UNH Q1 2025 Earnings Conference Call 20250418

 

Ladies and gentlemen, please stand by. Good morning and welcome to the United Health Group, first quarter, 2025 earnings conference call. A question and answer session will follow the United Health Group's prepared remarks. As a reminder, this call is being recorded. Here's some important introductory information. This call contains forward looking statements under US federal security's laws. These statements are subject to risk and uncertainty that could cause actual results to differ from material rate from historical experience or present expectations. The description of some of the risks and uncertainties can be found in the reports that we file with the Security and Exchange Commission, including the cautionary statements included in our current and periodic violence.

This call also referenced non-gap amounts, a reconciliation of the non-gap to gap amounts is available on the financial and earnings report section of the company's investor relations page at www.unitedhealthgroup.com. Information is available on the cards contained in the earnings release we issued this morning and in our form 8K dated April 17 to 2025, which may be accessed from the investor relations page of the company's website. I will now turn the conference over to the chief executive officer of United Health Group, Andrew Whitty. Good morning, everyone. Thank you for joining us today. United Health Group started 2025 in two seemingly disparate ways. One continued strong growth across our businesses.

Our people are providing more health benefits and services to more members and patients as the market responds to our distinct offerings. The other way, however, was an overall performance that was frankly unusual and unacceptable. As you saw in our release, we're advising our adjusted earnings per share outlook for the year to $26 to $26 to $26 and $0.50. This morning, we'll detail for you the factors driving our revised outlook and how we plan to address them. I'll start with performance, which was impacted by two broad factors in our Medicare businesses. Care activity and member profiles.

It's important to recognize United Health Care and Optimize Distinct businesses with different models, markets and products. In addition, Optimize Medicare Business is multi-payer and not limited to just United Health Care Members. Given these differences, changes in care activity and member profiles do not always follow the same patterns and can result in different impacts to each business. The respective teams are urgently responding to our performance challenges. Starting with care activity. In United Health Care is Medicare Advantage Business. We are planned for 2025 care activity to increase at a rate consistent with the utilization trend we saw in 2024.

Instead, though, first quarter 2025 indication suggests care activity increased at twice that rate. Increases in physician and outpatient services were most notable and inpatient to a lesser extent. This increase in care activity was limited to our MA business and was not a factor in our commercial or Medicaid businesses. Care activity trends in those areas were as expected. Turning to member profile. Unanticipated changes in our Optimize Medicare Membership is impacting 2025 revenue. We added more new Medicare patients to Optimize Health. A portion of whom were covered by plans that were exited markets. They experienced a surprising lack of engagement last year, which led to 2025 reimbursement levels well below what we would expect. And likely not reflective of their actual health status. Additionally, many of the current and new complex patients we serve are more affected by the CMS risk model changes that we are in the past year. That we are in the process of implementing. To be sure, it is complicated, but we're not executing on the model transition as well as we should. We must and will work to better anticipate and address these factors. Here, still early in 2025, we believe they are highly addressable as we look ahead to 2026.

Let me now talk specifically about what we're doing. First, we're ensuring the complex patients most impacted by the previous administration's Medicare funding cuts, engaging clinical and value-based programs. Second, we're consistently engaging with members in their homes and in post discharge settings. Engagement remains the key. Third, we're appropriately assessing and updating the health status of new patients, especially those at high risk levels.

Fourth, to more effectively transition to the new CMS risk model, we're investing significantly in improving physician clinical workflow to help ensure better care and timely insights on when and where care is most efficient and effective. Finally, our Medicare Advances Plan Designs and Price in for 2026 will be fully informed by these trends. While we are decidedly unsatisfied with these results, our growth and foundation for improvement remains solid. United Health Care's Medicare Advances Business is on-paced 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.

In Medicaid, we're growing and continue to see positive momentum in closing the gap between people's health status and state rates. And we are very appreciative of our state customers for the ongoing productive discussions. Within Optum, so far this year, Optum RX is off to a strong selling season, characterized by new winds as well as high retention of long-term customers. The growth of Optum RX underscores the vital role that PBMs play in helping to reduce the price of drugs for consumers and the value that sophisticated purchases of healthcare, the employers, unions and governments, see in our efforts to counter the high prices set by drug manufacturers. And to ensure that people have convenient access to high quality affordable drugs.

