feel good about kind of where things sit right now and remain appropriately cautious as we look at what's happening, what's emerging, and we're using all of our tools to make sure we got our eye on everything.

Great. And on the 2027 Medicare advanced notice, there's been a lot of discussion on the rebasing of the risk model, which places greater coefficient weights on skin subs at the expense of more chronic conditions. That seems like a fairly obvious flaw in methodology. Is that argument resonating with the current administration? And how would you -- how likely do you think it is that CMS revisits the calibration here, potentially rerunning that regression after normalizing for those factors?

Yes. Yes. So the good thing is we submitted our comment letter. That comment letter is out there, and we really kind of stepped through all the key elements that we focused on in our overall response. The one that you're talking about, the rebaselining was certainly one of them. And I don't necessarily disagree with the premise. I think that one of the challenges when you use 1 year of data to calibrate the model is there's going to be anomalies in any given year, right? And in 2024, in particular, that anomaly, most pronounced was around wound care and some of the skin substitute elements. So what you would see in our comment letter is we actually gave a nice little graphic of kind of how that distribution plays out, and you can kind of see how we are viewing that. It does show obviously skin sub is a bit of an outlier. So what we wrote to because I think there are challenges, this is a complicated -- recalibrating the model is not an easy task. So I don't want to make it sound like it's something easy for CMS to do. It's a challenging process. So whether or not they could actually kind of fully recalibrate and do something different in this time frame, I don't know, I'd kind of leave that to them, but that's a tall order. So what we wrote to is, do you consider a deferral so that you can rerun it and take the time to maybe take a little bit of a modified approach. Or do you phase it in, right? And similar to other risk model changes in the past, do you do more of a phase-in to kind of mute the impact and maybe give a little bit of time to then do some of that recalibration work. And I think any of those solutions we've kind of proposed to them are as things that we're supportive of. And ultimately, we just -- we want to get it right. Right? We want to get it right. They want to get it right and move the industry forward in the right spot.

Have they been receptive? Is the dialogue constructive, do you think?

So during the comment period, right, they're somewhat limited on what they can say. So I'm certainly not looking to put words in their mouth because there are very clear rules of the road of what you can do in that engagement. But we have had opportunity to meet with them, right? We've had opportunity to meet with them. And just like we do it kind of in all comment periods, really ground our perspective in data and just bring the data forward and kind of let the data speak -- and we've had the opportunity to do it, which I am incredibly grateful for to just bring our data to the table and engage in that dialogue. What they do with it, obviously, is their discretion. But we'll continue to bring that forward as we identify new things, learn new things and be as supportive as we can in that dialogue that we're having.

Great. Another point you raised in your comment letter was that AI technology and revenue cycle tools are structurally increasing productivity and revenue yield across the health care system. These are relatively new dynamics that CMS may not have had to consider in the past. So from your perspective, what specifically needs to change in how the administration builds its forward forecast so that technology-driven effects are reflected accurately rather than mistaken for temporary noise or coding behavior?

Yes. Yes. So I mean -- and we wrote to it that way because that is something we've seen, and we've talked about it, right? We talked about on our earnings call, some of the emergence of that trend acceleration in 2025, obviously, that had an impact on us that we then had to consider when we thought about pricing and the design for '26 and beyond. And I think what we've really grounded for CMS and the folks that we've talked to when we've had these discussions is about the importance of, again, really grounding the utilization, the unit cost and the forward-looking assumptions in just the reality of what we're seeing in health care costs today, right? And so we're -- I think specifically, we're not asking for an accommodation in '26 and '27 assumed trends in growth rate of acceleration, we're not, but we also don't believe that a significant deceleration is probably the right spot to be either and certainly not something that we're seeing in the provider behavior, the utilization of services, the intensity of services. So for us, it's really about when we look at what's happening in physician utilization or inpatient utilization, we're looking more for consistency, right? Consistency from what you've seen in '24, '25 and how that's projected forward to '26 and '27. And the same thing really applies around the rate element, more about consistency than assuming an acceleration or deceleration. And I think that would get the industry and the overall funding level to a spot where the rate does much kind of more appropriately reflect the actual cost of health care today and the importance of benefit sustainability and other things for the consumers that rely on MA.

Great. Let's move on to some of the other business lines. In Medicaid, I think you reiterated expectations for margins to be down about 100 to 170 basis points. Can you first give us a sense for how Medicaid medical cost trend developed in the second half of '25? And what level of trend you're assuming for 2026? And then related to that, can you provide an update on any conversations around 4/1 and 7/1 rate negotiations?

Maybe let me first frame up kind of our outlook and some of the key dependencies. So -- and then I'll have Bobby comment a little bit more on trend and what we're seeing. But the one thing to keep in mind is that we know that, generally speaking, states are a bit slower in responding to trend in the beginning periods in time. And so part of our goal is to recognize that some of these rate increases are coming in on July 1, right? So relative to our expectations of 6% to 7% kind of rate increases, we're optimistic based on the early negotiations and early feedback. But as you know, until you get to July 1, you don't really know where this plane is going to land. And so I think that's an important part. And with that in mind, it was important for us as we finished out '25 to take a conservative posture on trend because again, until we have more clarity around the rate environment, it would be inappropriate and obviously not prudent to lean in. And so I think it's fair to say that our assumptions at year-end were conservative, and we're seeing some of that play out early. But nonetheless, this is really about rate and where we're going to go. But Bobby, anything you want to add?

Yes. No, super well said. I would just say that from a pure trend perspective, I mean, we're assuming pretty good consistency between '25 and '26. And in '25 for us, trend was above where the rates came in, and we're assuming the same thing is going to exist in '26. We're doing everything we can to address affordability to partner with states. We've got some kind of known hot items, I think, for Medicaid broadly around behavioral and specialty and some of the home care services that we're partnering with states to try to find solutions and act on those as quickly as possible, but there does still continue to be a disconnect between the actual trend and the rates that we're pursuing.

Great. And turning to the individual ACA exchanges. I know it's a small business for you, but there is a dynamic situation. So I did want to touch on it. You previously indicated exchange membership could be down more than 500,000 for the year. As we approach mid-March, can you share how effectuations are tracking so far? And how much of that expected decline you anticipate to see in the first quarter?

Yes. So 500,000 is still kind of the right zone for us. So we're not moving off of that number. I would say as you pace through the first couple of months, obviously, what's happening is some of the grace period wear off and disenrollment that comes from that. And I would say with what we've seen the first couple of months. I think that we're still tracking towards that realization of the 500,000. Think about roughly half of that likely as a result of some of that kind of grace period time frame. So I think kind of end of March, beginning of April time frame. And then the other half really plays out throughout SEP as just kind of more natural wear off occurs of the enrollment and then with some of the SEP rule changes, less of a kind of pipeline to fill that gap.

Great. Turning to OptumHealth. I wanted to clarify some of the fourth quarter items and run rate. OptumHealth underperformed guidance by, I think, roughly $600 million in the fourth quarter. You attributed that primarily to onetime items. Can you walk us through the key drivers of that shortfall and help us understand how much of the $600 million is truly onetime as we think about the right run rate looking ahead?

Yes. So about 70% is onetime items. The other 30% investments, think value-based care investments, clinical investments, infrastructure investments to support value-based care, and those continue to run into this year, to be clear, as we make those investments for the long term. We're confident in OptumHealth in the guidance we put out for this year and the growth in that guidance, as Wayne alluded to. We're also confident in the long-term trajectory of OptumHealth, both on the value-based care platform and the integrated nature of that platform. And as a reminder, it's a diverse set of businesses. So we also have services, ambulatory surgical centers, home health, hospice, so a diverse platform that we're confident in the long-term growth.

Right. And you also booked a $620 million PDR for expected 2026 contract losses. Were those related to external third-party contracts or internal UHC contracts? And mechanically, should we consider that a tailwind for 2027?

Yes. So I'll start, Wayne, feel free to add in. So external and do think of it, those contracts, we will either exit them or get the rate update we need for 2027. So that does provide that tailwind for 2027.

Yes. The way to think about it is with the lost contract, in theory, there's an accounting benefit that comes through in 2026 because you're amortizing the PDR. We are carving that out for our non-GAAP so that you can see we're not taking that benefit when we provide our guidance. But conceptually, that benefit becomes real and tangible in '27. And the way to look at it is, I think a question we get is, but are you really going to be able to get rates where you need them on that big of a chunk of a loss reserve contract. But these contracts range from losing a negative 2% margin up to, say, a 10% margin, 11% margin. And so there is a very large chunk that's very close on the J curve to where the profitability needs to be for us. And so we do think we'll recapture a substantial portion of that, meaning we're either going to get priced right or we're going to exit it. And so ultimately, it does become a tailwind for 2027.

Great. And sticking with Optum, after stripping out Optum Financial, which was running around, I think, 44% margins in 2025, the stand-alone OptumHealth pro forma margins finished at around 1.5%. Could you outline the key building blocks of the margin bridge from current levels back to the 6% to 8% long-term target? And what underpins your confidence in that margin target without the higher-margin Optum Financial business?

Yes. So we are still confident in the long-term margin target. So let's break down the business. You've got integrated value-based care, where a couple of things that are positive attributes to call out. One, you're at or above that target margin for the more mature cohorts of patients. You're also at or above that target margin at about 30% of geographies. So that shows you we can get the performance to that level in integrated value-based care. And we've rightsized the risk platform, both in terms of geographies, arrangements where we pulled back from PPOs. And as Wayne and I just talked about, also contractual changes, we were able to accomplish much of that in '26 and then we'll move forward in '27 and are in those negotiations right now with our various payer partners. So that's sort of the integrated value-based care.

The other attribute I'd call out within OptumHealth and these businesses service that integrated value-based care platform. You've got things like home health and hospice, double-digit margins growing, performing well. Ambulatory surgical platform, around 20% margins growing, performing well. So within OptumHealth, you've got a diverse set of businesses, including ones in a double-digit margin territory. You've also got payer and employer services, as we've said, double-digit margins growing, performing well. So it's a diverse business that there's multiple pathways to get back to that target margin range.

Andrew, the one thing I would help people anchor on is if you think about this year, we said we would improve margins by at least 30 basis points. That's our floor. We would obviously hopefully do better than that as we progress this year. But that's carving out the loss contract reserve we talked about, which obviously next year is a dollar-for-dollar improvement in margins. And the one thing we've highlighted is a lot of these on the J curve are right at the point of an inflection where you'll start to see the positive. So I think as Patrick said on our year-end call, we're not looking at basis points for 2027. We're looking at points of improvement in the margin in '27. And this year is kind of that final year of lapping the investments, getting through the loss contract window, and then you'll really see the ramp-up happen in '27 and '28.

Yes. And the 2 big -- as Wayne said, the 2 -- the rate notice and where it lands is a big factor for '27, which you heard from Bobby and we agree. It's not reflective of the underlying cost trends. So we'll watch that closely and our payer negotiations. So we're confident in the progression over time, as Wayne said.

Great. There's been a lot of moving pieces in OptumInsight over the last few years. Taking a step back, can you help us understand the composition of that business today, maybe bucket the earnings into core categories like SaaS, consulting, managed services and financial. And then talk about how you would rank order the investment priorities across those groups going forward.

Yes. So you've got a payer-oriented business where we work with about 8 out of 10 payers across the country, by the way, through things like authorizations, clinical programs, really supporting their back office through technology. That business is performing well. And as you put AI behind that business, it creates even more opportunity. You've got a provider-oriented business, I think RCM, et cetera. Once again, a business with a strong base. We also work with about 8 out of 10 hospitals and health systems across the country in some way. And once again, you put AI behind that, tangible example. There's a product called Crimson, which I -- when I used to work in health systems, I used 20 years ago, still exists, still a big customer base. You put AI behind it. It's now Crimson AI. Actually, the savings, and we put out a release on this, the savings, the impact, et cetera, with our customers is greater, and you're seeing greater sales. So a tangible example of powering product by AI. The other one that we've talked about publicly is OptumReal, real-time settlement of claims really across payer and provider, partnering with UHC first and now partnering with other payers and providers to settle that claim in real time. So the payer knows what they're paying, the provider knows what they're paying. And by the way, the consumer knows their co-pay.

Now bringing Optum Financial, which you may ask more about. Now Optum Financial can help settle that transaction. So that -- and so we're increasingly moving to AI products, software-driven products that we're seeing a lot of momentum in the marketplace. Now I will say this will be a journey. If you're selling products now, that's hitting '27, '28 and beyond. We're still developing a whole portfolio of products, investing about $1.5 billion into AI across enterprise this year. So very bullish about the long-term trajectory of OptumInsight and Optum Financial. I also want to say, if you think about this year, it's an investment year really building up to that long-term growth.

Great. Speaking of investments, I think you pointed to $1 billion of mostly AI-enabled cost efficiencies in 2026. Can you give us a sense for how much runway is left on these efforts and how we should think about the impact beyond 2026 and specifically looking at what impact we should expect on the G&A ratio?

So we're in the very early innings. And I would literally put the AI journey is the bottom of the first inning at best. And while we've taken out almost $1 billion in costs going into '26 related to AI, we think that number actually incrementally grows going into '27 and incrementally grows as we move into '28. Ultimately, the impact on the OCR is one to be determined. And the question is about journey and pace. What I can tell you is our $1.5 billion we're investing this year is still not enough for where we want to take this company in the next 2 years. And so we've already started building the further pipeline of how can we accelerate that even more aggressively in '26 and then going into '27. Ultimately, the impact on the OCR should be significant. Again, we should be talking points, not basis points. And I think this is an industry, as you know, that generally has moved in the basis points because of a top line revenue. We're talking about moving at points because of real cost takeout and real efficiencies. So I don't want to commit to a number, but I would say ultimately that there are functions where 70%, 80%, 90% should be fully automated from start to finish. Just a point of reference though, you might find interesting. We had probably our best January enrollment and call center experience that we've had in the company's history. We obviously used AI as a major component of it. In one single day, we answered over 3 million calls. We had over 45,000 of those happen simultaneously. The average speed of answer was 18 seconds and first call resolution was north of 90. It's it's really unbelievable when you look at our history of what we've done and where we've been at. And candidly, the agents are smarter by the end of the day than they were at the beginning of the day, and they're not sick. And there's lessons we can learn though, and we're taking those lessons for kind of round 2 as we go into '27 and doubling down on those investments. So I think you're going to really start to see real value creation in terms of G&A takeout. And I think you're going to see it really start to compound aggressively in '27 and beyond.

Yes. Two just super brief additional examples in RCM, as you use AI and technology, you bring more people out of the process, increases the margin profile. In the Rx space, and Wayne alluded to this, we onboarded a record number of clients, incredibly satisfied and actually now using it, the vast, vast majority of your transactions in Rx can be solved AI plus digital. And actually, it's a better consumer experience and it's less costly.

Great. Maybe the last few minutes here. Another item I wanted to touch on today was within OptumRx. There has been several PBM reform items in the last few months, including legislation that enforces rebate pass-through in the commercial market. How do you expect these changes to impact the business over the next few years?

