This morning, I know you are eager to get into the underlying details of our revised financial outlook, which we will do. John Rex will discuss financial performance and the elements affecting our outlook, and I'll come back with some closing thoughts, and then we'll have ample time for questions and answers. The primary driver of the UnitedHealthcare earnings shortfall for 2025 is that our pricing assumptions were well short of actual medical costs. Our current view for 2025 reflects $6.5 billion more in medical costs than we anticipated in our initial outlook.
In addition to trend-driven issues, the updated 2025 outlook removes about $1 billion from previously planned portfolio actions that we are no longer pursuing. We also believe we can resolve our current issues and recapture our earnings growth potential. On trends specifically, the increase in care activity across individual and group Medicare Advantage we saw earlier this year has now affected complex populations and our Medicare supplement business as well. However, inpatient utilization has accelerated through Q2, and we expect will comprise a relatively larger portion of the pressure over the full year.
In the ACA business, the revenue impact resulting from a difference between the morbidity that we price for and what we experienced is the primary cause of our underperformance. Their trend is approaching 11%, which is approximately 100 basis points higher than our initial expectations. Beyond these segment-specific factors, there are other broad drivers of higher medical cost. There has been a marked increase in healthcare cost due in part to increases in service intensity per encounter.
| Metric | Period | Current guidance |
|---|---|---|
| Adjusted EPS | FY2025 | at least $16 (lowered) |
| Revenues | FY2025 | approaching $448 billion (+11%) |
| Medical care ratio | FY2025 | 89.25% ±25 bps (raised) |
| Effective tax rate | FY2025 | ~18.5% |
| Cash flow from operations | FY2025 | ~$16 billion (1.1x net income) |
| MA medical cost trend | FY2025 | ~7.5% (raised) |
| MA pricing trend | FY2026 | approaching 10% |
| Optum Health long-term margin | long-term | 6%-8% (lowered) |
| 2026 earnings growth | FY2026 | solid but moderate, accelerating in 2027 |
| Metric | YoY | Note |
|---|---|---|
| Revenues | +13% to nearly $112 billion | growth across UnitedHealthcare and Optum |
| Adjusted EPS | $4.08, below prior year | pricing and medical cost trend factors at UnitedHealthcare and Optum Health plus ~$1.2 billion of discrete items |
| UnitedHealthcare operating earnings | -$1.9 billion to $2.1 billion | medical trend factors including a ~$600 million ACA premium deficiency reserve |
| Optum Health revenues | -$1.8 billion to $25.2 billion | prior contract adjustments and Medicare funding reductions |
| Optum Rx revenues | +19% to $38.5 billion | new customer adds and continued specialty product contribution |
| Optum Insight revenues | +6% to $4.8 billion | post-cyber customer recovery, pacing slower than expected |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Medical cost trend | ~5% MA assumption at bid | ~7.5% MA, over 11% MedSupp, ~20% Medicaid behavioral | Sharply elevated |
| Optum Health value-based care | growth focus | $6.6 billion below plan; refocus to original intent; 6%-8% target | Reset |
| Pricing and margin recovery | — | 2026 priced at ~10% MA trend with intense margin-recovery focus | Corrective |
| Leadership and culture reform | — | extensive management changes, humility, transparency, independent reviews (Analysis Group, FTI) | Overhaul |
| Capital and M&A | — | balanced capital use, pending Amedisys, 5% dividend increase | Cautious |
| V28 risk-model transition | — | estimated $11 billion three-year headwind, ~$4 billion remaining in 2026 with about half to be offset | Headwind |