That's more important than ever as drug manufacturers continue to increase what they charge Americans, in some cases, 10 times what they charge people in Europe. The growth that United healthcare and Optum reflects the efforts of our 400,000 colleagues who come to work every day. Thinking differently about what is possible advancing new products and ideas while constantly refining existing programs, working to make things better for the people we are privileged to serve. Our team continues to innovate to make accessing care easier. For example, our newest tools are sparked and more than 40% increase in digital engagement among our senior members through the first quarter. We see evidence of this in sharply higher and earlier wellness visits to their primary care physicians with total visits in the first quarter running far above the year ago period.

This will help members better manage their health and promote early detection of emerging issues. Further, Medicare Advantage also costs taxpayers less and delivers more to seniors than fee for service Medicare, especially in value-based care arrangements. An essential approach in achieving both health outcomes and load costs is ensuring people get the care they need when and where they need it. And a good place to understand those needs better is in a senior's home. Our house calls program does just that. How schools, which is only available in Medicare Advantage, provides a thorough in-home clinical visit at no cost to seniors. Follow in CMS's best practices for such care.

Our clinicians review a patient's medical history and current medications. Conduct comprehensive physical exams provide lab tests and screenings and coordinate necessary follow-on care. How schools, clinicians, close millions of care gaps last year, helping people stay out of the hospital and the emergency department and referring those in need to appropriate social services to help them live healthier at home. This is Medicare Advantage innovation and value in action helping drive proactive, preventive engagement with the health system rather than more expensive reactive acute care. These benefits and innovations on their value to seniors and taxpayers will put a unnecessary risk by funding cuts in recent years to the Medicare Advantage program. While we continue to navigate those funding cuts to seniors' benefits, it is significant that the recently released 2026 rate notice begins to reflect the accelerating care cost trends we have experienced for some time. This will provide much needed relief to seniors and reflects policy makers understanding of the importance and the popularity of Medicare Advantage.

Our work to deliver a better experience for people and lower costs spans our enterprise as it always has. Just within the last few weeks we've introduced several initiatives that will help people in their healthcare journeys. Optimal Rx will remove prior authorizations on 80 drugs accounting for more than 10% of our pharmaceutical prior authorizations. Optimal Rx has aligned payment models to pharmacies more closely to their cost for drugs. This helps pharmacies manage the ever-increasing crisis charge by drug manufacturers enabling pharmacies to stop more medicines and ensure more consistent pricing and access to medicine for consumers. 26 million consumer calls were more accurately directed to the right advocate by an AI agent improving the consumer experience and reducing wait times. We expect AI will direct over half of our calls to the best resource during 2025. All of these efforts are making things simpler and easier for consumers and providers. A goal we share with all healthcare stakeholders. Yet we all have to contend with the stubborn fact that healthcare costs more in the US than it should.

Even beyond the widely recognised disparities in drug prices. Common procedures such as heart bypass, and a heart-stents are for times expensive in the US as they are in Germany Australia and UK. Total hip replacements are twice as much. It's simply not sustainable. To have made clear, we are as committed as ever to continuing down the path of transparency and affordability and ensuring that Americans get the health system they deserve. With that, I'll turn it over to John who will discuss first quarter performance and fully arrive looking more detail. Thank you Andrew.

I'll start by walking through several updates to our 25 outlook and then elaborate on the reasons for them. As Andrew said, we now expect adjusted earnings of 26 to 26 to 50 per share. It's an outlook that I'm extremely disappointed to share with you. This reflects the profile of patient-served it's health. It also reflects significantly increased care activity across the United Health Care Medicare Advantage plans. Within that outlook, we expect about 50 per cent to come in the first half of the year. We're affirming the consolidated revenue outlook of 450 to 455 billion, we shared with you in December.

Within this, we expect revenues for both United Health Care and Optima Rex to be better than our initial view. Offsetting a reduced outlook at Optima Health. The full year of medical care ratio is now expected to be 87.5 per cent plus or minus 50 basis points. Reflecting higher utilization across senior populations and the patient mix and revenue profile of Optima Health. Within this range, we expect the first half of the year to be below the midpoint and the second half to be above. At Optima Health, our revenue outlook is 106 to 107 billion and operating earnings is 6.2 to 6.4 billion based on the factors discussed and which I'll get into more deeply in a moment. Over half of the 10 billion dollar revenue change is the result of transitioning some legacy risk-based arrangements to fee-based and as neutral to earnings.