Yes. We were ahead of these in OptumRx. So it will not impact the business. So we had already announced 100% commercial rebate pass-through rolling that across our contract base. We've already done cost-based reimbursement to remind people for all drugs, all pharmacies, not a niche number of drugs. We've done already things in prior authorization and reauthorization changes, just removing friction. So our OptumRx team has a ton of momentum. They've had record sales years for a number of years now. And what's resonating in the marketplace is the transparency we provide for clients, the clinical programs that drive affordability and an integrated solution, including with UnitedHealthcare and other payers that we serve, where we integrate medical and pharmacy and do that well on behalf of they serve. So we're winning in the payer and the employer market in OptumRx and doing very well.

Great. And with greater clarity on sort of the legislative environment, it sounds like you're well into your investment cycle on the AI side. As you return to a more normalized capital deployment in the second half of the year, how should we think about the priorities across share repurchase, dividends and M&A? And within that framework, are there any key strategic priorities you see within M&A?

So maybe to bring it together, we said we anticipate generating at least $18 billion of free cash flow this year. We will be maintaining and growing our dividend. Historical practice has been the case, and we've already got approval from our Board to continue that practice. So you'll see that occur this year. And that leaves us a decent amount of powder for debt paydown, buybacks and M&A. Relative to debt paydown, though, we have committed that we would get our debt to cap closer to 40%. We fully expect to be there in the back half of this year with just regular terms coming due in Q1 and Q2, we're just paying it down. We will be actively in the buyback program again this year. And then while we have a decent amount of powder for M&A, I mean, candidly, based on the intrinsic value that we are currently trading at on a discount basis, there's probably no better acquisition than ourselves right now. So you'll see us probably get more aggressive in that space if the market dislocation continues to -- mislocation continues to exist. But last thing I would say is, look, we think that OptumInsight and OptumHealth is a big part of the future of this company. And we believe in the VBC model with high conviction. And we know we have to prove it to everybody in this room that it's there and the margins are coming back, and we're confident we'll do that. And I would say fintech on the OptumInsight, we're going to go all in on AI and fintech, and we think we can become an important part of the health care technology ecosystem over time.

Great. Well, with that, we're out of time. So thank you so much for joining, and please enjoy the rest of the conference.

Thank you.

Thank you.

Thank you.

Good morning, and welcome to the UnitedHealth Group Fourth Quarter and Full Year 2025 Earnings Conference Call. A question-and-answer session will follow UnitedHealth Group's prepared remarks. As a reminder this call is being recorded.

Here are some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings.

This call will also reference a non-GAAP amount. Reconciliation of the non-GAAP to GAAP amounts is available on the financial and earnings reports section of the company's Investor Relations page at www.unitedhealthgroup.com. Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated January 27, 2026, which may be accessed from the Investor Relations page of the company's website.

I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.

Thank you, and good morning. Thank you for joining us today. This morning, I'll provide updates on the progress our organization has made over the last 6 months and the momentum that is building in 2026. Tim Noel and Patrick Conway will dive more deeply into how UnitedHealthcare and Optum finished 2025 and our conviction for improved performance in 2026. Wayne DeVeydt will walk through the details of our full year 2025 financial performance and 2026 outlook before we turn to Q&A.

We continue to progress and strengthen as we enter 2026. We've taken a critical look across all our products and our U.S. market positions focusing on what is working, what needs more attention and what no longer make sense for us. We are driving greater operational disciplines in all our business practices, leveraging the use of technology and artificial intelligence broadly and renewing our commitment to innovation, agility and accountability.

We have removed assets that are not aligned with our focus on serving the U.S. health system. We continue to strengthen our management team, leveraging both our internal depth and bringing fresh ideas and talent from outside the organization. These actions and others are intended to improve the value we offer to all those we serve and drive sustainable growth for many years to come. Our people are rising to the challenge before them.

We finished 2025 with adjusted earnings per share of $16.35, which was slightly ahead of our expectations. Full year 2025 results exclude a $1.6 billion net of tax and largely noncash charge, very consistent with what we discussed on our third quarter earnings call. Addressing the elements of this charge was important in setting the solid foundation for returning to the historical earnings quality and growth you've come to expect from us. Wayne will provide further details on both these results and the charge.

Looking to 2026, we expect adjusted earnings per share of greater than $17.75, for growth of at least 8.6%. Our initial outlook reflects measured growth across all 4 of our reporting business segments with double-digit improvements at UnitedHealthcare, and low to high single-digit adjusted growth across our Optum segments.

These overall results are tempered by the third year of Medicare funding reductions ongoing funding shortfalls within our Medicaid state Medicaid programs and our historical respect for rise medical cost trends. As expected, improvement will be more evident within UnitedHealthcare in 2026, while at an earlier stage, Optum will take more operational effort and investment and time.

At UnitedHealthcare, we successfully repriced the insurance businesses, intentionally rightsizing them to refocus on membership we can best serve on a sustainable basis. In Optum, new leaders are driving operational improvements that translate to more consistent results and better performance visibility. We've taken a critical look at our services and geographies remaining in markets that are best aligned with our core integrated value-based care purpose.

This analysis also led us now to align Optum Financial Services with Optum Insight, where our energies and talents for health care technology and financial technology innovation can be brought together to better address the opportunities and potential within these markets. We are clearly embarking on a new age of technology already transforming the way the world operates and health care must participate carefully and fully. We plan to be a leader in that movement.

We expect 2026 to be a year of focus and execution, an important one in the history of our company. We have emerged strongly from challenging periods in our past and are committed to that course today. Our team is showing great resilience and energy, and we believe strongly the steps we are taking will pay off.

With that, I'll turn it over to Tim.

Thanks, Steve. UnitedHealthcare finished 2025, having made progress to more effectively serve our members and network partners, another important element in building sustainable growth. We closed the year with medical care patterns in each business in line with our updated outlook and ultimately supportive of our pricing decisions for 2026.

With that, I will briefly walk through each business. Starting with Medicare, the 2025 medical cost trend was in line with our expectation of approximately 7.5% and supports our 2026 trend expectation of 10%. This reflects consistently elevated utilization in addition to increases in physician fee schedules and the continuation of higher service intensity per care encounter.

As part of our efforts to address elevated trends and funding cuts, we plan for some Medicare Advantage membership contraction in 2026. We now expect UHC Medicare managed contraction will be in the range of 1.3 million to 1.4 million members for the full year, including group, individual and dual special needs plans. These are greater losses than originally anticipated, as competitive market dynamics drove higher-than-expected planned shopping during the intensely competitive annual enrollment period.

Our 2026 approach favored margin recovery and these membership trends are a result of these actions. We similarly positioned our Medicare supplement and stand-alone Part D segments and as a result of the totality of actions taken across UHC Medicare, we expect an improvement in Medicare margins of approximately 50 basis points from 2025.

Looking briefly to 2027. The advanced notice published yesterday simply doesn't reflect the reality of medical utilization and cost trends. We will continue to work with CMS to ensure an appropriate final growth rate calculation to avoid a profoundly negative impact on seniors benefits and access to care. That would be a deeply unfortunate result for a program that already is under funding pressure from the previous administration, despite its track record of success serving seniors and taxpayers.

Turning to Medicaid. We continue to expect this business to see incremental pressure in 2026, largely driven by state funding shortfalls. We have received some rate relief, but still anticipate a mismatch between rate and acuity to pressure performance in 2026, while we hope for further improvement in 2027. We expect Medicaid membership contraction of approximately 565,000 to 715,000 people, which includes D-SNP members, due to reduced Medicaid eligibility combined with the exit from one state.

We took important steps in our commercial pricing and cost management efforts during the second half of this year. Nearly all of our employer group and fully insured pricing align with continued increases in care activity for 2026.

In the individual ACA market, we repriced nearly all states in response to higher medical trends and the elevated needs of ACA beneficiaries in 2025. These actions were necessary to ensure a sustainable foundation in these plans and enable us to maintain our participation in all the states we served in 2025. We are working with CMS on solutions to address the consumer affordability challenge given the unfolding dynamics in the ACA marketplace.

As we announced last week, we have voluntarily pledged to rebate ACA market profits back to our ACA customers this year as policymakers work to determine how to improve affordability in this marketplace. We expect both fully insured group and individual enrollment to contract and be partially offset by continued momentum in our group self-funded offerings.

For 2026 overall, our strategic focus on margin recovery through product repositioning and repricing efforts enables us to estimate approximately 13% adjusted operating earnings growth across all of UHC, principally from the improvement in serving commercial and Medicare market needs. These actions should expand operating earnings margins for UnitedHealthcare by 40 basis points and are expected to result in membership contraction of 2.3 million to 2.8 million.

The expected contraction in commercial membership is in line with our plans. While this will drive margin expansion in 2026, we still anticipate operating operating just slightly below our historical margin range until 2027. Our UHC recovery effort is being supported by steady efficiency gains, as we advance AI and machine learning capabilities across our businesses. We anticipate operating cost reductions of nearly $1 billion in 2026, many AI-enabled and importantly resulting in higher customer experience and satisfaction at a lower cost. Over 80% of calls from members leverage AI tools to help answer members questions faster and more accurately. This enables our advocates to focus more time on a better service experience for individuals.

Now I'll turn it over to Patrick Conway, CEO of Optum.

Thanks, Tim, and good morning, everyone. As we start 2026, Optum will be anchored around relentless focus on improved and consistent execution in Optum Health and Optum Insight that will enable future margin expansion and top line growth. Optum Rx will remain focused on maintaining its market position and providing a more comprehensive suite of pharmacy benefits and services and continuing to pursue success in winning new customers for 2027 and 2028, all in highly competitive markets.

Our 2026 performance outlook reflects adjusted earnings growth in all 3 segments of our business, ranging from low to high single-digit year-over-year performance and margin expansion ranging from 20 to 90 basis points across the portfolio. Growth rates will remain somewhat tempered in 2026, but strategic refocus and investment in modern next-generation services should lead to growing momentum in the back half of the year that will carry into 2027 and beyond.

Some details on each of our segments, starting with Optum Rx. At Optum Rx, we expect operating earnings growth from expanding margins by approximately 20 basis points on an adjusted basis. This growth is driven by a strong external selling season that will impact 2026 and 2027 as we implement and expand over 800 new customer relationships.

While new customer wins were offset by membership contraction at UnitedHealthcare, we are capitalizing on significant AI automation-enabled operating efficiencies to support our expanded margin outlook in 2026. Entering 2026, we have implemented new pricing models that will deliver greater transparency to customers and cost-based reimbursement to pharmacies.

We have removed reauthorization requirements for 180 drugs, benefiting millions of people, and we will continue to expand these efforts. And we continue to advance our commitment to pass through 100% of drug rebates we received to our customers. Over 95% of our customers have elected to receive full rebate pass-through in 2026 with all remaining customers expected to transition by the end of 2027.

Our customers recognize pharmacy benefits are an essential tool in helping employers, governments and patients afford and access medications. Optum Rx members save over $2,200 in annual prescription costs due to our efforts in moderating manufactured drug price increases.

Turning to Optum Insight. We expect earnings growth of greater than 4%, while expanding margins by approximately 90 basis points. This growth is driven by new sales, commercialization of new products, stringent cost management and increased volumes within existing core businesses. Investments in execution on 2026 priorities will set the stage for more growth into 2027 and beyond, principally through broad-based AI-first new product innovation, strengthening Optum's care provider market offerings.

An important change starting in 2026 involves aligning Optum Insight and Optum Financial Services. These businesses have a much greater synergy today. For example, integrating Optum Real's AI-driven revenue cycle solutions with Optum Financial Services payment and financing capabilities has the potential to transform health care transactions, moving the industry from post-service reconciliation to real-time point-of-care approval and monetization, creating a more modern, flows loop approach that is better for the health system.

The impact is significant. It reduces areas of long-standing processing friction while enhancing Optum Insight's growth and margin potential; by expanding beyond transaction processing into higher-value services; focused on a more certain, simpler, faster experience for patients and providers we serve; unlocking faster settlement, improved liquidity for providers and creating new value pools for payers.

Turning to Optum Health. As you see in our results this morning, we made substantial changes through 2025, enabling our team to enter 2026 with a stronger foundation, more aligned to the intent of our integrated value-based care approach. We expect operating earnings growth of approximately 9%, while expanding margins by approximately 30 basis points. This growth is driven by a back to the basics focus on integrated value-based care and execution. I'll touch on a few core areas in which we have taken action.

First, we are focusing on markets where we have strong presence and the complementary wraparound services to succeed in our integrated value-based care approach. We provide these services under an aligned incentive structure that improves outcomes, reduces cost and improves patient satisfaction. Practices operating in this environment are driving down total cost of care by up to 30% with patient satisfaction NPS near 90.

Second, we are making sure our integrated value-based care network is appropriate and optimized. We've narrowed our affiliated network by nearly 20% since this time last year with the goal of having a more optimal alignment of physicians and services in place to best serve our patients. We have strengthened our value-based care network and management disciplines, and we'll continue to reshape the network to ensure it is aligned with our strategy for higher quality and greater affordability.

Third, we have streamlined our risk membership by approximately 15%. This reflects dropping unaligned PPO contracts, repositioning certain markets and payer de-delegation in instances where we were not able to reach a viable sponsor contract. Importantly, we have made strides in getting back to the original intent of our integrated BBC vision: removing ancillary services risk and focusing back on core medical care. The majority of this work was done for 2026 with a smaller amount still to address in 2027.

Finally, we have improved basic operational discipline. We have exceptional care teams and proven approaches. In 2024 and 2025, inconsistencies in market-to-market execution hurt us. We are intensely focused on driving consistency, accountability and performance. For example, we now have nearly 100% of our employee provider groups on 1 of 3 strategic electronic medical records. This is down from 18 EMRs in the past few years.

This will enable us to more swiftly adopt enhanced workflow tools and AI as well as have more timely and consistent data to guide our patient care efforts. Optum Health has made significant progress in bringing the integrated value-based care approach back to original purpose. You should expect further progress from us throughout 2026, as we continue our journey back to strong, transparent, consistent results while driving higher quality of care for patients and lowering overall costs in the health system.

Before I turn it over to Wayne, I want to take a brief moment to thank all the people of Optum who continue to work every day to ensure our customers and our patients get the best experience and care we can offer. Wayne?

Thanks, Patrick, and good morning, everyone. I'll start by diving right into our 2025 results. Today, we reported adjusted earnings per share of $16.35, which was slightly ahead of our expectations. These results reflect continued solid execution across the enterprise that will carry into 2026.

As Steve noted, the quarter included a $1.6 billion net of tax charge or $1.78 per share, which was largely noncash and primarily related to actions within Optum. This net charge has 3 primary components: first, a true-up for all remaining cyberattack-related activities including approximately $800 million for net collection expectations associated with provider loans and other customer balances.

Second, a net gain of about $440 million related to portfolio optimization activities associated with assets we are exiting or plan to exit. And third, a $2.5 billion related charge principally to broad restructuring and other actions, including contract reassessments, real estate rationalization and workforce reductions. Of note, approximately $625 million of this charge relates to a lost contract reserve for third-party contractual relationships within the Optum portfolio that are structurally unprofitable and that we could not exit for 2026. These actions are aligned with our broader efforts to improve focus and execution to drive more sustainable long-term earnings performance.

