UnitedHealth Group has spent much of the past two years struggling with medical bills that kept climbing faster than expected. Its latest earnings suggest the worst of that pressure may be easing. The insurance giant beat Wall Street's estimates, raised its profit outlook, and showed that its efforts to rein in costs are starting to pay off. But the recovery has come at a price, with nearly 1M Medicare Advantage members gone since late 2025.
Medical costs finally ease
UnitedHealth beat Wall Street earnings expectations in Q3 and raised its full-year outlook. Revenue reached $112.7B, while operating earnings totaled $6.6B.
The biggest improvement came from its medical cost ratio, which measures how much of every premium dollar goes toward patient care. It fell to 88.4%, beating the 89.9% consensus as cost management and pricing discipline helped the company regain some ground.
Adjusted earnings of $4.69 per share also topped the $4.14 estimate. Morningstar noted that the ratio improved 150bps year over year, while adjusted earnings per share jumped 61%.
Still, not all the improvement came from lower medical expenses. A $610M reserve benefit helped the quarter, and CFO Wayne DeVeydt cautioned that costs remain elevated by historical standards.
Membership takes the hit
UnitedHealth's improving margins came alongside a shrinking customer base. UnitedHealthcare lost 165K employer members and 85K Medicaid members, while Medicare Advantage enrollment has declined by 935K since late 2025.
The insurer still served 48.3M consumers during the quarter, but the membership losses show that its earnings recovery hasn't been accompanied by growth across the business.
Meanwhile, acute hospital admissions fell 15% year over year, while home health admissions increased 10%. The shift comes as the company continues working to manage medical expenses.
Some costs remain stubborn. The No Surprises Act dispute process, which handles disagreements over out-of-network medical bills, added roughly 100bps to expenses.
Medicare ratings raise concerns
UnitedHealth has another problem waiting down the road. Its Medicare star ratings have weakened, putting future federal bonus payments at risk even as its current earnings improve.
Morningstar found that 69% of UnitedHealth members were enrolled in plans rated four stars or higher, down from 78%. The firm described the decline as manageable, although other estimates point to more pressure ahead.
J.P. Morgan expects the share to fall to 67% for 2027, compared with 81% previously and a 71% industry average. Humana, meanwhile, reported 95% of members in highly rated plans.
The earnings impact won't arrive until 2028, when bonus payments tied to those ratings take effect. UnitedHealth has some protection through Optum, which generated $66.9B in revenue and $3.7B in earnings during the quarter.
Optum Health's margins also improved to 2.6% from 0.2% a year earlier. But UnitedHealth's consolidated operating profitability remains under pressure, with earnings before interest and taxes margins falling from 8.1% in 2024 to approximately 5.3%.
Wall Street sees more upside
Management raised its full-year adjusted earnings outlook to at least $20.50 per share and suggested Wall Street's $22.61 consensus estimate for 2027 could be too conservative.
DeVeydt pointed to potential earnings growth of 13% to 16% from the updated 2026 base. Morningstar also sees the early 2027 outlook aligning with UnitedHealth's longer-term growth targets and maintained its $475 fair value estimate.
The company is also reducing prior authorization volume by 30%, cutting back on the pre-approval requirements for certain medical treatments.
Analysts following the recovery under returning CEO Stephen Hemsley have described the turnaround as real, and the latest earnings offer some support for that view. Medical costs are becoming more manageable, and profit expectations are moving higher.
The bigger question is whether UnitedHealth can sustain that progress. Nearly 1M fewer Medicare Advantage members, weaker star ratings, and medical costs that remain above historical norms leave plenty to prove. The latest quarter gives investors a reason to be more optimistic, but the next few will determine how much of the recovery can stick.
