UnitedHealth keeps medical costs under control - and raises its outlook again

By Jaimy Lee

All eyes are on the medical-cost ratio, which shows how well the health-insurance giant controls its spending of medical care

UnitedHealth Group's medical-cost ratio came in lower than expected.

UnitedHealth Group has managed to control how much money it spends on medical care for its members.

The health-insurance giant said Tuesday that the medical-cost ratio in the third quarter of this year was 88.4%. That's lower than the 89.9% it reported in the same three months of last year and also lower than the FactSet estimate of 89.7%. The medical-cost ratio is a closely watched metric that calculates the percentage of insurance-premium revenue that UnitedHealth spends on medical care.

As a result, the company said it expects adjusted net earnings of at least $20.50 per share in 2026, marking the third time this year that UnitedHealth has raised its outlook. Most recently, in July, the company said it expected adjusted net earnings of $19.50 to $20 per share this year.

The company's stock (UNH) was up 2.5% at market open on Tuesday.

UnitedHealth has spent much of the last year trying to reassure investors about the direction of its sprawling healthcare business. Its stock sank last year to a five-year low after the company reported spending far more than expected on medical care for its members. A similar issue is facing insurers like Elevance Health (ELV).

Keeping costs in check

UnitedHealth's medical-cost ratio came in at around 85% during the first three quarters of 2024. (The ratio usually rises in the fourth quarter, as patients opt to undergo elective procedures before their health-insurance deductibles reset at the start of the year.) But in 2025, UnitedHealth's medical-cost ratio hovered around 90% for three out of four quarters - an unwelcome increase for investors.

"Costs remain stubbornly high across the entire healthcare landscape, in particular in areas such as specialty pharmacy and acute healthcare service intensity," UnitedHealthcare CEO Tim Noel said during a call with analysts, according to an AlphaSense transcript.

He later noted that "care intensity remains elevated relative to historical norms" and "demand for care remains strong," notably among older adults and patients who require complex care.

So far this year, the medical-cost ratio appears to be returning to normal, hitting 83.9% in the first quarter and 86.7% in the second quarter.

"Medical-cost management brought the medical-care ratio down meaningfully," David Wagner, head of equity at Aptus Capital Advisors, said in an email.

Analysts were largely bullish on UnitedHealth before Tuesday's earnings.

"Given that UNH's guidance assumes an acceleration in medical-cost trends, we believe there is more upside potential to earnings than downside risk," Mizuho Securities analyst Ann Hynes told investors on Monday.

UnitedHealth reported $112.7 billion in revenue, down from $113.2 billion in the same quarter a year ago. That beat the FactSet consensus of $111.3 billion.

Revenue for Optum, its pharmacy-benefit manager and medical provider, came in below the FactSet estimate. However, third-quarter revenue was driven largely by a steady performance from UnitedHealthcare, its health-insurance business.

As part of an overhaul of its business and a push to better control costs, UnitedHealth lowered the number of members in its plans. It had 48.3 million consumers in the third quarter, down from 50.1 million members served in the same three months of last year.

The company disclosed that 69% of its Medicare Advantage members are in health plans deemed high quality by the government, a percentage it described as "in line with expectations." That's lower than the 78% of its plans that got four stars last year. However, executives noted during the call that the company expects to have 75% of its Medicare Advantage members in those high-quality plans by 2028. Medicare Advantage plans with higher ratings get extra payments and can be used by older adults to shop for health coverage during Medicare's open-enrollment season, which begins Oct. 15.

Adjusted earnings per share came in at $4.69, beating the FactSet estimate of $4.14.

UnitedHealth's stock is up 5.5% over the last year, while the S&P 500 SPX has gained 17.3%.

-Jaimy Lee

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10-13-26 0949ET