Some additional details for the full year 2025. We delivered revenues of nearly $448 billion, reflecting 12% growth from 2024, driven by domestic membership growth of over 415,000 people. Our medical care ratio of 89.1% came in slightly better than our expectations. This includes approximately 20 basis points of negative charge-related impacts, primarily associated with the lost contract reserve I just discussed.

Our operating cost ratio of 13.3% demonstrates strong management discipline while balancing key investments in people and capabilities that support long-term performance improvements. The operating cost ratio was slightly higher than anticipated due to approximately 40 basis points of charge-related impacts, higher than originally contemplated because of approximately $800 million in broad-based employee incentives and funding to the UnitedHealth Foundation.

Investing in our workforce and the communities we serve, both are critically important to this enterprise. Finally, earnings were supported by strong cash flows of $19.7 billion or approximately 1.5x net income.

Turning to our 2026 outlook. We expect revenues of approximately $440 billion, net earnings of at least $17.10 per share and adjusted net earnings of greater than $17.75 per share. This reflects anticipated operational improvements and margin stabilization, as we continue executing against our long-term strategy. We expect slightly under 2/3 of full year earnings to be generated in the first half of the year. This seasonal progression is largely consistent with 2025 and reflects the impact of Part D benefit changes under the inflation Reduction Act as well as overall business mix.

Turning to cash flow. We expect to generate at least $18 billion from operations in 2026 or about 1.1x net income. Our medical care ratio is expected to be 88.8%, plus or minus 50 basis points, reflecting our view that medical care activity will likely remain at current trend levels through 2026. Consistent with prior years, we expect the first half medical care ratio to be notably below the midpoint with the second half notably above.

The operating cost ratio is expected to be 12.8%, plus or minus 50 basis points. This reflects disciplined cost management, ongoing productivity initiatives and the early benefits of our investments in artificial intelligence, while also incorporating required investments in people and technology.

Our 2026 outlook reflects the realignment of Optum Financial Services from Optum Health into Optum Insight. We believe this better optimizes the Optum portfolio and aligns with how we expect to engage the marketplace and grow through the Optum AI network.

Finally, on capital and liquidity. For 2026, we expect our dividend to remain well supported by earnings and cash flow. As we look ahead, we expect leverage to continue improving through the year, supported by strong cash generation and a more stable operating environment and to reach our long-term debt to capital target of approximately 40% before year-end. And as this progress continues, we expect to return to our historical capital deployment practices in the second half of the year.

Before closing, I want to echo what Steve, Tim and Patrick have said about the people of UnitedHealth Group. 2025 was a year of challenges on multiple fronts. Our team stepped up, embraced those challenges and remained focused on delivering for the people we serve.

Now I'll turn it back to Steve for some closing remarks.

Thanks, Wayne. I hope everyone is getting the sense from today's comments that we're returning to the operating and executional focus and the quality financial disciplines that have served us well. Details matter in these businesses. These approaches are essential to enable us to better serve customers and consumers and the expectation of shareholders.

That commitment to serve is embodied in our mission to help people live healthier lives and help make the health system work better for everyone, and it's supported by a deliberate culture. To that end, I would call out 3 overarching themes we're pursuing. The first is to refocus back to that mission and culture. We are reenergizing and retooling that sense of mission and culture throughout the company, which is already the core reason so many of our colleagues joined this enterprise.

The second is the urgent thoughtful application of modern intelligent technologies. These efforts can help address long-standing needs in health care for simplicity, speed, certainty, insight, consumer empowerment and convenience. We're hoping to invest nearly $1.5 billion in 2026 and expect at least as much to follow in 2027. This work is making a difference within our organization today, and we expect it will serve as the foundation for external versions that can benefit the broad health system through Optum Insight.

Lastly, we are methodically taking steps to advance greater trust and transparency wherever we serve the public health care interest. This began with the independent reviews of business practices and risk assessment, in pharmacy services and in care management. Those first independent reports were published in December, and the remediation recommendations will be completed and reported no later than March of this year.

Further independent oversight reviews and reports are in process today and will continue. And in addition, in 2026, we will begin to publish our results in areas of interest such as prior authorizations in claim approval rates; certain performance statistics, data and trends; rebate practices and prices for products and services; key business and core management practices and policies.

For metrics such as these and more, as they evolve, we will become even more publicly accountable for our performance and strive every day to improve it. We thank you for your time this morning. We'll now open it up for your questions. Operator, please.

[Operator Instructions] Our first question comes from Josh Raskin with Nephron Research.

I appreciate all the details. So you're guiding to a decline in 2026 in traditional MA lives of almost mid-teens, and the proposed rates for 2027, as Tim mentioned, might indicate the need to further refine benefits even more than that. So do you think we're at the bottom of the MA cycle now? Should we expect MA margins to improve, not just what you mentioned in '26, but in 2027? And then if you could help frame how important that core MA book is to the other segments of the enterprise, especially Optum Health?

Yes. So Josh, maybe I'll maybe respond to the second half of your question, and then Tim Noel can kind of respond to the first. But our interest has always been to serve all the markets in health care, all the segments and also the National Health System as a whole. And MA is certainly important in that sense. And it's important to Optum Health and Optum Rx just as you suggest.

But I also might turn it around another way because the Optum businesses are extremely complementary to UnitedHealthcare and its benefits and to many other payers and that's why we believe that we are bringing more broadly to the health care market, a very broad value really across the board. And that is why you really -- you have to strike the right balance when you're thinking about this in terms of growth in membership really across the whole of the UnitedHealth Group platform. Tim?

Thanks for the question. So let me start the conversation with 2026. And as I hit on in the opening remarks, our strategy in did focus on -- more so on margin than it did on any specific membership target and that is all really playing out as expected, when you think about some of the core and key pricing assumptions that we made as we close out '25, both looked to be good assumptions that we made, and they're really holding firm.

So we feel good about our margin recovery efforts of about 50 basis points across Medicare Advantage. The membership losses, while they're a little north of what we were talking about earlier really kind of sit within your internal planning range. So I think about that all as a real solid foundation that we're setting for 2026 as we then head into 2027.

So moving into 2027, the news that we received last night in the advanced notice was disappointing, and it was because it's a further reduction for a program that has experienced $130 billion in benefit -- or pardon me, in funding reductions over the last 3 years under the prior administration, which is particularly concerning for a program that provides excellent choice, access and affordability for America's seniors and does so with satisfaction rates north of 95% while saving money for taxpayers.

So we're going to, of course, work with CMS from now until the rates are finalized. But as this all sits today, as I talked about, it will mean very meaningful benefit reductions and we'll once again need to take a hard look at our geographic footprint, our product footprint across the country and has the likelihood to play out not dissimilar to how 2026 did in terms of modifications to planned footprint and benefits.

We don't see this to be something that's going to be broadly disproportionate payer-by-payer; therefore, seniors kind of across the sector are going to experience this implications of reduced choice, reduced access and affordability challenges. And given all of this and kind of where we sit, too early to talk point estimates around margin or membership for 2027. But I will say this that over the long term, given the actions that we have taken in 2026 and our integrated business model that, as Steve alluded to, really focuses on value-based care. Those things, having a strong foundation focusing on value-based models, are going to be even more important in this environment that we're being asked to operate. Thanks for the question, Josh.

Our next question comes from Justin Lake with Wolfe Research.

I wanted to ask about the fourth quarter Optum Health performance. You guided to just under $3 billion of OI with the third quarter results. And if I'm doing the adjusted math correctly, it came in closer to $2.3 billion. So underperformed by $600 million, $700 million of OI in the fourth quarter. It's fairly surprising to still see this kind of volatility in the business that late in the year.

I was hoping you could lay out the drivers there and talk to what gives you guys confidence in more stable performance in 2026, given that fourth quarter volatility coming out of the year?

Good question, Justin. And very much focused on making sure that we really took a hard look at that whole of the Optum Health business. So Krista, do you want to respond?

Yes, absolutely. Thanks for the question, Justin. So results in the fourth quarter and for the full year were slightly disappointing to our expectations, but really reflective of the restructuring actions that we took in the fourth quarter as well as some onetime items that are now right behind us. In addition, in the fourth quarter, Medical remained elevated, but consistent with our expectations. So excluding restructuring and the move of Optum Financial, our adjusted earnings are now approximately $1.5 billion, which is our new baseline that we will continue to build off of in the future.

Maybe I'll just take a quick step back and answer the second part of your question, which is what gives us confidence? We have reoriented Optum Health back towards our original purpose. And we have a full integrated value-based care delivery system, where we employ and deeply partner with providers across multiple service lines, including primary and specialty care, imaging, surgery, home health, behavioral health and additional wraparound services to support our patients.

It's a system that's anchored by primary care and an aligned payment model, which incentivizes improved outcomes, offering preventive and holistic care compared to a system that rewards volume of services. And we've established this strategic clarity in the business and paired it with a very comprehensive evaluation of our assets and capabilities, which, as a result, we took meaningful actions in the fourth quarter to strengthen our foundation. And in addition to that, I'm pleased with the progress that we've made in reshaping our risk portfolio, refining our network in bolstering operations. And I would say we're significantly stronger today than we were just 6 months ago. Thanks for the question.

So a really solid shakeout. Totally different management and leadership team and a much more rigorous approach, a lot of potential there.

And we'll move to our next question from Kevin Fischbeck with Bank of America.

I wanted to go back to the '27 MA rate update. Basically, it sounds like you're saying that trend is the biggest part you want to go back to the government with, but I wanted to focus, I guess, on the 2 kind of coding components that if you take out normalization, 1.8 for, call it, the risk model and another 1.5 charts. So it's like a 3.3% headwind. I think that with B-28, you guys talked about an impact that was more than what the industry was seeing.

Would you expect a similar dynamic with these 2 quoting components that as a company is probably better than average quoting out more than this kind of 3.3% headwind that we're calculating. And do you still feel good about -- if that's true, do you still feel good about getting to a 5% margin in value-based care of Optum Health?

Sure. Tim, do you want to address that?

Yes, Kevin, thanks for the question. So no, we don't expect the impact to be different for us versus the rest of the industry on those 2 elements that you outlined. Our modeling shows consistency between what we're seeing and also what the estimates are of industry averages on those 2 elements.

And outlook? So Kevin, was there a second part to your question?

Yes. The second part was Optimum Health margins with this rate cut, can we get at the 5%?

Yes. Krista?

Yes. Thanks for that question. I would just say it's early. We have opportunities to improve performance in the business just outside of MA rates. Let me just give you a couple of examples that really give me confidence in why there's -- why we're really confident in getting back to our long-term target margins. I've gotten to spend time with our care team and after we've done that complete thoughtful evaluation of our performance in our businesses, we do have many high-performing markets today that really deliver strong outcomes for our patients.

One example worth highlighting is a large market in Texas, where we serve over 750,000 patients across over 50 clinics offering that holistic care I described, primary care, labs, imaging, specialty care, home health, surgery, care coordination. We're really proud of our results. For example, here, we've got a 4.5-star health plan. We have total cost of care that is approximately 30% better than our competitors.

Patient satisfaction of 90 really strong provider retention, and margins already performing in our long-term target margin range. Another example that just gives me confidence here is we've got about 30% of our mature value-based care patients that are already again inside that target margin range or above. And so those 2 examples, combined with the work I described previously that we're doing to improve the consistency of our performance, just give me a lot of confidence in the runway ahead for Optum Health.

So really more about execution really than any other single factor, really is focused on execution.

Yes. Thanks for the question.

We'll go next to Stephen Baxter with Wells Fargo.

In the Medicaid business, I think you made reference to getting a little bit of rate relief. So I was hoping you could speak to 1/1 rates that you're seeing and maybe contrast that to the rates you're seeing in 2025? And in general, if the rates are coming in a little bit better, and it seems like there's not going to be any material impact from early starts to work requirements have you kind of revisited your margin assumption for the Medicaid business at all in 2026?

Thanks, Stephen, for the question. I'll give you kind of an overview of where we are in rates. For 2026, our view remains unchanged. And in terms of overall performance. Our Medicaid business -- for our Medicaid business, we do expect some margin contraction due to the ongoing dislocation of rates and continued elevated medical trends. We are projecting rate increases in the range of 6% to 7% in aggregate for the year, but that will continue to be below our medical trend, and we do expect some membership contraction as we continue to manage the business. For January 1, our rates are somewhat in line with our expectations, and again, we expect our rates to range between 6% to 7% for the year as we think about 2026. Thanks for the question.

And our next question comes from Lisa Gill with JPMorgan.

I wanted to ask a couple of questions on the Optum Rx side. First, Wayne, you made a comment that due to Part D, we're going to see earnings more first half driven. Can you talk about the changes around the subsidies and the impact that we have on Part D?

And then secondly, when we think about Optum Rx, talked about the member contractions because of what happened on the United side, but 800 new clients on that side. Last quarter, you talked about combining prescription and medical benefit trends. Can you just talk about those 800 new clients? And if there's anything different that you're seeing in them as we think about '26?

So maybe the first question of Bobby and then John, the second part.

Yes. Thanks, Lisa, for the question. So maybe just kind of hit quickly on the Part D side. I mean Wayne did talk about the seasonality dynamic. We've been pretty clear, I think, now with the implementation of the IRA, we do see more of an even kind of seasonal trending throughout the year. So that element is certainly kind of foundational in the outlook. When you think about the actual 2026 benefit design, the way that we position the benefits on the Part D, both for stand-alone PDP and MAPD, I think it's very reflective of the way that the IRA has evolved the program, the way that the industry has largely kind of evolved the design, so I feel like we're in a pretty good lock step there with where overall industry is moving.

And as I look at just kind of how 2025 closed out on the pharmacy cost for us inside the health plan, I feel pretty good about the overall trend on balance between all the key drivers, things like specialty trend, brand utilization, et cetera. So it gives me a pretty good belief in our outlook and our positioning for 2026. And early in the year, I haven't seen anything to suggest otherwise. Thanks for the question.

Fantastic Bobby. And Lisa, thanks for the question. So maybe building on the membership growth, I'll pick up where Patrick left off in some of his opening comments. A strong selling season in 2026 combined with continued high 90s retention allowed us to backfill about half, maybe more than half of the membership loss from UHC. And so that puts us in a nice position to deliver a modest 2% earnings growth in 2026 for a business that we expect will return to the low double digit to high single -- low single digits to high -- excuse me, high single-digit to low double-digit earnings growth.

And if I unpack that, Lisa, to your question on what are we seeing in the market and why are we winning? Why do those 800 new clients choose Optum Rx? A couple of points. We -- our businesses are performing strongly. Each of our core businesses growing in the high single digits. And the reason we're winning threefold: affordability, transparency and execution. From an affordability perspective, our clients have never needed us more than now and good prospective activity there.

We're committed to bringing affordability to those that we serve. For our clients, Optum Rx generates more than $100 billion in savings annually through negotiations with drug manufacturers and network pharmacies. And then for our members and patients, we deliver more than $1 billion in savings annually through our Price Edge and Specialty IQ solutions.

From a transparency perspective, frankly, we're proud to be leading the transparency transformation in this industry. And this begins with the industry's only fully transparent pharmacy and therapeutics committee. And then it continues through the supply chain with wholesome instrumentation around manufacture, network and wholesaler drug pricing. And so we couple all of this with our commitment to pass through 100% of rebates to clients by 2028, and then we wrap that in a transparency guarantee around our offering for our clients.

