UnitedHealth Group tops estimates, hikes profit outlook as insurer manages high medical costs

UnitedHealth Group on Tuesday posted third-quarter earnings that blew past estimates and raised its full-year profit outlook, as the company continues to manage high medical costs and sees investments in value-based care and artificial intelligence take hold.

The nation's largest private insurer said it expects fiscal 2026 adjusted earnings of at least $20.50 per share, up from a previous outlook of $19.50 to $20 per share.

The healthcare giant's turnaround plan is gaining momentum after three consecutive strong quarters this year. UnitedHealth is working to stabilize margins by shrinking membership, exiting unprofitable contracts and ramping up investments in artificial intelligence and value-based care, which tie doctor and facility compensation to patient health outcomes, quality of care and cost effectiveness rather than the volume of medical services provided.

"You'll see in the quarter that we continue to execute not only on the financial aspects of our business, but really doing them with a simpler approach and an approach that's really focused on investing heavily in value-based care," CFO Wayne DeVeydt said in an interview.

The company posted third-quarter net income of $4.11 billion, or $4.56 per share, compared with $2.35 billion, or $2.59 per share, in the same period a year ago. Excluding items like business divestitures, restructuring and the expected reduction of reserves for unprofitable contracts, UnitedHealth earned $4.69 per share.

Revenue fell to $112.69 billion from $113.16 billion in the prior-year quarter. The company's insurer, UnitedHealthcare, and its Optum healthcare unit both topped analysts' operating earnings estimates for the quarter, according to StreetAccount.

Notably, UnitedHealth's medical cost ratio — a measure of total medical expenses paid relative to premiums collected — came in at 88.4% for the third quarter. Analysts were expecting a ratio of 89.9% for the quarter, according to StreetAccount. A lower ratio typically indicates that the company collected more in premiums than it paid out in benefits, resulting in higher profitability.

Still, DeVeydt told CNBC that medical costs in the quarter "continue to be elevated versus historical norms" – an issue that has plagued insurers, particularly those operating privately run Medicare Advantage plans, for more than two years.

"I think it's something we should keep an eye on. I think you'll see that our medical care ratio has improved quite a bit, but I don't want that to be misleading in terms of [medical cost trends]," DeVeydt said.

He said the independent dispute resolution (IDR) process under the No Surprises Act is adding at least 100 basis points, or 1 percentage point, to total medical costs. That federal law, which took effect in 2022, aims to protect consumers from unexpected medical bills

The IDR process allows providers and insurers to resolve disputes over out-of-network payments. DeVeydt said those changes are driving up the company's claims costs, which can ultimately be passed on to consumers through higher premiums.

DeVeydt added that costs for inpatient services and pharmacy, particularly costly specialty pharmacy drugs for cancer and rare diseases, remain elevated.