We expect about half of Optima Health's operating earnings to be in the first half. At United Health Care, the operating earnings outlook is updated to 16 to 16.5 billion and reflects the higher care activity we're seeing. Within United Health Care, pressure was largely contained within the senior business where we saw a sharp increase in care activities that became apparent as we closed out the quarter. As noted, this was most significant for both physician and outpatient care and to a lesser extent in patient care. In years past, this is an insight we may not have picked up until the second quarter, so it is useful to have the information with ample time to incorporate into our 26 planning.

In the quarter, we experienced percentage increases in care activity about double last year's level. Uniprices behaved as expected. Let me start with the obvious fact that it is early in the year and we don't know everything that might be driving our experience or how long the increase in care activity might last. But care activity was broad-based across our senior individual and group populations. One example, in group MA, member retention was about 98%. And as a result, serves well as a same member metric. Here we observed significant increases in elective care activity in the first quarter. Of no-in this population, we believe the behavior may have been impacted by the meaningfully higher member premiums, which were driven by the Medicare funding cuts. Another example across senior populations was the earlier and higher wellness visit activity we saw, which of course drives specialty and outpatient utilization. Some of this may be a seasonal shift in consumption patterns as wellness visits happen once a year. Turning to optimum health, as it relates to the patient profile, we experienced a couple of key elements here. First, growth in certain markets were there were meaningful plan exits. These new patients had not been engaged by their prior plans for most of last year, and we're seeing revenues associated with the patient profiles, meaningfully below expected and normal levels.

This is very addressable. Second, the ongoing execution to the new CMS risk model, while complicated given the multi-year phase in, has not been to our operational standards. Transitioning to a new model and concurrently running two distinct versions has been more operationally complex than anticipated. But no question, we need to execute better and we will. Across the enterprise, we continue to focus on operating costs to help mitigate external pressures, while ensuring our workforce aligns to the areas of greatest opportunities and customer needs. Looking ahead, we see a long runway for further technology advances that will translate to more and sustained operating efficiency, which in turn drives opportunity for further innovation and advancements in the company and across the industry. Before we get to Q&A, I want to provide a few business highlights. At United Health Care, we still expect to serve up to 800,000 more people in Medicare Advantage this year across our individual group and dual special needs offerings. This underscores our long-standing commitment to stability and differentiated value. Our growth demonstrates UHC's deep relationship with our members. People serve by our community and state business increased to 7.6 million. We continue to have growth momentum with recent service expansions in Kentucky, New York and Florida.

We're also encouraged by the updated Medicaid rates so far in 25 that more closely aligned with underlying member acuity, but funding remains insufficient to meet the health needs of patients. Commercial self-funded membership increased by approximately 700,000 in the first quarter. A result of our continued strong product innovation. Commercial insured membership was impacted by the individual exchange products. Our discipline pricing approach remains consistent and as a result, we experience some member attrition. Overall in our commercial book, we are encouraged by the early 26 selling season indications, which are showing strong retention rates. Turning to the optimum help, we continue to expect to add 650,000 new value-based care patients this year. We're working to engage with these new members ever more rapidly. By the end of 25, we expect to have about 5.4 million value-based care patients. At the optimum site, we have a pipeline of new products coming to market this year with exceptional customer interest. For example, in the first quarter, we launched AI-powered claims efficiency tools that increase productivity by over 20% for our revenue cycle management customers. Lastly, Optimal Rx Revenue's grew 14%.

Exceeding 35 billion for the quarter. Both customer retention and new customer wins contributed to the script growth of 3%. As Andrew noted, performance in the quarter was below the standards we expect. So with discipline and urgent executions and attention to detail, we expect to return to form in the quarters ahead. With that, I'll hand it back to Andrew. Thanks, John. Even with the growth of all, I'm sorry, even with the growth of people generated this call to this was far from the performance we expect of ourselves.

We're a purely aware it's a privilege to be a part of an organisation with the capabilities to make a meaningful contribution to modernising and simplifying the health system. And we're committed to improving our performance in the rest of 2025 and into 26. And in doing so, to deliver in consistent positive results for you and returning to our long-term earnings-based growth target of 13-16%. With that, we can now turn to your questions, Paul Parica. Thank you. This law is now open for questions. At this time, if you have a question or comment, please press star 1 on your touch tone phone. You may remove yourself from the queue by pressing star 2 on your touch tone phone.