And then finally, rounding out on experience. We're making it easier for all those that we serve: providers, clients and members to interact with us. In our pharmacies, record high NPS in our home delivery pharmacy our behavioral health pharmacy delivering 90% NPS for the patients that we serve. And in our hospital-based specialty pharmacies, high 90s NPS for patients and the low 90s for providers.

And then finally, Lisa, we're eliminating provider and patient abrasion. So as Patrick mentioned, we reduced or removed reauthorization requirements for more than 180 drugs that have the net effect of reducing our overall prior authorizations by more than 10%. So in summary, transformational vision is compelling, our offering is resonating, our team is executing and we're well positioned for 2026. Thanks for the question.

And our next question comes from Scott Fidel with Goldman Sachs.

I guess, I'll slip over to the commercial business. Interested if you could just provide us with the breakdown of the 1.3 million to 1.4 million commercial risk lives that you're expecting to decline in 2026. How that breaks out between commercial group and then the exchanges?

And then also just in terms of margins and year-over-year progression for commercial group and the exchanges, what you're thinking about for '26? Obviously, we know that you're planning to rebate the profits from the exchange business.

Thanks, Scott. Dan?

Yes, Scott, thanks for the question. Addressing your membership first and then moving to margin. On membership, pertaining to the risk-based decline the largest share of that membership decline is connected to our exchange business for 2026, where we continue to expect meaningful decline between now and the end of the year. .

Beyond the exchange business, general market decline of risk-based customers, our pricing posture supporting margin recovery and continued deliberate migration to our self self-funded, level-funded small employer offerings, all contributing to a decline in risk-based membership. So to parse that out specifically, 500,000-plus attributable to the exchange business, the remainder to those 3 factors.

Moving to margins and first addressing the exchange business. over the course of the decade plus in which we have operated in that market. It has never been a significant contributor of earnings for us. Our pricing posture for 2026 coming out of 2025 is going to return that market to a positive margin business for us. However, I would expect those margins in the exchange business for 2026 to be in about the 1% range, plus or minus 1% for that business.

Related to margin for the group business in 2026, I'm encouraged by our January performance and how that has set us up for our full year plan. Specifically, for January, we found the market to be firm and competitive and that supported us yielding the required renewal rates and membership persistency to deliver on the 2026 margin improvement that Tim alluded to in his opening remarks. Specifically, I expect us to close more than half of the gap between our 2025 margin performance and our historical margin range, which we expect to achieve in 2027. Thanks for the question, Scott.

We'll go next to A.J. Rice with UBS.

I think as you guys came back on board and got your arms around the business, you talked about modest growth in '26, getting back to low double-digit earnings growth in '27 and then something more like what we're used to seeing from United in '28. You're talking about the rate notice impacting benefit design and being felt by seniors. And I think your underlying assumptions generally in Medicare and with Optum Health had been for gradual margin improvement, not dramatic margin improvement over the years.

You've got now a view on all the other business lines. Do you still think you can get to low double-digit growth in '27 and back to traditional growth in '28 as you put it all together?

Yes. Well, A.J., thanks for the question. So we're not going to really talk to '27. Obviously, it's January of '26. So -- but I would say that the business is meaningfully stronger than it was just a few months ago. And in '26, our agenda is to strengthen it even further. We'll continue to be focused on doing smart intelligent things to serve that total mission, but well within the margins that we have operated in and continue to believe we can strengthen that.

So I can't speak to '27, but I will speak, let's say, to a longer term, and that is very much feel that we can operate within our long-term growth rate margin, that 13% to 16%. When you take a look at the needs in the marketplace and the opportunity for this total enterprise to operate at its full potential. And actually, the elements in the marketplace, the actual pressures that have been discussed on this call actually to respond to those effectively across the marketplace really speaks to what I think our overall business approach can achieve.

And when you think about just solid organic growth and retention, again, in the margins that we have been talking about the enormous potential of AI-driven productivity, which is already in line with an organization that is driven towards productivity and scale, innovation and approaches to kind of serve the broader health care marketplace kind of AI as applied to health care in a practical way as a platform to really energize Optum Insight's business agenda, the need and emergence for value-based care, you combine that with thoughtful capital stewardship and the continued measured, thoughtful expansion of -- into the value-added markets, that's why I think that long-term growth rate for this enterprise.

And responding to the margins or the pressures in the marketplace has actually never been better, but we have to play the full potential, and we have to execute and that really is what we're about, that we have an amazing set of resources to respond to the needs of the marketplace and that's why I think the long-term growth for this enterprise is kind of more compelling than ever.

And we'll go next to Ann Hynes with Mizuho Securities.

In your prepared remarks, you talked about your trend expectations for 2026 up 10%. Can you tell us what that is Medicare or Medicaid in commercial and maybe how 2025 ended and what was different versus your expectations? .

Tim?

Yes. Thanks, Ann, for the question. So you're correct, the 10% is a number that reflects our utilization assumption inside of Medicare. 2025 closed out around 7.5% which is what we've kind of reset our expectation through middle point of the year. So that really is playing out well at a high level, in terms of historical care utilization patterns in line with our reset expectations.

We have historically or recently talked about the commercial trend approaching 11%. I think that's probably still a good place to orientate to. And due to some of the nuance in the Medicaid market, where it's not quite as instructive to give a point estimate there. But I think you can just think about the themes really being similar across all the businesses, seeing elevated trend that elevated in the earlier part of 2025 remains at those elevated levels and our expectation is that will persist into 2026.

Thanks, Tim. I think we have time for maybe just 1 more question or 2 because we're going to try to wrap it up at 8.

And our next question comes from Erin Wright with Morgan Stanley.

Great. So it seems like you're progressing according to plan with the Optum turnaround, but has there been any surprises that have come out of some of the initiatives there, especially at Optum Care? And just I think you're still saying that the long-term margin target, 6% to 8%, is still intact. I just want to confirm that.

And then just in light of the rate notice and policies top of mind, how are you thinking about this administration support of value-based care initiatives in the integrated Optum offering? And you mentioned just how important value-based care is to operate in this environment. So some context there would be helpful.

Sure. Krista, do you want to kick that off?

Yes, absolutely. Thanks, Erin, for the question. So a couple of things. You asked about just how we're progressing and if we've seen any surprises? No. I think as we've gone through the evaluation, I described in the fourth quarter and as we've started to look at performance in each business and as we've made some decisions to improve our footprint and our market portfolio and getting some of that behind us, I actually feel better about our 2026 position and our foundation by which we will be building off of.

Your second question was on the 6% to 8% and if that's still intact? And the answer is yes. Like I mentioned earlier, the examples I described in Houston. We have a number of examples like that, and -- where I described our mature value-based cohorts already performing inside that. Again, those are reasons to give us confidence. That being said, we do have work to do, which is we've laid that out thoughtfully.

And I think in terms of progression of earnings, we're looking at modest basis point improvement inside 2026, as investments take shape and as we overcome the last year of B-28 with building stronger momentum in the back half of the year setting us up for 2027.

And then the last part of your question around just the support of value-based care. What we've got is a very unique integrated value-based care delivery system that continues to demonstrate value to patients served, higher-quality outcomes and a total cost of care that is significantly better than all market alternatives. And the system, like I mentioned earlier, is aligned around an aligned payment model, which incentivizes preventive care and holistic care.

And comparing that to us in rewards for volume is just a system that we need more of. And we feel even stronger today about that need and the greater possibilities for Optum Health than we have before. So thanks for the question.

Totally perfect. And the pressure in the marketplace just actually makes value-based care more compelling and the retention of patients to value-based care is very strong.

Our last question comes from Jessica Tassan with Piper Sandler.

So what would you highlight for investors from the independent reviews of UNH business practices that you all published in December? And is there any way to draw confidence around UHC and Optum Health's ability to contend with risk adjustment reform from some of those reviews?

Sure. I'll just offer broadly. They were actually very positive. They really did speak. They were more focused on the overall environment, the controls, the oversight, the governance with respect to those areas of practice and particularly in risk assessment. And so we were pleased with that, and we are following that with really our own independent review in terms of risk accuracy. Chris?

Yes. I'll just follow up to say that I think the reports really are focused on trying to advance trust and transparency in these areas. And in 2026, we are going to do at least 3 or 4 more of these reviews that will be really focused on the metrics that come out of it. while 2025 was really focused on the policies, procedures, compliance oversight, all of which were strong and robust, 2026 will focus on risk assessment accuracy and metrics clinical policy accuracy and pharmacy services.

And we have reviewed these with the administration. So we are very much open and continuing this course. Again, recognizing the long-term responsibility for trust and transparency in this -- so I really appreciate the question, a good one to end with.

It is really all we have time for now. What I would say is that the momentum inside this organization is palpable. We still have work to do to continue to successfully build and progress over the next several months, and we are eager to get to it. But I'm very pleased with the performance and outlook that we have. Thank you for your time today.

And ladies and gentlemen, this does conclude today's conference. We thank you for your participation.

All right. I think we're ready to get going. Julie is going to read a short statement, and then we'll get going.

Great. Thank you. I want to take a moment to remind you that today's presentation will include forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A description of some of these risks and uncertainties can be found in our reports filed with the Securities and Exchange Commission from time to time, including the cautionary statements included in our annual reports on Form 10-K and quarterly reports on 10-Q.

Thanks so much. And as everyone knows, we got UnitedHealth Group up in our next presentation. We're very pleased to have Wayne DeVeydt, Executive Vice President and Chief Financial Officer. Wayne, thanks for doing this. And I know you've only been at the company for a couple of months. Maybe just give us a little bit of your sense of things and what you've learned and where you're focused.

Thanks, A.J. Good morning, everyone. Yes, it's been 8 weeks now. So it's been an interesting journey out of the gate. Maybe I'll start with just a couple of broad comments. And part of this is -- part of the reason I came back to the company is Steve, our CEO, said, the good news is everything can be fixed. The better news is a lot of it can be fixed as early as next year. And I think the longer term is really around '27, what we're going to do around OptumHealth and the investments to get that back to its core, and OptumInsight, some of the core investments we're doing there to actually get new products refreshed back into the market.

But what I would say is having competed against this organization for years, both as the CFO of Elevance and then on the Board of Centene, the one thing that's very clear to me is the assets are as good as I thought they were. The management team actually is quite deep, albeit we've made a number of changes along the way. And I do think Steve has got this company focused on all the right areas right now.

So looking forward to -- as Steve and I joked, we're 1 of 40 quarters. We've got 40 more to go where we want to show that we can get back to the swagger the company once had.

There you go. There you go. Well, we're all looking forward to that.

So maybe I'll ask a few questions about Medicare Advantage to kick off here. We're sort of a few weeks into AEP. Any new developments in a few weeks further? Any new developments that -- of what you're seeing in terms of retention, your own book, enrollment?

No, I would say, as of right now, the annual enrollment period is kind of playing out as we expected. We talked about losing approximately 1 million lives. Just to give some perspective on that 1 million lives, about 200,000 would be group MA. These are lives where we've already either priced the book or chose not to participate in the repricing. And then about 600,000 were PPO lives that we exited the products completely. These were lives that we were not economically making a fair return on.

And then if you look at the delta around 200,000 lives, it's split evenly between D-SNP and non-D-SNP at this stage. So I would say early indications are we're probably going to fall out in those ranges. It could be a little plus, a little minus, but it doesn't appear to be materially off at this point.

So in the third quarter, you added about 200,000 to the attrition to bring it up to 1 million from what you talked about previously intra-quarter. Is that mainly coming from less well-performing plans? Or how would you characterize where those are coming out of?

Yes. It's interesting, A.J., because on an absolute basis, we talked about 200,000 more lives. But typically, when you exit the 600,000 PPO, you'll recover some of those lives. And we've assumed we'll get no recovery of those and then 200,000 more.

And so from our perspective, we -- it's a competitive process out there. We do think that the way we priced our product, as you know, we went with 10% trend over the 7.5%. That is going to put us as a bit of an outlier on pricing, but we think it's prudent, especially in this environment where there's a lot of unknowns. And then ultimately, it's around product design. And I think in the product design, we're seeing more food benefits being offered by some of our peers, and that will generally pull a large D-SNP as well as non-D-SNP population. And that's primarily where we saw the increase was these added benefits being offered at a lower price point.

Okay. Okay. You mentioned you're using a 10% medical cost trend. I know that includes some assumptions about physician fee schedule and workday intensity, also about the coding intensity that providers had. Do you want to elaborate a little bit on maybe give people because that's a step-up from 7.5% this year that you've experienced, how conservative do you think that is? Or -- and why that -- why go with that?

So when we build trend, this is really an important thing to anchor around. Each year, as you look with hindsighted trend, there are things you can point to that you know were what drove trends. So think about how many workdays are there in a particular year and how does that impact the outpatient setting. And you can flex trend up or down based on how many Monday, Tuesdays there are in a particular year for outpatient surgeries. You know what new drugs are coming to market. So you can flex trend up or down based on pipeline drugs coming to market or drugs going from branded to generic.

And so as we build our trend each year, we go through a process of kind of stacking it the same way we've always stacked it. But there were some new items added in last year's trend that we are repeating for this year's trend. One is the impact of AI and how that's affecting revenue cycle on the provider side. We have assumed that, that trend does not decline at all. So we've kept it at the same level that we modeled for this year, even though we'd like to think we'll bend the curve on that a bit.

We've also then gone through a process of adding in items like tariffs, the unknown for a run on the bank if we don't get certain product designs that can happen. We kind of go through this. And then each year, you're left over with something called residual. And residual trend is, I can't explain it. It's what's left over. And so we took that same residual and then added it on top of that as well.

So think about everything that's occurred this year, we believe, is going to repeat, then we've added to that for items like tariffs and other items. And then on top of that, we kept the same level of residual. So will that play out to be conservative, we will see. If it's not conservative, meaning it's prudent and it's dead on, we'll be glad we priced at that level, and we think that means we'll get a lot of membership back in '27. If it proves to be conservative, it's a lot easier to adjust product design going into '27.

Okay. That makes sense. I think the company said it expects to get back to the 2% to 4% margin, maybe at the high end in '27. Can you talk again, I think you said some modest step-up in margin in '25 -- I mean, from '25 to '26 and then a further acceleration in '27. Maybe just walk us through what you're thinking about margin in Medicare Advantage?

Yes. Well, there's a lot of unknowns still. We need to get through the open enrollment. We need to see how trend plays out. Is our pricing as strong as we think it is. I think right now, factoring all these in, we have a degree of confidence of being up roughly 50 basis points in margins. Obviously, it could potentially do better than that. But I think initially, our goal is anchor on something that we feel pretty comfortable with.

The question will be as you go into '27, you're going to get more pricing pushed through, you're going to better define the products. The competitor landscape always gets its pencil sharpened. And as you know, in '27, we know our star ratings already, and they're quite strong again. And so we know that as we go into '27, we can be highly competitive because we already know the rate environment. We are already making all of our investments for '28 stars, and we had a meeting on Friday going deep on what we're doing differently. I mean this is one of these things where I think the company's ability to get that extra dollar because of the star programs and how that works is really the differentiator of how you're going to expand margins into '27 and into '28.

