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. (Photo by Stephen Maturen/Getty Images)
UnitedHealth Group has managed to control how much money it's spending 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 the FactSet estimate of 89.7%. The medical-cost ratio is a closely watched metric that calculates the percentage of health-insurance premium revenue that UnitedHealth spends on medical care.
As a result, the company said it now expects adjusted net earnings of at least $20.50 per share in 2026. It's the third time so far this year that UnitedHealth has raised its outlook. Most recently, in July, the company said it expected adjusted net earnings of $19.50 to $20.00 per share this year.
The stock (UNH) was up 3.5% in premarket trade on Tuesday.
UnitedHealth has spent the better part 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 it was spending far more than expected on medical care for its members. It's a similar issue facing health 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 goes up in the fourth quarter when 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 about 90% for three out of four quarters, an unwelcome increase for investors.
So far this year, the medical-cost ratio appears to be on its way back to normal, hitting 83.9% in the first quarter and 86.7% in the second quarter. As such, the company has raised its profit guidance twice this year.
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 had revenue of $112.7 billion, down from $113.2 billion in the same quarter a year ago and beating the FactSet consensus of $111.3 billion.
Revenue for Optum, its pharmacy benefit manager and medical provider, came in lower than the FactSet estimate; however, its third-quarter revenue was largely driven by a steady performance from UnitedHealthcare, its health-insurance business.
The company disclosed that 69% of its Medicare Advantage members are in health plans deemed high quality by the government, a percentage that it described as "in line with expectations." That's lower than the 78% of its plans to get four stars last year. Medicare Advantage plans with higher ratings get extra payments and can be used by older adults to shop for their health coverage during Medicare's open-enrollment season, which begins Oct. 15.
As part of an overhaul of its business and a push to better control costs, UnitedHealth had cut back on the number of its members in its plans. It had 48.3 million consumers in the third quarter, down from the 50.1 million members it served in the same three months of last year.
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