UNITEDHEALTH GROUP INC Q1 FY2025 earnings call

• Medicare business was impacted by care activity and member profile issues. In UnitedHealthcare's MA, care activity increased twice the expected rate; Optum Medicare membership had unanticipated profile changes. - Actions taken include ensuring complex patients engage in clinical programs, improving member engagement, updating patient health status, investing in physician workflow for CMS risk model transition, and informing 2026 plan designs. - Operational initiatives: Optum Rx removing prior authorizations, aligning payment models to pharmacy costs, AI directing calls, and the HouseCalls program in Medicare Advantage. - Growth: UnitedHealthcare MA on track to add 800k members, Optum Health adding 650k net new value-based care patients, and technology advances driving efficiency.

UnitedHealthcare's Medicare Advantage business is on pace to serve an additional 800,000 people this year. Optum Health is on track to add 650,000 net new patients to value based care arrangements. Optum Rx revenues grew 14%, exceeding $35 billion for the quarter. In Medicaid, there is positive momentum in closing the health status gap. UnitedHealthcare's Medicare Advantage business contributes significantly to member growth, Optum Health's value-based care adds new patients, Optum Rx's strong performance is a key segment, and Medicaid shows growth in closing health gaps.

Revised adjusted earnings per share outlook to $26 to $26.50. Consolidated revenue outlook $450 billion to $455 billion. Optum Health revenue $106 billion to $107 billion, operating earnings $6.2 billion to $6.4 billion. UnitedHealthcare operating earnings outlook $16 billion to $16.5 billion. Expect further technology advances to drive efficiency and return to long-term growth targets.

• Elevated care activity in Medicare Advantage, especially in group business due to premium changes from Medicare funding cuts. - Optum Health impacted by new member profiles and execution issues with CMS risk model. - Pharmaceutical pricing pressures, potential policy impacts like Arkansas PBM legislation affecting patient access, and uncertainties around tariffs. - Medicaid funding cuts and their impact on member access and health outcome progress.

Q: Good morning. My question is on Medicare Advantage cost trend. Can you share precisely what the trend estimate was and what you're expecting now?

A: Justin, thanks so much for the question. I'll ask Tim Noel to respond. Tim Noel: In 2025, we anticipated care levels consistent with 2024, but saw a 2x increase in care activity in Q1 of 2025, focusing on physician and outpatient, assuming this trend persists.

Q: Hi, thanks. Good morning. Can you help us connect the higher incidence of primary care visits and the Optum Health pressure?

A: Andrew Witty: Yeah, Josh, thanks so much for the question. I'm going to ask Tim just to address the first part of your question, then Amar to talk a little Dr. Desai to talk a little bit around the Optum Health experience during the quarter... Tim Noel: Talks about increase in care activity in fee for service and group MA. Amar Desai: Discusses Optum Health results impacted by new value-based patients and V28 phase, taking actions to address issues.

Q: Thanks. Hi, everybody. Just to put a finer point on some of this discussion around especially what's happening at the MA side, it sounds like you're saying most of the elevated care that you're seeing is on the group side. And it sounds like you're putting more of that on the benefit and premium changes that have occurred rather than just an underlying uptick in utilization?

A: Andrew Witty: AJ, thank you so much for the question. Let me ask Tim to respond. Tim Noel: Yes. Good morning, AJ. Thanks for the question. Yes, so I'll hit those last two pieces first. So yeah, you're correct. We are really seeing this focused on our community Medicare Advantage and group Medicare Advantage books.

Q: Thank you very much and good morning. Andrew, I just want to go back to the path to the long term growth rate. You reiterated that you feel confident you can get back there. With the 2026 rates looking better, we're going to move into the final year of V28. How do I think about what the key elements are to get back to that long term growth rate?

A: Andrew Witty: Lisa, thanks so much for the question. So yeah, you're correct. We are really seeing this focused on our community Medicare Advantage and group Medicare Advantage books. So we're not seeing it on our chronic special needs population or our dually eligible population. Also, not seeing this care activity pattern in our newer members, either new to Medicare or new to United.

Q: Yeah, hi, thanks. Just a follow-up on the trend discussion. Could you talk about where MA margins are now expected to shake out inside your 2025 guidance? And what you think is a reasonable timeline for covering the target margins? And whether there's any change to what you're thinking is as a reasonable long term margin target in this business post V28 and some of the issues you have adapting to it? And then again, the confidence level you can improve any margins in 2026 if trends stays at this level?

A: Andrew Witty: Stephen, thanks so much. I'll ask Tim to respond to that. Tim Noel: Thanks, Stephen, for the question. So the margins that we're anticipating consistent with the changes we've announced today are still within our targeted margin range for Medicare Advantage for 2025. As we look forward to 2026 and we include the increases in care activity that we're seeing both in the 2025 portion of our bid and also pricing for 2026. At this distance, we can accommodate those care activity levels and return to the historical planning target levels that we've always historically assumed.