Okay. Maybe moving over to commercial for a minute. I think margins are expected to improve in '26, although still be somewhat below your long-term target. And I think part of that is just the timing considerations on when you realized in some of the book that you needed to reprice. Maybe walk us through where you're at there. Any pushback in terms of the repricing strategy for commercial?

Yes. So think of the commercial book, the way we think about it as being both our -- kind of our fully insured non-individual family plans and then there's our HICS book as well. And so I would break them into 2 buckets. Relative to our broader commercial, excluding HICS, early renewals are encouraging. I think individuals understand the market we're operating in. We're retaining the level we thought we would have trained. The pricing is sticking, which has been good so far.

The only caveat I'd throw out on that is your larger, more sophisticated clients all happened in this last quarter. So things look good. Things are progressing well. Broker relationships are strong, but this is where you really get to the heavy negotiation. So no indications that anything is different than what we said on our quarterly call, but just an awareness that you really start hitting the bigger accounts right about now.

Okay.

On the HICS front, I would simply say that we did a 25% plus rate increase across the board. We are exiting products and expect to lose about 2/3 of our membership there. We assumed in our stepping off point for guidance that the advanced premium tax credits would not be extended. That is a big reason we're assuming so much membership will decline. And at this stage, that appears to be the case.

Right. Over the weekend, I guess, we've got further clarity on that. Just on the traditional commercial book, I think we've seen a cost trend in the high single digits. A lot of that's employers choosing to cover GLP-1s for weight loss, choosing to cover specialty drugs and some other stuff. Are you seeing any dynamic change in the way employers are approaching benefits, looking to push more on consumers perhaps or anything else with benefit design that's front burner that's worth calling out?

I think the short answer, A.J., is yes, we're seeing a lot more focus on it because I think the trends are at levels that have been somewhat unprecedented for almost 2 decades. And I think employers are starting to understand some of the implications of these trends. And so you're seeing in product designs, even things as simple as going to co-insurance versus deductibles on certain items or understanding that generics have to be offered first in all scenarios.

And so I would say that the openness to benefit design is probably the greatest we've seen in a long time. At the same time, I think employers are trying to find a way to offer these new drugs that are coming to market because they're fantastic in many ways like the GLPs are. And so you'll continue to see the balancing there. But I think there is more of the burden being put on the individual consumer to bear these costs.

Interesting. I think long term, the company had stated that its public exchange margin was 7% to 9% pretax. Obviously, this year, it's been a lot more challenging for you and others in this market. Given the pricing that you've done, do you think getting to something in the low single digits next year, 2% to 3%? You said you assumed the subsidies would go away. Is that in the cards potentially?

I think it is, A.J. In fact, we will be positive margins on our HICS book for 2026. I think at this point, it's probably prudent to assume low single digit. If the subsidies get extended in any capacity, that's usually a positive sign because you'll get some of the healthier lives that couldn't afford the product actually coming back in. And so it kind of improves the risk pool, and that will be kind of a catalyst for margin expansion. But again, we're not assuming that at this stage.

Right. Okay. Maybe to switch over to Optum. On OptumHealth, I think the company is exiting 200,000 lives and also expects an aggregate 10% decline in value-based lives. So that's an incremental 300,000. Is that due to the increase in UHC membership losses? Or is something else at work there? And are these part of your older value-based cohorts or the newer ones?

A lot to unpack there. So let me try to break these into buckets. So 200,000 lives are PPO lives that we are exiting. These are newer cohorts, which is super relevant to A.J.'s question because if you think about value-based care, there's an S curve. And so when you're first getting these individuals, you lose money as you get them into your referral patterns into your system and then you start to make money on the back half of the S-curve.

If you go back to the true north of what VBC was for Optum, it was a tightly controlled network. Mostly, employed or contracted physicians generally focused on Medicare and duals. When the company over the last several years expanded more broadly to PPO, it went outside of that kind of core business of tightly controlled, went to more affiliated physicians and was even eventually expanding into things like HICS and CAID.

And so part of this 200,000 lives is just returning back to the way value-based care works, what makes it work at its core, and it's getting back to that tighter one. And so this is -- these are lives that we did not believe economically you could price for them and do the medical management based on the disparity of not only product design, but even location across the state of where these members were.

If you look at the other 300,000, it is a combination of UHC membership declination that's happening through repricing on the Medicare book. And it's a few small external payers as well. We -- with many of our external payers as well as UnitedHealthcare, one of the interesting things is where are we at on the S curve. And if we're with a more mature cohort, and you know that you're at the point now that you're starting to see the benefits of your value-based care working, we are not leaning in on rates all at once. We're going to wait into the rates, get some more of the rates in '26 and then get in '27, the remaining amount.

And so for those individuals that are maybe early cohorts, we're taking a more aggressive stance in de-delegating the lives. For those that are more mature cohorts, we're working with those payer partners to wait into the rate structure.

Okay. Okay. I know you're not going to really grow the number of lives, at least that's not the intention in OptumHealth for '26. But by '27, it sounds like you will be back to a growth mode. Any way to think about the type of lives you'll add? Will they come from UHC more than they have in the past? Or it will still be a mix of UHC and third party? Any other way to think about the types of lives you want to add when you start growing again?

Yes. I think it will continue to be a mix of both UHC and other payer lives, especially where we have the model built with the concentration we talked about where it's in a closed network with the employed and contracted physicians. What was the second part of your question, A.J.?

Just any characteristics that would be different about it once you get back to growth? And what would be the trajectory? Any thoughts about the trajectory on how that might grow when you start?

Yes. This is an important question that's being asked because we've had some folks say, so this only works on MA lives. And that's not actually accurate. The focus will be on MA lives and on dual population. The model works on PPO if you are actually within the closed network employed and contracted docs, right? So it all still comes back to what is the basic premise of the model? Do you have the scale within a market where you have not just the physicians, but you have the ambulatory surgery centers, you have the infusion centers, you have the specialty drug distribution.

When we have all those components, you can do PPO. It will work. But you have to have all those components before you expand to a broad state PPO contract. So I think you'll still see the bias towards those high-utilizing lives, which are generally seniors and duals.

It sounds like one of the things that's constraining operating income growth a little bit at OptumHealth is the decision to make more investments. We used to think of investments in OptumHealth as being we're adding new lives and in the first year or 2, they don't really contribute much. What are the -- you're not growing next year in OptumHealth in terms of lives. So what is the what is the incremental investment? What's that going toward?

Yes. The simplicity that A.J. put on it is the way it should work. So I just want to be clear. It is that simple, right? You should lose money in the first couple of years on the members as you get them into the model, but the core investment should not be that substantive. The majority of the investment here is the acquisitions that have been done over the last 5 years.

The company went very integration light, view it as connected the electricity and the plumbing and then stopped versus the real value create is getting on to the right patient accounting platform, getting into the Epic system, working through the rev cycle the way you would any other platform. And so a lot of the investment you're going to see over the next 18 months is going beyond electricity and plumbing. And that's what should have been happening over the last 5 years, but that is not what had happened.

And as a result, you lose sight of some of the membership and you lose sight of some of the care that's occurring because you're not on this single chassis single platform. So that's really what we're talking about, A.J.

Okay. And is some of that a bolus that needs to get done in '26 and then it moderates? Or is that just a higher level of spending?

It's more of a bolus and then it should be moderating. It will go through '26 and then probably first half of '27, then I think you're off to a good start then.

Okay. Maybe pivot over to OptumInsight for a second. The company has indicated that in light of the cyberattack last year, it needs to make some investments there as well. Can you comment on what you need specifically to do there, what the time line is and how you think about return on those investments?

Yes. So a couple of things. The Change Healthcare cyberattack really caused the company to lose a fairly large amount of its customer base over a short period of time. And that base is generally fairly sticky and you get a lot of cross-sells into that base over time. And so 2 things really occurred. One is a large sticky base was penetrated and a lot of competitors got a piece of that pie. And then two is the new products that you would typically bring to market, you weren't developing because you were so focused on getting stability back in the base.

So fast forward to where are we at today. We have stability in the base. We are starting to see the base grow again. The product design has still been underinvested, though. So that's where you heard us say on this last call, investing in people. Part of the people investment is adding over 2,000 AI engineers, like real engineers, this is all they do.

We are getting some quick sales already as we pilot programs within UHC, we then productize them and then can roll them out. So the new Real program that Sandeep talked about on our earnings call, it works. It works well. We've already sold to 6 new clients in the last 90 days. So I think this is going to get back to, A.J., we had to rebuild trust with that existing customer base. We had to get new products out to market. That's starting to happen. I think that momentum will start to continue through '26, but I think '27, again -- you'll see margin expansion in '26. You'll see us improve operating earnings in '26. But I really think '27 is when you'll really see that take off as well because we should start getting that embedded ARR growing at a regular pace.

Okay. And you talked about the loss of business in the cyberattack. I think there was a perception that a lot of that might come back. What is your updated thinking? And where are the growth opportunities in OptumInsight when you think across the different offerings they have?

Yes. So I'm a little less optimistic of how much of it comes back, but I am optimistic we will get some of it back. And what do I mean by that? I think one of the lessons the industry learned during the Change Healthcare was how reliant the health system was on a provider. And what we're finding is that while a lot of individuals in the short term switched because they needed to get immediate stability and get back to paying their claims, we also found that during that window, a lot of payers realized as well as providers that having all your eggs in one basket wasn't a good thing as well.

And so we're slowly starting to get some of that back, but we're not getting back the whole client. What we're getting is kind of a dual track where we get some of the revenue back and then that dual track becomes kind of a balancing act for payers and providers where they always have a backup source that they can go to.

Regarding like new products and what we're bringing to market, it is going to be extremely heavy AI at this stage. We are all in on AI. I know Steve, as our CEO, is not only all in, but he is aligning incentives around what the entire company does around AI and how quickly we can productize those and bring those to market.

I love it. It's what I love about him, 73 years old, and he wants to embrace everything about AI. And so he is jumping into it. But he's really going to align incentives for the entire management team around taking cost out using AI internally and then productizing it. So I think you'll see a lot of that. I think you'll see fintech as well. That's a space we really like for OptumInsight.

Yes. You did move -- what is it, UBS? Obviously UBS, United Financial over to OptumInsight. Maybe I wasn't thinking about that before, but you mentioned it, I'll ask you, what was the rationale for that? And what's the opportunity there?

So we'll move it over with the new year. So starting in January, and we'll restate the segments. So you'll have a chance to see what that looks like. But I will tell you that the opportunity that we have to continue to expand within our financial services platform is quite substantial. And I think you'll be surprised at the quality of what's been built there over the years and the margin of that book of business.

And we look at that with the same lens of how we could leverage AI within that as well to further expand and candidly, accumulate even more deposits. And it's really through the deposits that we also continue to find more cash flow to invest within the businesses. So it's a really interesting platform, A.J. I think you'll see that it's a very attractive margin business. And I think it's one that we've grown, but it's been somewhat buried.

Okay. Interesting. Well, I mean, the business OptumRx, they have been the most stable and just chugging along, I guess, in the last 2 weeks has faced a lot of news flow, not so much to you guys, but external to you and so I want to spend a few minutes just asking about the implications.

One of your peers announced a week or so ago that they proactively are going to try to change their PBM model to a model that's rebate-free as they describe it. What is your view on that model, acknowledging you've had a similar but not completely comparable approach with point-of-sale rebates that you've offered for some time. Just any -- give us the reaction to that and if it requires any competitive adjustments in your view?

So first of all, we are aligned with passing on rebates to the end user, the consumer. But maybe to give some perspective on the announcements in the last couple of weeks. So the point-of-service announcement, we did that beginning in 2018. So in terms of any investments in infrastructure and doing point of service, that's about 7 years old news for us.

Regarding passing on rebates, we announced last year that we would do 100% rebate pass-through starting in 2025. 85% of our clients, they had an ability to opt in for the first 2 years. And then in year 3, we will mandate the transition. 85% of our clients opted in on January 1 of this year. So for us, the vast majority of the rebates are being pushed through already. We expect that to grow to 95% next year, and that is reflected in our stepping off point that we gave when we guided towards at least an initial stepping off point for next year's growth rate. And then we expect to be at a full 100% by 2028.

We don't have any structural investments. So I would expect our PBM to grow next year. I would expect you to see operating earnings -- core operating earnings growth even with the declination of membership in the UHC book. We had our best selling season on non-UHC this year. And I think, again, this is a business that's critical. The one thing -- I know it gets a lot of public rhetoric, and it's one that probably has earned a bit of its reputation the industry has over the years.

But if you look at what drug trend was before PBMs existed, I don't think people understand that PBMs going away is not a solution. It would be just the opposite. But I do think the industry doing the pass-through with transparency of all the rebates will really alleviate a lot of the cloud that's existed over this industry for years. And so I applaud the move of our competitor. I think, as I said, we proactively announced that we were doing that already, and I think the industry needs to move there.

Okay. We continue to hear, though, that some employers really like the pool of rebates. They can use that money for other things, and they're not that gung ho about either having them completely done away with or pass-through. Do you think that this announcement and the way the industry is going, is that going to lead to more churn in the competitive environment? Or any thoughts on that?

Well, it's part of allowing folks to wait into it and having the optionality of deciding do they want to go in immediately. Labor is probably one of the larger parties that really likes the flexibility of rebates. And that's why we've offered to all of them a multiyear period to either wait in or decide other mechanisms that they would prefer to have beginning in 2028 that allows them to still have the same flexibility that they want. I think ultimately, we're going to be responsive to our clients' needs. So if the client wants those rebates in some other format, that's our goal. But we also want to be responsible to the regulatory environment we're in, which is full transparency for end users to the extent they want that.

Yes. Yes. There's been some discussion about if we do away with rebates, what about rebate guarantees or trend guarantees? Is this going to put pressure? One of the companies said that they were evaluating that. What do you see in your book of business? Is that an issue in any way if we move away from rebates, sort of doing it in a systematic way, so presumably not, but just to ask the question?

Yes. At this stage, when I meet with our team, I don't think they view it as an issue. I think it's just -- you'll find a way to manage to whatever the new state is. But I think part of being proactive -- and again, I applaud our peers for doing this, the more proactive you are, the more you control kind of the destiny of where this lands. And so again, it's part of the reason we started this back in '18 and continued it this year. But from our perspective, A.J., we don't see it as a headwind or a concern.

Okay. And of course, we had announcement late last week about GLP-1s. I know it's still early and there's still a lot of questions. What steps have you taken -- what's your thinking about this? And how disruptive is this potentially to bids that are already in for Medicare Advantage or other aspects of the business?

Yes. This is going to be an interesting one. I think, A.J., even you might have done a write-up on this, which I thought was quite well done, but it was really this idea of will this qualify one as a significant cost rule where potentially there's no impact, right? It's 100% pass-through, government picks it up and then you determine what the new rates need to be and then they're capitated, and that remains to be seen at this stage.

Even -- when will this actually get effectuated and how will it be effectuated remains to be seen. I say all that to say this is why we feel good about our 10% trend for next year, back to this residual that we allow to stay in trend. It's exactly for items like this, kind of the unknown. And so as of right now, I'd like to say I think our pricing is still solid. And I think what appeared to be an industry high rate increase, I think, is panning out more and more by the day to be equally prudent and -- hopefully conservative, but at least prudent at this stage. So a lot of unknowns, though, based on that announcement, but one that we're going to obviously watch closely.

