UPDATED: July 29 at 10 a.m. ET
UnitedHealthcare CEO Tim Noel offered investors a deeper look at the medical cost spike that's plaguing the insurance giant's finances.
He said during the company's earnings call Tuesday morning that pricing assumptions set by the company "were well short of actual medical costs" for 2025. UHC's current outlook, he said, instead reflects an additional $6.5 billion in medical costs, with more than half, or about $3.6 billion, coming from its Medicare plans.
About a third of the expenses, or $2.3 billion, is from the commercial space, "with an even split between cost pressures in the Affordable Care Act's marketplaces and the employer-sponsored space," Noel said.
"We know these are serious challenges," he said. "We are humbled by them, and will carry that sense of humility more deeply into our culture. But we also believe we can resolve our current issues and recapture our earnings growth potential."
The bulk of the increase in spending is in outpatient care, though the insurer is seeing spikes in inpatient care, orthopedic services and pharmacy infusions to a lesser extent. Visits in general are being coded at a higher intensity, Noel said, a trend that bears out across the country and UnitedHealthcare's membership.
In addition to Medicare Advantage (MA), he said the insurer is seeing costs rise in Medicare supplement plans, which is a signal for broader trends in the fee-for-service Medicare market.
Noel also offered a look at how the insurer is responding to the high-pressure environment. He said UHC has enhanced its auditing and payment integrity processes to identify fraud, waste and abuse while protecting patients from unnecessarily high costs. The team is also looking to identify ways to deploy artificial intelligence to smooth out the patient and provider experiences while also lowering costs.
This reflects a broader push toward the efficiency potential of AI across parent company UnitedHealth Group, with CEO Stephen Hemsley saying the company has accelerated investments to "both strengthen our foundations and modernize our businesses anchored in practical innovations and scaled AI applications."
Noel said that in MA specifically, the team is looking to adjust pricing and benefit designs to account for the cost pressures, which they anticipate will stretch into much of 2026. It has also decided to exit certain markets largely with plans that are more loosely designed, such as PPOs, in a move that will impact 600,000 beneficiaries.
Given the uncertain environment around the exchanges, including the likely expiry of the enhanced premium subsidies, Noel said the team expects membership to decline significantly and is weighing market exits there, too, if necessary. The insurer is also pricing 2026 plans based on a shift in the risk pool with the subsidies running out.
"While we are prepared to continue to participate in the majority of the 30 markets we currently serve, we will approach them far more conservatively," Noel said. "For 2026 we may need to make the difficult decision to exit select markets if we are unable to achieve the rates necessary for higher market wide morbidity."
UnitedHealth Group reintroduced its outlook for 2025 on Tuesday morning, taking a conservative stance compared to analysts' predictions.
The healthcare giant now expects to bring in at least $16 in earnings per share as well as between $445.5 billion and $448 billion in revenue. Of that, the company predicts revenue from UnitedHealthcare to come in between $344 billion and $345.5 billion and revenues from Optum to be between $266 billion and $267.5 billion.
UnitedHealth suspended its guidance for the year in mid-May after a rough showing during its first-quarter earnings. Then-CEO Andrew Witty also stepped down, with former chief Stephen Hemsley returning to the post.
In the company's earnings release, Hemsley said the team has been pushing forward on efforts to right the ship.
“UnitedHealth Group has embarked on a rigorous path back to being a high-performing company fully serving the health needs of individuals and society broadly,” said Hemsley.
“As we strengthen operating disciplines, positioning us for growth in 2026 and beyond, the people at UnitedHealth Group will continue to support the millions of patients, physicians and customers who rely on us, guided by a culture of service and longstanding values," he added.
UnitedHealth Group posted mixed results in the second quarter, missing Wall Street's targets for profit yet again but surpassing expectations on revenue. The company reported $3.4 billion in profit for the second quarter, down from $4.2 billion in the prior-year quarter.
Revenue in the second quarter was $111.6 billion, growing from the $98.85 billion the company reported a year ago.
Despite the rough start to the year, profits were up significantly at the midpoint of 2025 compared to the first half of 2024, when UnitedHealth was rebounding from the financial sting of the Change Healthcare cyberattack.
The company reported $9.7 billion in profit through the first two quarters, up from $2.8 billion for the first half of 2024. Midyear revenues were $221.2 billion, up from $198.65 billion in the first six months of 2024.
Margins at UnitedHealthcare in the second quarter were down compared to the prior-year quarter as elevated costs continue to pressure the company, especially in MA. The insurer said that the increased trend is driven both by more units of care being delivered and higher costs per patient encounter.
The company expects medical cost trends in MA to be at about 7.5%, while it had priced its offerings with an expectation of 5%. It's also pricing its products for 2026 with the expectation of cost trends continuing to accelerate to a 10% rate, according to the earnings release.
Optum's key growth engine, its Optum Health division, is also feeling the weight of elevated medical costs and the company expects revenue for the unit to decrease by 4% compared to 2024.
Revenue at Optum Health in Q2 was down by 7% year-over-year, driven in part by the ongoing cost pressures in MA.
This is a developing story and will be updated.