We ask that you limit yourself to one question. If you ask multiple questions, we will only be answering the first question. So we can respond to everyone in the queue this morning. We'll take our first question from Justin Lake with Wolf Research. Thanks. Good morning. My questions on Medicare Advantage course, friend. You said that you came into the year assuming trend at similar levels to 2024. Can you share with us precisely what that trend estimate was, meaning would it be expected this year? And what are you expecting now? And can you tell us how much of that you saw in the first quarter? Friends at how much did your Mr. MLR buy? Your own estimate of MLR? And how much you are expecting that to accelerate or how different the back three quarters is versus when you saw in the first quarter? Thanks. Yeah. Justin, thanks so much for the question. I have Tim Nolt to respond just in a second in detail to your question.

Obviously, it's still very early in the year, but we have clearly seen a pick up in trend in specific part of the UAC business. Tim will talk a little more about that to you in a second. That may still early. Still, even our first quarter is only partially complete, but usually we've seen this pick up. Which is what's obviously influenced in our position here. So let me get asked Tim to give you a little bit more detail on that. Justin, thanks for the question. Yeah, I'll attempt to break it all down for you here.

So as was mentioned in the opening remarks in 2025, we anticipated care levels consistent with what we observed in 2024, which felt appropriate as we stepped into the year. And what we were assuming, and if you think about this as units consumed, we are assuming that in 2025 we'd see a similar increase by that metric that we observed in 2024. And if you break that down in the Medicare book, you can think that in total in terms of total trend drivers about one third of that is related to increase in care activity or units consumed. And then what we are seeing, and again, that's focused on physician and outpatient, but driving in overall two times increase in that level of units consumed in Q1 of 2025.

And again, that metric is about one third of the total trend drivers in the Medicare book. We are seeing that inside of the first quarter of this year, but we are making the assumption right now that that trend will persist throughout 2025 and then also making the same assumption that it will persist into 2026 and that will shape our overall pricing assumptions. And now some of the drivers that John mentioned behind what we are seeing, you might presume that some of those would result in a change in our seasonal consumption patterns, but at this distance we feel like we need to make the assumption that that activity will persist throughout the year and into 2026. Tim, thanks so much. Next question please. And then we'll take our next question from Josh Raskin with Nefron research.

Hi, thanks. Good morning. Can you help us connect the higher incidence of primary care visits and the optimum health pressure. I assume you don't have that primary care issue in optimum health, which it also mitigate the downstream impacts. So why are you expecting the higher follow through if you control primary care. And then based on the fact that you're seeing worse performance in optimum health or value base care. Could you remind us why you think you can control cost better in that environment and it's probably a good time to get the refresher on why the strategy to allocate a lot more capital to BBC in the ecosystem totally is best and long term. Yeah, Josh, thanks so much for the question. So I'm going to ask Tim just to address the first five of your question.

Then I'm then armor to talk a little doctor decide to talk a little bit around the optimum health experience during the quarter and the differences of what we're seeing there and and the like. And as I said in my commentary at the beginning, the businesses do operate very different kind of models and it's not it's not completely surprising to see somewhat different experiences and then I'm going to ask have a to just do as you as you can. The requested a kind of refresher on the value base care position. So we'll do that also for you. So bear with us. This sounds probably going to take a little a few minutes. But Tim if I could ask you to start and then we'll pass over to Dr. Armadassai. Yeah, thanks Josh for the question. So yeah, we just dive in a little bit with a bit more detail on the dissonable we're seeing that's driving the increasing character. Let me start with our feet for service. So kind of our non-capitated community MA members. We have seen increase in position outpatient care activity and that population and one of the dynamics that we're seeing is they are generally seeking more preventative care, which is a good thing and that also includes more in home visits more in home clinical assessments. And that in and of itself really not the trend driver, but it's the follow on care that is more than what we have anticipated and that constitute specialist visits physician specialist visits as well as some other outpatient services. You know, I dynamic at play in our group Medicare Advantage business is we're seeing a significant and disproportion increase in utilization largely within our public sector group retiree business. And this is a population that experienced the greatest year of your premium increases.