So a lot of what we have is just from what the different drug companies have said, some question about whether this will be a demonstration project. There's also some question, I think Lilly put in their press release that starting in April 1, there'd be a $50 per month co-pay for Medicare beneficiaries. I mean, do we have any sense of what the administration is going to do and how this would actually work out? Or it's just too early probably?

Yes, it's just too early. I think -- but what you are reading, though, A.J., is I think, again, the example of -- there's many ways to kind of cut this. And I think people are just struggling with how do you roll this out? How do you create a sense of mutual responsibility through co-pays? Will the government again come in with a significant cost rule? So I think there's just a lot of unknown, and it's probably one item to track.

I think probably the most important thing is do you have any residual pricing? I think that's important. In case it doesn't swing your way, but I think this will be a good thing actually for the industry. I think this will get resolved in a positive light, but again, a lot of moving parts.

Any thoughts on how much savings you might get on -- I mean, you're already providing it for diabetics and Medicare. You've got the commercial side. Is there savings to be had on this on the existing book?

Potentially -- potentially, right? So this is where you could look at and say, well, you're getting a new wave of individuals that weren't using the drugs, but you're also getting a savings on those that were. So again, just -- there's just so many moving parts now until we get clarity from the administration of exactly how they're going to roll this out. It's just difficult other than speculating at this point.

Right. Okay. There was some discussion on the last call about portfolio rationalization and that the company was looking at its assets to evaluate whether they make sense long term. Can you just give us a little further thoughts on that, perhaps?

Yes. I think if you look at the last decade or so, the company began spending more time internationally as well in South America and Europe. And our focus is going to be on U.S. domestic operations. We'll continue to have international ops that support our U.S. domestic operations. But ultimately, we're going to try to remove those distractions and get back to the core.

There's enough happening here. There's enough growth opportunity in Optum, broadly speaking, that we should focus on the core. And then there's small assets that we're looking at that are smaller in nature that we're just questioning whether or not they're just core to the portfolio.

One of the things Steve and I are trying to do is make sure you know, though, that to the extent we sell these assets of any scale at all, we're going to carve it out. We want you to see the components, understand the pieces. And so -- but I would anticipate in the next 30 to 90 days, I think we're close on getting at least one of these signed and then hopefully, early first half of next year, we get remaining assets under contract. So our goal would be to eliminate those distractions by mid next year. And then as we mentioned earlier, get back to deploying capital through domestic M&A, mostly around AI and fintech and as well as returning the buyback program.

And what -- I mean, the company had said they wanted to get leverage back to sort of the 40% range. I think the feeling people had is that, that probably is sometime in the second half of next year potentially. Any updated thoughts on that and when the company might be back to a buyback? And it might as well, I'm sure there's some people in the room that would be interested in strategy around the dividend. I mean, that seems like that's solid, but let me just give you a chance to comment on that?

Yes. So let me start with saying we expect to continue to grow our dividend. No change in posture on our dividend. It will remain intact and growing. Second thing is the buyback is a massively compounding effect for our investors, and we would like to get that moving by second half of next year. Our projections would imply that we should be more than trending towards the 40% debt to cap. With the assets we're selling, we have the flexibility to pay down debt quicker.

And so I would anticipate second half that we will be back to buybacks. We obviously spend time with the agencies to make sure they see our trajectory. And I think you should expect us to be fully engaged in the M&As in the back half of the year as well.

Okay. I always get to ask you about the long-term growth algorithm, latest thoughts on that. I know you've laid out, I think, or at least Steve has growth next year, then maybe low double-digit growth the following year '27 and then back in '28, something more in line with what we've historically provided. Is that still the thinking at this point? And anything you'd like to expand on that?

No, I would say it is still the thinking. And what I would expand on is simply say before I took the job with Steve, we met over breakfast, and we laid out the growth algorithm together, and we're aligned. And I think what you saw before, I mean, we get 5% just through capital deployment, right? And so you're really talking about high single digit for the delta. And when you look at the assets we have and the opportunities around Optum broadly, I think the historical algorithm is one that we still believe in.

Okay. Well, I really appreciate you guys participating, Wayne and Julie, and thanks, everyone, and we'll end it there. Take care.

Thanks, everybody.

Good morning, and welcome to the UnitedHealth Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this call is being recorded. Here are some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations.

A description of some of the risks and uncertainties can be found in the reports we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on the financial and earnings reports section of the company's Investor Relations page at www.unitedhealthgroup.com.

Information presented on this call is contained in the earnings release we issued this morning and in our Form 8-K dated October 28, 2025, which may be accessed from the Investor Relations page of the company's website.

I will now turn the conference over to the Chairman and Chief Executive Officer of UnitedHealth Group, Stephen Hemsley.

Good morning. Thank you for joining us today. Our enterprise continues to advance on the improvement path first discussed with you in July. We've been introducing new leaders, strengthening underperforming businesses, identifying both opportunities and inefficiencies and importantly, recommitting to the mission and culture of this company. We're getting at the core of the underperformance issues with fresh perspectives, intent on positioning our organization as a positive and innovative leader helping to advance next era of health care. A keen sense of urgency in this effort is consistent throughout the enterprise.

At the same time, recognizing the pace of progress varies across our businesses, depending upon their challenges and opportunities. Some efforts will require more time and investment. Others will show more immediate progress. Repricing within UnitedHealthcare is on track to drive solid operating earnings growth from margin improvement within that business in 2026. In our less mature businesses such as OptumHealth and OptumInsight, our efforts to improve operations and make needed investments will show more measured progress in 2026 and will take more time to fully bear fruit.

As Patrick Conway will discuss, our belief in the need for an impact of value-based care remains intact, as is our confidence in returning to expected performance standards. And throughout the company, we will ensure we are focused on activities that align with our long-term future and be very disciplined about moving on from those that do not. We're committed to returning to the consistent enterprise-wide performance levels you should expect of us.

Within OptumHealth, the team has taken concrete steps that will refocus the business back to its original mission, actions that will narrow networks with more emphasis on appropriately aligned physicians, geographies, the right clinical services and the right benefit offerings for the members we serve. We are also keeping sharp focus on the continued competitiveness of UnitedHealthcare as evidenced by our recent Medicare Star scores showing improvement year-over-year, and that work remains intense now for payment year 2028 Star's performance.

As we look ahead to the next few years, we will consistently emphasize the fundamental execution discipline that has long been a key trade of this company. and I'm gratified to see the quick and enthusiastic response to this enterprise emphasis from our leadership team. External challenges will remain, including continued headwinds in 2026 and from the third year of nearly $50 billion in industry-wide Medicare cuts by the previous administration as well as Medicaid funding and program pressures.

Even so, I'm confident we will return to solid earnings growth next year given the operational rigor and more prudent pricing. While we are still finalizing 2026 plans and intend to share full guidance with you in January, current analyst consensus captures a likely stepping off point for next year. We intend to balance our earnings growth ambitions in 2026 and with investments and actions that will drive higher and sustainable double-digit growth beginning in 2027 and advancing from there. That is the perspective we're keeping front of mind. Our longer-term outlook will be refreshed as we continue to execute over the next year. As we've been doing these last few months, we will continue to engage actively with both investors and the broader stakeholder community and plan to convene our investor conference in the back half of 2026.

This morning, Tim Noel and Patrick Conway will provide details on the progress of UnitedHealthcare and Optum, respectively. Our Chief Financial Officer, Wayne DeVeydt; will review third quarter results. I'm pleased to welcome William to our leadership team. He has the right experience, values and expertise to help guide UnitedHealth Group at this moment in our development, and he's off to a fast start. So with that, Tim, you want to take it?

Thanks, Steve. For the current year, overall UnitedHealthcare performance remains in line with the expectations we offered in the second quarter. Medical cost trends remained historically high but consistent with our second quarter guidance, and we expect that to continue throughout the remainder of 2025.

Turning to our efforts for 2026, a vital element has been our pricing. Since our last update with you, we've repriced the vast majority of our UHC risk businesses, including Medicare Advantage and to varying degrees, our commercial fully insured and residual ACA offerings. Trend experience for the third quarter continues to validate the actuarial forecasts underpinning our 2026 pricing actions. Taken together, these actions position each of our businesses on a clear path towards margin growth in 2026 with the exception of Medicaid, which I will discuss in a moment.

Our Medicare business continues to perform in line with the expectations we shared last quarter. That's true for care activity and medical cost trends, and importantly, for the mix of clinical activity and utilization across physician, outpatient and inpatient. We forecast a full year 2025 trend of approximately 7.5% in Medicare Advantage, consistent with our previous expectations. As we shared with you last quarter, trend remains elevated across Medicare overall with our Med Sup offerings still seeing medical cost trends in excess of 11%.

In individual Medicare Advantage, we continue to believe an expected 10% medical cost trend for 2026 has us positioned appropriately. This trend assumes assumption reflects a continuation of the elevated care activity levels observed in 2025, known impacts from fee schedule changes and continued expansion of aggressive provider coding and billing practices. We have taken a similarly prudent view across all our Medicare product offerings for 2026, including Medicare Supplement, Group MA and stand-alone Part D.

For Medicare Advantage, we're now about 2 weeks into the annual enrollment period and early results are in line with our strategic positioning for 2026. Our plan for next year reflects a conservative path focused on margin growth. We made significant adjustments to benefits and executed targeted plant exits and network reductions to offset elevated medical trends and government funding decreases. As a result of our planned actions as well as competitive market dynamics, we expect membership contraction of approximately 1 million members in total Medicare Advantage, including individual and group markets. We expect these actions will drive margin improvements in 2026 with potential for further advancements in 2027 that will position us to reach the upper half of our 2% to 4% targeted margin range, all of which is supported by strong Star's results. As Steve mentioned earlier, we already have shifted focus to the next Star's performance period. including incremental investments made in the fourth quarter.

Turning to commercial. We are focused on pricing and cost management efforts to support 2026 margin recovery. At this point, approximately 60% of our group commercial insured offerings have been priced for next year. Our commercial pricing reflects the elevated cost levels we've seen this year, which we expect to persist in 2026. While we expect our group fully insured business to contract in line with the broader market, we continue to see strong traction for our self-funded offerings. We expect the vast majority of our employer insurance businesses to be repriced for 2026 and to return to our normal margin range in 2027.

Moving to ACA markets. We have submitted rate filings in nearly all of the 30 states where we participate that reflect 2025 morbidity and experience. These include average rate increases of over 25%. Where we are unable to reach agreement on sustainable rates, we are enacting targeted service area reductions. We believe these actions will establish a sustainable premium base while likely reducing our ACA enrollment by approximately 2/3. These actions should drive margin improvement in our employer and individual segment in 2026, though still below our targeted 7% to 9% range.

In Medicaid, the path to recovery will be more challenging. States have not funded in line with actual cost trends. So funding levels are not sufficient to cover the health needs of state enrollees. While we're making steady progress in bridging this gap with states, the mismatch between rate adequacy and member acuity will likely extend through 2026. To date, we have received 2026 draft rates on almost half of our contracts, which have a January 1 rate cycle, and we continue to advocate for rate updates to better reflect our ongoing experience with elevated trends. Our team is focused on addressing drivers unique to these markets, especially behavioral health and will continue to push for appropriate funds.

As I said last quarter, wherever states support responsible funding for Medicaid, we remain committed to serving people through that program and view this as integral to our mission. As we indicated in July, we anticipate Medicare margins will be breakeven for 2025. As we look to 2026, we expect margins to decline further as existing cost trends continue and the current rate environment does not change. Looking at UnitedHealthcare overall, the underlying business continues to perform well in serving consumers, plans and program sponsors.

To give you some examples of how we're enhancing the experience for these cohorts. Nearly 85% of member inquiries are served digitally. When members call us, 90% of calls are answered within 30 seconds and 95% of members' questions are resolved in the first interaction. So 95% of our claims are automatically processed immediately. We're delivering more value, ease, simplicity and guidance throughout the UHC member experience. We're also aggressively scaling AI and machine learning capabilities to enhance these experiences and optimize core performance.

While 2025 remains a transition year, the pressure we experienced is largely a result of mispricing and suboptimal market positioning. We remain humbled by the challenges of this environment and the lessons we've had to learn once again, but confident that we are in solid footing to recapture our performance potential.

With that, I'll turn it over to Patrick Conway, CEO of Optum.

Thanks, Tim. I will spend the majority of my time today updating you on our efforts to restore OptumHealth to its original intent around value-based care, which experienced [indiscernible] care at the right time in the right setting for the best outcomes at the lowest cost to the people we serve, particularly in light of current cost trends and the market dominance of the large health systems. Over the last few years, through a period of rapid expansion, OptumHealth's strategy around value-based care strayed from the initial intent of the model. Three critical issues emerged.

First, the provider network grew too large; second, the rapid pace of expansion and slower pace of integration resulted in operating inconsistencies exacerbated by relying too much on affiliated physicians who are less aligned with core VBC policies. And lastly, OptumHealth was accepting risk in products and services less suited for a clinically oriented value-based model. Understanding these issues has helped us better pursue the steps needed to get back to the original intent of OptumHealth and value-based care.

Over the past 6 months, we have made significant leadership changes to better drive an integrated VBC provider model. Under the leadership of Krista Nelson, our Chief Operating Officer, we are focusing our efforts on 3 key connected areas to drive better performance. First, returning to the original intended clinical framework that best supports VBC. Second, moving towards narrower, more integrated and dedicated value-based care provider model and network; and third, focusing on the appropriate managed benefit product and patient base.

Within this framework, our team has made solid progress, especially in bringing greater discipline to how we approach risk arrangements, which will benefit the business in 2026. This includes partnering with payers on benefit adjustments and appropriate rates to match the risk and mix of the populations we serve. At this point, we are close to completion and over 90% of our value-based payer contracts for next year and are on track to reach our goal of offsetting approximately half of the 2026 V28 headwind through payer contracting.

We are also pursuing market and product exits, including from lower-performing PPO contracts. As indicated last quarter, we have finalized exits for 200,000 lives in 2026, the majority of which are PPO. While still early in the Medicare annual enrollment period, we expect total OptumHealth value-based care membership to shrink by approximately 10% in 2026 before returning to growth in 2027. We also continue to intentionally shape our care provider network to prioritize high-performing partners who demonstrate strong patient engagement and consistently positive outcomes. We are moving to employed or contractually dedicated positions wherever possible.

We are separating from providers who are less aligned with the VBC model. The targeted network actions we've taken over the last 60 days will result in fewer providers in our networks starting in 2026. Within our markets and their related networks, we are working to more fully integrate our clinical practices to ensure greater performance consistency. The team is refining our portfolio and accelerating a consistent national operating model for regionally led high-performing OptumHealth practices that reduces fixed cost drives purchasing economies, align technology and most importantly, ensures continued high-quality care.

These actions increase our confidence in our ability to meet our V28 cost reduction targets in 2026 and strengthen our operating foundations for the long term. Lastly, our engagements clinical work at Optum continue to track with our expectations for meaningfully reducing medical cost trends, engaging with over 85% of our high-risk members in 2025, which accounts for the remaining V28 pressure offsets in 2026.