Q: Great. Thanks for taking my question. So on the policy front, I guess, what is your latest thinking in terms of just PBM reform? Your model has obviously evolved on that front, but also Medicaid funding cuts and what sort of permutations you could anticipate there and your ability to navigate that?

A: Andrew Witty: Yes, Erin, thanks so much. Let me ask Patrick Conway to respond to you on the PBM side and then Chris to maybe make a couple of comments on Medicaid, if that's okay. Patrick Conway: Talks about PBM reform initiatives like 100% commercial rebate pass through, removing prior authorizations, cost-based reimbursement for pharmacies, and concerns about Arkansas PBM legislation. Krista Nelson: Talks about Medicaid, progress in narrowing the health status gap, and confidence in navigating Medicaid funding cuts with state partnerships.

Q: Hi, good morning. I was hoping to get your thoughts on the risks and implications of tariffs, particularly around the impact of pharmaceutical tariffs that are currently being contemplated by the administration?

A: Andrew Witty: Yeah, Andrew, thanks so much for the question. Obviously, it's a dynamic situation in terms of what may happen around pharmaceutical tariffs. Obviously, going to be a process now where the administration goes through its analysis and investigation. So we obviously don't know what may or may not come from that. But when we look at our potential exposure to that, we feel pretty good. In fact, I'd say better than pretty good in terms of the degrees of price protection mechanisms we have in preexisting contracts and also various pieces of legislation, which also limit the ability of manufacturers to pass price increases down through the system.

Q: Hi, good morning. Thanks for taking my question, Andrew. I appreciate your comments about kind of the macro cost of healthcare in the United States. We have an administration that seems more focused on budget deficit reduction, which entails cutting to healthcare. I guess my philosophical question here is, why isn't modest, persistent underfunding of the system the right way to get those costs more in balance and to force innovation in the system and how does United operate in an environment that might bring that without having without having the snafus or whatever that like a V28 model brings?

A: So David, thanks so much for the question. And I think it's a good and deep question actually. So there's no question that what I think we need is continued strong innovation in new approaches of how to bring together different elements of the system to have a more patient centered impact on health care. One of the characteristics I think of all health care marketplaces, but perhaps particularly the U.S. is there is no shortage of innovation, but it tends to be point solutions, whether it's a new device or a new drug or a new model of care. These things tend to show up in very isolated ways. So we spend a lot of money on innovation in America, but we don't see the yield of that innovation. And I would argue that's because it's not brought together. We don't align incentives. We don't really rethink workflows. We don't try and center everything around what gives you the best outcome for the patient over the lifetime of the patient, not just this encounter or even this year. How do you make that patient or how do you give that patient the opportunity for maximum numbers of great health years? That for me should be the guiding principle and that's what value based cares about and it's what UnitedHealthcare is committed to innovate and drive behind.

Q: Thank you. I just want to circle back to the tariff question quickly. Are the penalties under the IRA for pharma manufacturers who raise price above inflation enough to protect you from tariffs pass through on Medicare? And I'm not sure if that implies to exchanges as well, but with those bids due earlier, like April to June, do you have to assume that tariffs are in place or do you think the states will give you some flexibility to submit two versions of bids with and without tariffs?

A: Listen, Sarah, thanks so much for the question. So as I said earlier, obviously, we don't know yet what if when might happen in this territory. So like you, we're watchfully waiting. As you alluded to, there's many kind of layers of government protection, if you will within the regulations that over the drug companies in terms of their ability to increase price above inflation. There are things like Medicaid best price protections, specifically in the Medicaid area, which would also have potential applications here. And then of course, we have our various Optum Rx, where relevant in this conversation have their own contractual price protection. So there are multiple layers of that. Obviously, we're going to be very carefully making sure that we bid in the context of that kind of mesh of protection and make sure that we do that as thoughtfully as we possibly can.

Q: Hi, guys. Thank you so much for the question. I wanted to ask about -- so UHC has achieved really phenomenal growth in MA year-to-date, up 521,000 members through April, almost half of that growth has come from C-SNP plans. So just wondering if you all can elaborate on UHC's dominance in the C-SNP market? Do these plans offer the beneficiary? Why is UHC been so successful in this segment? And what does C-SNP enrollment mean from an economic perspective for UHC in 2025 and then over the long term?

A: Thanks. Jessica, thanks so much. I'll ask Bobby Hunter who looks after our M&R business to respond to that. Bobby Hunter: Talks about strong growth in Medicare Advantage, momentum from AEP and OEP, diversified growth across plan types including C-SNP, and the success in managing chronic complex conditions with value-based care integration, positioning UHC well for member growth and economic benefits in 2025 and long term.