Bottom line, getting back to the basics of our VBC model will be good for the people we serve and for our business. As a point of reference, our 2026 CMS star rating projections show 80% of Optum at home members and 4+ Star plans and nearly 100% of our [indiscernible] members in 4+ Star plans. Evidence of our quality of care is underscored by a strong MPS of 90 at our highest-performing facilities.

For the third quarter, OptumHealth performance was in line with our expectations, reflecting the natural seasonality in our business and the pull forward of some investments. Within this, we expect to end 2025 with margins of just under 3%, which includes value-based care margins under 1%. We expect margin improvement across all of OptumHealth in 2026 even in the face of the third year of the Medicare funding cuts. We believe these efforts will drive further acceleration in 2027 towards our long-term margin targets of 6% to 8%.

Turning to OptumHealth's fee-based care services, as we discussed last time, these were not performing to their potential. We are adopting more consistent and rigorous processes to better manage these practices for growth and appropriate profitability. We are seeing early results in our East region, which serves nearly 5 million patients, where we have generated a 3% per visit productivity increase quarter-over-quarter, driven by targeted improvements in scheduling, workflow efficiency and patient acquisition. We have similar undertakings in motion in our South and West regions.

As for OptumInsight, we continue to perform solidly but not at the level of the potential for these services. Under the leadership of Sandeep Dadlani, we now see the alignment of our end-to-end technology and AI innovation efforts coming into formation. We will make the investments needed to accelerate the advancement of this distinctive platform that serves the expanse of the health system. We are confident in our plan will ignite top line revenue and operating earnings in line with our long-term growth targets.

At OptumRx, we continue to perform well with double-digit revenue growth in our pharmacies and a strong selling season for our pharmacy offerings. Our products are resonating in the market with stronger customer retention and new customer growth. At this stage, we expect new membership growth in 2026 will be more than offset by expected membership attrition from the UnitedHealthcare business. Importantly, our team remains disciplined around pricing, transparency and quality outcomes for our customers at a time when the pharmaceutical industry continues to drive cost ever higher.

Today, we offer full rebate pass-through arrangements to all of our customers with nearly 85% of them participating. We were the first in our industry to announce this arrangement back in the beginning of the year and we expect 95% of our customers will be in these arrangements in 2027 with the remainder in full rebate pass-through by 2028. And we have increased payments on branded drugs to over 14,000 and independent retail pharmacies as part of our commitment to a balanced pricing approach.

Thanks for your time today. I'll now turn it over to Wayne DeVeydt.

Good morning, everyone. I'd like to begin by expressing my sincere appreciation to Steve, Tim, Patrick and all of my colleagues at UnitedHealth Group for the warm welcome. It's truly an honor to be part of this team and to contribute to our shared mission.

Today, I'd like to cover 3 important topics. First, I'll provide an overview of our quarterly performance and how it informs our outlook for the rest of the year. I will then discuss our capital and liquidity framework as we look ahead to 2026, particularly in terms of resuming share buybacks and strategic acquisition activities. And finally, I'll offer some insights into our expectations for 2026.

Moving to the quarter. Today, we reported adjusted earnings per share of $2.92, which was slightly ahead of our expectations. These results reflect steady execution while we work through our longer-term improvement plans. We've balanced immediate performance with strategic investments that will support our future growth and natural diversification.

Some details for the quarter. We delivered revenues of over $113 billion, reflecting 12% year-over-year growth driven by domestic membership expansion of over 780,000 lives year-to-date. We ended the third quarter with total domestic membership of more than 50 million. Our medical care ratio of 89.9% in the quarter compares to 85.2% in the same quarter last year. with the full year trending towards the lower end of the projections we offered last quarter.

As Tim stated, medical cost trends, while historically high, remain consistent with our outlook for 2025 and align with our pricing actions for 2026. The operating cost ratio of 13.5% in the quarter reflects larger investments in technology and people than originally contemplated when guidance was set in 2Q. Specifically, we invested more than $450 million in broad-based employee incentives and in contributions to the UnitedHealth Foundation, both critically important for strengthening our relationships with our workforce and with local communities in the health system at large. And investments were proportionately greater in OptumHealth and OptumInsight. Finally, our earnings were supported by strong cash flows of 2.3x net income and an overall increase in days claims payable of 1.7 days sequentially.

Turning to our capital and liquidity framework. As previously communicated, we have paused our strategic acquisitions and share buyback while we dedicate our cash to returning to a long-term debt-to-capital ratio around 40% and interest coverage ratio is in line with historic levels. In the third quarter, our debt-to-capital ratio remained stable at 44.1%, reflecting continued actions to improve cash efficiency, offset by the completion of the Amedisys transaction late in the third quarter which represented a net cash disbursement of $3.4 billion. We expect our debt-to-capital ratio to trend closer to 40% in the second half of 2026. Accordingly, while we have not finalized plans for 2026, we anticipate we may be in a position to reinstate our historical capital deployment practices later in the year.

Finally, we generated operating cash flow from operations of $5.9 billion. We still expect to close this year with $16 billion in operating cash flow or 1.1x net income.

Looking ahead to 2026. As Steve mentioned, we will provide formal guidance with our fourth quarter results in January. We are comfortable with current consensus and within that, we are making the requisite investments needed to accelerate our returns in 2026 and to position our company for meaningfully stronger growth in 2027 and beyond. We are optimistic in our ability to execute on our 2026 plans, but there are remaining headwinds we will have to overcome. Items to keep in mind include, we're entering the final year of V28, which represents a more than $6 billion headwind to the overall enterprise. As you heard from Tim and Patrick, we've taken numerous actions around benefit design, cost control and member engagement to substantially offset this impact.

Further investment in OptumHealth and OptumInsight is needed and we are accelerating some of those investments as noted in our third quarter results. We are also accelerating our pace of AI applications to fundamentally advance a vast spectrum of processes and capabilities we expect will structurally improve our enterprise performance.

Our effective tax rate is expected to return to a more normalized level in 2026 as compared to 2025. And finally, investment income should continue to move lower as interest rates decline. From a tailwind perspective, our repricing efforts will be a catalyst for earnings growth as we begin returning to our long-term target margins with particularly solid year-over-year results expected in our Commercial and Medicare businesses. We also expect stability and a measured return to growth in our Optum entities, with aspects of that growth being reinvested in the business, specifically OptumHealth and OptumInsight. These investments may slow 2026 growth, but should accelerate growth in 2027, more in line with historical expectations. We will be paying down debt and identifying opportunities to further reduce our interest expense as a result of the declining rate environment.

And finally, we're taking an aggressive step on affordability initiatives that should improve overall medical trend relative to our pricing. While we have a number of moving parts to manage for the remainder of this year, we also have concrete plans to execute on all the items we discussed this morning that will position us for the type of growth you've come to expect from UnitedHealth Group.

Thanks for your time this morning. I'll now turn it back to Steve.

Thanks, Wayne. As I hope you clearly -- you heard clearly, this team and our 400,000 colleagues are focused on delivering on all fronts for the people we're privileged to serve and for our shareholders. As I said in the outset, we're being very disciplined. This plays out day to day as this management team recognizes the need to manage our costs, both in the short term as well as structurally. And through another lens, throughout the quarter, we have continued to evaluate the company's businesses with fresh perspectives and with continued confidence in our progress and our overall direction. We expect to complete that assessment in the fourth quarter as we position for 2026 and the years ahead.

A few themes emerge from these efforts. We are dedicating our energies to serving U.S. health care needs and we'll be reducing our footprint in international markets that do not support these needs. We will be finalizing our initiatives for recovery of the remaining outstanding loan balances from the care provider support programs associated with the 2024 Change Healthcare cyber attack.

For OptumHealth, we are consolidating locations and completing plans addressing the geographic markets in which we will serve patients all intended to operationally advance and scale the leading value-based clinical care business of OptumHealth. And we are realigning Optum Financial services within our OptumInsight Services platform. While we have not yet finalized these plans, many of these actions are underway, and we believe they will improve both our focus and long-term performance. We are in the process of quantifying the accounting, tax and cash implications of our plans.

At this stage, our preliminary work would imply a non-GAAP substantially noncash low single-digit billion-dollar charge. We will provide further details on our fourth quarter call as we conclude these efforts. Simply put, we will end 2025 well positioned for a return to solid growth in 2026, acceleration in 2027 and a clear focus on our long-standing mission and strategy. An important reason for my confidence in our outlook is the way I see our people embracing a renewed focus on the mission, culture and values of our company. How we go about things in the sensitive area of health care is as essential as what we do, and we are bringing new energy to that imperative each day.

Now operator, let's open it up for questions.

[Operator Instructions] Our first question comes from Josh Raskin with Nephron Research.

I appreciate all that detail this morning. I was wondering if you could just give us a more updated view or a more specific view on the sub businesses in OptumHealth. I'm specifically looking to understand how much of the revenue base is coming from capitated premiums from health plans and within that, how much from your biggest customer, UHC. And then how much of the remainder is fee-for-service billings from your employed physicians and then maybe some of the moving parts, I heard a little bit of the membership details as you think about stepping into 2026, at least directionally.

Sure. Why don't we just start with Patrick and then finish with Kris?

Sounds great. So thanks, Josh, for the question. High level, the breakdown on revenue is as we described last quarter, 65% VBC, 15% care delivery fee-for-service and our payer, employer services. Within VBC, it's about 2/3 of our book of business is serving UnitedHealthcare, the rest of diverse array of payers. Within growth potential as we close out this year, as you heard, we plan to close 2025 just under that 3% margin with VBC margins under 1%. And then we're taking the actions this year to set us up for 2, and I'll let Krista cover that portion.

Yes. Thanks for the question, Josh. So I think as we are pacing into 2026, we remain anchored and committed to the long-term potential of this business. the 6% to 8% margin that we outlined in the second quarter. And within that, the 5% commitment to our value-based care agenda. We continue to work a robust set of actions and opportunities with clear line of sight and frankly, a lot of the ambition to the work ahead. And again, just remain optimistic on our positioning for the long term.

And we'll take our next question from A.J. Rice with UBS.

Thanks, everybody. Maybe just I'll stick on the Optum theme. I appreciate the comments on OptumInsight and the comment about need for investment. Can you just sort of comment a little more deeply on your view of where OptumInsight sits competitively at this point? Where are those investments need to go and the time frame for seeing a reacceleration of growth there?

Sure. I actually think that Optum's competitive position is actually pretty strong. We have a really nice base of business and continue to grow that. But I think the potential is much greater. So Sandeep, do you want to offer some views?

Sure. Thanks, A.J. Look, 4 weeks into the role, I'm super impressed with the talent, the domain knowledge, the customer franchise and the mission. I'm particularly excited by the momentum of some of our AI first new products in the portfolio. I mean just last week, you must have seen we launched Optum Real, which was inspired by innovation at UnitedHealthcare. This is the first real-time platform for claims and reimbursements anywhere in the industry. And just our early pilots are showing dramatic results in streamlining what I think is one of the most complex pain points for payers and providers.

I'll give you another example. We recently launched Optum Integrity One. This is the most advanced AI auto coating tool in the market, and it's driving demand among health systems and hospitals looking to improve middle revenue cycle automation and performance. I mean just some metrics for ambulatory outpatient claims coding, this showed 73% productivity over prevailing solutions. And for hospital inpatient coding, it showed 23% increase in productivity. A third one is Crimson AI. This is an AI first clinical analytics platform that has created 6 wins in the last 90 days itself. This helps providers with their surgical costs and operating room optimization. Just the average return on investment for any provider system investing in Crimson AI has been 13:1.

So look, in my first few interactions with our top clients, they've expressed tremendous excitement and anticipation for our new AI-based offerings. They've also provided feedback on where we can do better. But it's clear that our traditional services in OptumInsight have to evolve to AI-first services, then to products and eventually to platforms. We are well on our way with this journey. We're beginning to build powerful AI products like the ones I mentioned. We are rationalizing and modernizing some of the existing legacy products that have great market presence. And then finally, we're investing in an AI-first workforce. Remember, I come from the tech role where we built 10,000 AI builders and we're building AI for sales teams. So we are investing, as earlier noted, in building, growing new products and offerings, and I'm incredibly excited about the possibilities. We want to simplify health care with AI and OptumInsight is the best company to do it. Thank you for the question.

Our next question comes from Justin Lake with Wolfe Research.

Thanks. First, let me congratulate and welcome Wayne back to the sector. Good to have you back. My question here is for Tim. Wanted to confirm, you talked about getting your commercial margins back to the 7% to 9% target range for 2027. Just wanted to make sure I heard that right. And then in terms of the current baseline for '25, I'm kind of backing into a margin in the 3% to 5% range for Commercial, Tim. Is that in the right ballpark?

Yes. Thanks, Justin, for the question. So the commercial business, as we've talked about for 2026 and as a result of our pricing actions, we'll make meaningful progress as you think about the work being done across the ACA and the other commercial products to chip away at a return to that 7.9% long-term margin. We view 2026 as a year where we're probably still 150 basis points below that low end of the margin. But again, given how the pricing is being received in the marketplace, some of the opportunities that we see around controlling our costs in the future. We still feel as though that longer-term margin range of 7% to 9% is attainable.

Our next question comes from Stephen Baxter with Wells Fargo.

Just wanted to ask for some additional color on the membership declines you're expecting in Medicare Advantage in 2026. Can you help us think about the breakout between individual duals and group? And then at the industry level, CMS is expecting enrollment growth to be pretty flat in 2025? I guess, first, does the company agree with that assessment? And second, how are you thinking about the type of industry growth you might see as we move into 2027 and beyond.

I think Bobby Hunter is best for this, go to it.

Yes. Great. Thanks, Stephen. So I'll hit the membership item first. Tim mentioned in the prepared remarks, approximately 1 million membership contraction for 2026 across MA. That does include both group and individual. Obviously, we've been pretty clear about the fact that we're exiting products impacting about 600,000 members. So think about that as kind of your first core element of how you build to that 1 million. And I would say the balance of the bridge to the full 1 million is pretty evenly split between the pressure inside of our group MA business as a result of taking a really disciplined approach to pricing there. some dislocation that will exist in the group customers as a result of some other more aggressive competitor actions.

And then the other kind of 50% of that bridge from the 600,000 to the 1 million representing a pretty even split across our individual MA business. Obviously, really early in AEP at this point, but that's kind of the way I see it from this distance. When you think about growth overall, I would expect 2026 to be probably more in line with the general progression and growth that we're seeing in 2025. and that's largely a result of continued benefit cuts in the marketplace, continued plan closures and then some disruption in the broker community related to pretty broad commission changes. I absolutely believe in the long-term growth potential of MA, and I think we can grow above those levels as you step out further.

Ultimately, right now, though, medical trend pressure is increasing the cost of health care and the funding cuts of the program are degrading choice, access and value to the consumer that's a real impact in the 35 million Medicare eligibles who rely on MA right now to make health care affordable. So still absolutely believe in the differentiated value proposition of MA but can I underscore the importance of stability in the program as we look to the longer-term growth rate and opportunity for MA. Thanks for the question.

Next question comes from Kevin Fischbeck with Bank of America

Great. I was wondering if you could talk a little bit more about OptumHealth. The pullback in retrenchment, I guess, and the refocus on certain types of plans, I guess, if we went back a number of years, I would have thought that value-based care could potentially serve the majority of MA lives. I mean is there a TAM that you're thinking about? Like what -- if you look at the market today and numbers you want to focus on what percentage of MA really lends itself to a successful value-based care model? And I guess, how penetrated is that today?

I'll have Kris respond to this, but I think we remain very positive and actually think MA should move more to value-based care and those themes just picking up exactly what Bobby said. So Krista, maybe you want to talk a little bit about the future of value-based care.

Yes, absolutely. Kevin, thanks so much for the question. So as we mentioned in our opening remarks, we are deeply committed to value-based care and research continues to validate the impact that it can have. We know fee-for-service rewards volume. We know that value-based care aligns incentives. And when you look across OptumHealth, we've got an incredible set of assets that really enable an integrated delivery system to create value in the market that we are focused in. And so I just think about the potential. It really is limitless. I think what you're seeing from us is a focus and operating discipline and really kind of getting back to some of our core so that we are able to expand and grow in the future. And we're really deepening our presence in the markets. We're focused on the appropriate network on the appropriate providers on the appropriate risk footprint portfolio so that we are positioned for long-term success inside value-based care.

Which implies you have to have an aligned to the right products. You have to have it aligned to the right processes and disciplines, and that alignment is really what we're returning to. So good question.

Our next question comes from George Hill with Deutsche Bank.

Yes. We saw a pretty significant step up in what I would call discretionary expenses in the quarter compared to Q2. You talked a lot about the need for investment in a lot of the business lines. I guess as you think about those numbers, can you talk about -- can you quantify the step-up in investments that were incurred in Q3? And how much of those should we think of as run rate investments versus onetime investments where we'll see leverage going forward?

Sure. Wayne, just take it.

Yes. Thanks, George. I would say of the 450 plus that we discussed, about 1/3 of that is a commitment to our foundation, which had not been funded at the levels that it should have been in the past and clearly puts us on a runway for multiple years of activities around the foundation. So view it as not necessarily run rate into next year, but nonetheless, something that we believe is part of our encoring core, and we'll continue to do it in the outer years. The delta of that then is all investments in our people. You heard Sandeep talk a bit about OptumInsight, and that cultivated with the number of resources we have there and aligning incentives around the execution that we expect. So I would view much of that as being recurring in nature, part of our core business and the investments we'll continue to make in the expansion that we see both in OptumHealth and in AI specifically.

Our next question comes from Lisa Gill with JPMorgan.

I just had a question around utilization and how to think about it here in the back half of the year. Clearly, this quarter came in a little bit better than what we were expecting, but we're looking at what's happening with the exchanges looking at the step-up in Part D. So can you maybe just talk about your expectation going into the fourth quarter? And specific to Part D, are you expecting a big step-up as we think about the fourth quarter?

Tim, do you want to take this?

Yes. Thanks, Lisa, for the question. So as I think about utilization, really tracking in line with the expectations that we called out in last quarter's call, really across all of the product lines, the general commercial business, including the ACA as well as Medicare and Medicaid. And also on the Part D portion of the business, also tracking in line with expectations. Clearly, there is quite a bit of seasonality that's always at play in the health insurance business. I think you can think of normal seasonality, first half to second half as 60% in the first half in terms of earnings contribution, 40% in the second half.

This year, given some of the trends that we've seen, a little bit more of a bias towards earnings in the first half of the year versus the second half of the year, but really kind of trends tracking with how we expected them to track, consistent with what we guided in the second quarter and the seasonality really just kind of a byproduct of the business. And also some of the additional spend that we have on things like a seasonal ramp in AEP with respect to Medicare.

Our next question comes from Andrew Mok with Barclays.

I wanted to follow up on the Medicare Part D drug benefit for next year. It looks like the benefit for Tier 3 branded drugs changed from a co-pay to coinsurance across most of your MAPD and stand-alone Part D plans. Can you elaborate on your experience with the co-pay structure in 2025? And what drove that decision to change the benefit structure in 2026?

Yes. Anderson. So I would say just kind of big picture, we take a multiyear metered approach to our benefit planning that includes, as you can appreciate, managing and balancing many different variables, and that's particularly important given the dynamics around V28 and the phased approach there. The other element, perhaps, just to kind of call out as you think about how we decided the modifications to make the benefit design for Part D in particular. For 2026 with some uncertainty around the demo program and how that would continue to persist or not into 2026. So we took what we felt was an appropriately kind of cautious approach there, pulling all the levers available to us to ensure that we would be well positioned on the overall benefit design regardless of how the demo came into 2026.

So as I look now kind of where we sit from a benefit design standpoint with the coinsurance we have on Tier 3, the deductibles that we have kind of broadly across MAPD and I feel pretty aligned to industry there. And I would expect us to have continued good performance as we step then into 2026. As it relates to '25, really on the MAPD side, no concerns around selection, mix or outlook given the prevalence of deductibles that we put on our MAPD offerings. And on PDP, really kind of no material contributor or risk to rest of your outlook on that one either. So overall, feel pretty good about how we're stepping into 26 on PDP.

Our next question comes from Ann Hynes with Mizuho Securities.

Great. My question is focused on Medicaid. On the last call, I believe, you said margins should be in the negative 1% to negative 1.5% range. Is that still a good bogey. And just like looking with the One Big Beautiful Bill, is there anything that would prevent like a path to Medicaid margin recovery in 2007 and 2028?

Mike, do you want to take that?

Yes, Ann, thanks for the question. As Tim indicated, our view for Medicaid has not changed from last quarter. We expect breakeven in 2 as we are in 2025. As we think about 2026, we expect some margin degradation due to the continued dislocation of premium funding and what we're seeing in terms of elevated medical cost trends. But we do see 2026 as the trough for that performance. Our elevated trends are driven as the industry has by specialty pharmacy, behavioral health and also as we look at home health services. We think, over time, the One Big Beautiful Bill, there will be some transformation and work as we collaborate with states. But we see over time about an 18- to 24-month period, we will be able to return to a rate of margins. of around 2%.

Our next question comes from Lance Wilkes with Bernstein.

Great. Could you talk a little bit about the employer market? And specifically, what's the medical cost trends you're seeing this year and next? And given the pressures on employers. What are some of the strategies they're looking at for the '26 and looking out to '27 on the selling seasons, in particular, any interest in adoption of value-based care? Are they using more [indiscernible], things like that?

Dan?

Yes. Thanks, Lance, for the question. Trends for 2025 and our outlook for 2026 remain in line with what we shared in the guidance last quarter. Trends are approximately 11%, and that is how we have priced into 2026, and I'll just share that with 50% of our January insured business resolved at this point, encouraged by both the yield on persistency and rate to deliver the margin expansion that Tim spoke about in light that trend of approximately 11%.

You're right, health care affordability is top of mind for all employers and we hear that this selling and renewal season, as we always do, but even a little bit louder given the trends and the pricing associated with it. Employers are evaluating a host considerations you referenced, [indiscernible] and [indiscernible] continues to be a leading product for us, continuing to capture share. And that has continued to grow and has a robust pipeline already as we look toward the jumbo selling season of 2027.

I might highlight some additional things that employers are looking at as well. integrated advanced advocacy solutions that we sell in our product portfolio continue to capture employer attention as they help us bring together more synergistic approaches to care. That includes value-based care, as you referenced, tighter coordination between medical benefits and Rx benefits which employers are continuing to do on an increasing basis as we see more and more employers moving to combining medical and Rx benefits and satisfied very much so with how we're advancing in that way with OptumRx. So those are a couple of highlights that I would offer that are on top of mind for employers certainly for 2026 and already as we look forward into 2027. Thanks for the question, Lance.

Next question comes from Scott Fidel with Goldman Sachs.

I appreciate the update on the capital deployment timing returning to the normal plan. Can you also just update us on sort of the dividend and what your our view is on the dividend and that looking forward. And then curious just around -- I know that there's going to need to be possibly some portfolio rationalizations occurring in OptumHealth and other businesses as you pursue the new approach. Is there a way that you can sort of frame that for us in terms of, I don't know, whether it's sort of revenue or just more philosophically, how you're thinking about the asset base in OH and maybe more broadly around where -- and around potential rational dates that could occur.

Sure. The dividend will start with Wayne and then I'll start with the Optum and give it to Krista and to Patrick. So Wayne?

Thanks, Steve. Scott. There are no changes in our historical dividend practices nor do we expect those to change going forward. We will maintain the dividend as we've done the next prioritization as we're paying down debt will then revert back to the buyback program and then our strategic acquisition. So view it as no changes and then hopefully back into our normal capital deployment activities back half of next year.

And then just broadly, related to OptumHealth, helping people understand, we are very much committed to this. We are just reshaping it back to the way we had originally conceived it and believe that it has the most impact on value and we're really just taking the right steps to bring that back into form so that we can really move and grow and advance it in the construct of that disciplined model we had going forward. So Krista, do you want to talk a little bit about that?

Yes, I can just add to that. Thanks for the question. So yes. So Scott, as Steve mentioned, we are really kind of taking a look at the whole like integrated delivery system. We have a combination of value-based care assets, some assets that are focused more on fee-for-service, but truly enable that value-based care agenda. And it's really important to ensure that kind of integrated model can deliver the best outcomes. And so as we're thinking about the portfolio rationalization, we taking into account a combination of things like where we have the right clinical quality, where we have the best operating cost performance, where we have the right engagement and where that model can really be brought to life for both value-based and those kind of fee-for-service service lines as well.

And so I think those are the ways in which we're kind of looking at the model. So it's a market focus. We are looking at rooftops. We are again looking at the populations, the risk, the products. And I think through all of that, there will be an output of some actions that we'll take in the near term to position us for long-term success of that integrated model.

Likely withdraw from a few geographic markets, likely reshape the practices within certain markets where we remain, likely shape the, let's say, the primary delivery system along line with the complementary services, things along those that nature, all very logical, all actually more constructive, but to be constructive, sometimes you have to take some things away. And Brian?

In the -- to add one point across Optum and connect a couple of questions. In the face of escalating cost trends, what we hear from our payer partners, from employers and from patients and providers as they want a value-based care system that delivers better quality, better experience and lower cost of care. And that's what Optum is delivering to our various customers.

Our next question comes from Erin Wright with Morgan Stanley.

Great. So I have a follow-up on that front. Is there anything you can quantify or break down for us in terms of those steps to turn around OptumHealth? Like how much is just walking away from risk? How much is fixing the fee-for-service business? And presumably, that could be addressed a little bit quicker, right? And how much is just integrating into a consolidated operating model? And -- and then what sort of incremental investments that you can quantify at this point that needs to go into that business as well?

Presumably, does this all get you to 6% to 8% margin in 2028 and it's just back end weighted. Is that the right way to think about it?

I think directionally, I don't think we can achieve the level of precision you might be looking for something like that just because this does blend together. But Krista, do you want to respond.

Yes. Yes, thanks for the question, Erin. So let me just kind of start where you ended, which is likely more back half weighted, but you should expect progress throughout here. And while we might see faster progress in some fee-for-service improvement, Patrick highlighted whether that's kind of productivity or scheduling or improving access or collection rate. you will also start to see some progress on our value-based portfolio as well.

So think of things like medical management, the work we're doing with our payers, the work we're doing to curate our network, also the work we're doing to manage operating cost discipline. So these things really all come together in this integrated model, but maybe some faster progress in certain areas while you'll still continue to see kind of progress against the holistic model.

But for example, you kind of -- a little bit of further ahead in the Eastern region on this and seeing some impact on that, and that's a good example of how this will progress, right? So a pickup in terms of volume there, greater capture, greater reach.

Our next question comes from Dave Windley with Jefferies.

My question is related somewhat. But I think earlier in the call, you quantified that half of your headwind, I think the V28 headwind for 2026, you plan to mitigate through recontracting. And I wanted to make sure I understood, is that across the portfolio of payers? Are you mostly harvesting that from the UHC portion, the non-UHC portion? And then is the -- did I hear correctly that VBC lives you expect to decline by 10%. Is that interwoven in that at all?

So Krista, do you want to respond?

Yes, absolutely. So yes, so -- like Patrick mentioned, so we sought to overcome half of the V28 headwind through our payer contracting efforts, which would include all payers. And we have completed that, and we're about 90% complete with our contracting with line of sight to the rest by the end of the year. So I feel good about that. That encompasses rates as well as product and benefits. And we've talked a little bit about some market exits inside of that. So exiting more than 40% of our PPL footprint was also kind of part of that exercise, but again, across all of our payers.

And then you asked about membership as well with the approximately 10% reduction as we pace into next year. again, we probably will see even some additional PPO exit as part of the work we continue to do with all of our payers and the work that we're going to do to finish that work. But then that would be just really a direct result of actions we're taking to optimize our portfolio. So again, products, market, footprint and the risk that is appropriate for this model.

Leaning to products that lend themselves to management.

Our next question comes from Jessica Tassan with Piper Sandler.

Can you describe just the tone of any recent conversations you may have had with CMS their receptivity and posture towards MA. What do you think CMS is focused on from a Star's risk adjustment and MA rate perspective? And what is UHC lobbying for?

You guys can decide which one to respond to that. We're not lobbying for anything in particular. So. Please?

Yes. Thanks, Jessica, for the question. As I think about CMS receptivity, we've been encouraged and continue to be very encouraged of the receptivity of this administration to have conversations with industry about ways to modernize and ways to improve this already very popular program. This is in direct contrast to what we experienced over the previous administration. And we've always enjoy and appreciate the efforts to be able to have these fact-based conversations around how to modernize the program and feel like that's the best way to get to constructive answer and a constructive way to move forward. So encouraged again on just the level of activity and the level of conversation that we have with the administration, and we'll continue to do that and continue to bring to them ideas that we think are ideas that are the best path forward that provides some level of stability for beneficiaries and also modernize the program in the process.

Yes, absolutely. So we have time for one question remaining.

Our last question comes from Whit Mayo with Leerink Partners.

All right. Tim, I was just hoping that you could comment more on the provider coding stuff that you were talking about. We hear pushback on that for many health systems. And then maybe any observations that you could share on the independent dispute resolution process and actions you're taking there or the impact on trend.

Yes. Thanks for the question, Whit. So when I think about some of what we're seeing in trend, there certainly is a meaningful portion of it that is related to more service intensity per encounter being built by health systems and by providers. Some of the ways that's coming through are higher-cost sites of service where lower costs are available, think, lab, think ER and surgery. I'm also seeing more services being attached to ER visits and hospital visits, an increase in the number of specialists that are rounding per inpatient days and then a bias towards some higher DRG weighting than we've seen in the past. And it is happening fairly consistently across the country, but then also have some very significant outliers.

And one part of what we're doing is we are addressing these outliers. We have to. We have to keep medical costs and health care affordable for consumers, portable for states, the federal government. So we will be taking some network actions where we need you to keep health care affordable. We're also making more use of AI in our payment integrity programs, increasing some of our payment policy efforts as well as our clinical affordability programs to address some of what we're seeing.

As I think about the IDR process, it's not something that would spike out in terms of a material trend driver from this distance, but certainly something that we're keeping an eye on pretty carefully.

Great. So thanks, great conversation today. That's all we really have time for. I want to thank you all for joining us, and we look forward to talking with you again and engaging with you before we get to January. And in January, we will provide both our year-end results as well as guidance for 2026. So thank you all for joining us this morning.