And while we've seen a similar dynamic play out historically in our individual Medicare Advantage business when premium increases have been in play, we've really never seen this dynamic before in the group MA business. And we're seeing it because of the pressures related to the Medicare funding cuts that are really driving up premiums in the group retiree business like they really never have before and kind of think groups with premiums going from $50 to $200. And we did assume that we would see some character activity level increases in this population, but we're seeing far surpasses what we would have recently anticipated and in that population as well we are seeing more preventive care, more annual wellness visits know more in home clinical assessments. But again, the driver there also being really the follow on care that results from that. And thanks for the question Josh, so the results for optimum health to be clear were impacted by the profile of new value base patients and optimal and the second year of the V28 phase and we're taking actions to proactively address these issues.

Our patient profile post ADP included many new to Medicare as well as new to optimum health who are meaningfully less engaged by their prior plans and providers. We believe that market specific plan exits driven by V28 causes dynamic and because of the stress strength instability of our provider network those patients chose optimum health. And the number profile challenges were not specific to any single Medicare advantage carrier and occurred in multi-terrographies like Texas and Washington. Additionally, we underestimated the impact of V28 in particular as it relates to the higher-accuity structure of our patient population, which is more impacted by the risk model change. And we've been working on the actions around operating cost containment and medical expense management, we're not able to offset the cumulative impacts of V28 and the new member profiles. We've been working on the health care patterns for optimum health in general in Q1. We see as a busy time for our physicians as we are engaging our patients.

We've already engaged over 50% of all members and 75% of our complex members. This year it's particularly important given the member profile of new Medicare and new optimum health patients. Also within optimum health will sing some elevation and outpatient behavioral utilization. And we're taking incremental actions above and beyond what we've planned for any year to improve performance. First, enhancing access for employed network PCPs, especially around new patients to diagnose documentary conditions. We're expanding home-based visits and wrap-around services, particularly as it relates to post-disturting services after inpatient care. And as Andrew alluded to, we've accelerated EMR unification deploying smarter clinical workflows and point of care tools to better adapt to the V28 related changes.

Thanks for the question. Great, I'm thanks so much. Let me ask Heather to maybe just take an overview of the value-based care proposition and why we continue to believe so strongly in it. Sure. And just I think what you're seeing here is as Andrew said, you've got two different business models here and it's important to keep that in mind. Several things I'll just point out. Again, in optimum health, capitated experience, this is specific to senior populations in our experience and a unique environment. Mindful of again, what's a new risk model a year to risk model.

And keeping in mind what Dr. Desai said, we assume and anticipate certain physician activity in the first part of the year. That's part of our model because it drives not only that diagnosis but the treatment. So we can understand the gaps in care. So that's part of the plan and I think that's why you don't, it's a little different story and often help. But as after Desai said, we need to be mindful of that, particularly based on two years of elevated care activity coming into this year. Now to your point, the outcomes based model or what we call the value based care model should naturally offset some of that for a few reasons of Dr. Desai mentioned. Number one engagement is key and that early engagement by a network that's aligned and activated can better identify gaps and care manage them. And support higher preventive health care and reduce emergency visits and hospital visits. In addition to that, what's unique about optimal health model is the wrap around services in the in-home services, which not only help assess our members in the home, but they're able to then kick off things like post discharge visits. High that more acute acute condition management programs, they're critical to those transitions of care and help reduce total cost of care and naturally offset some of trend, but in addition to that result in a better health outcome for patients and a better experience and help them with a healthier life.

So those are kind of the basis of our model, use then wrap the integration of our behavioral health into our model, which has increasingly more an integrated part of our care delivery system. That's what I think it's differentiated about the model. Even though to be incredibly direct and respectful of this year, we will see the impact of the revenue through the year, but the differentiated value value base care model has meant growth for optimal health above industry. In the past, we believe you'll continue to see that. Why is that? Because again a better care delivery model, a better experience for our patients, but in addition to that, we see very high retention. So these members that need the services that have higher activity, that need a more intensive care model, they stay with us. And so the work we do today will support the growth in 26 and that's why we're confident. And not only the growth in 26 from a membership perspective, but because there's more members to serve out there. In many cases, we're serving few of the seniors in any respective geography and we have more capacity in our network. But in addition to that, it supports our performance.

And I'll just note one last thing. And that is, I think the year you're going to watch us paste out. Well, we're still committed to our membership growth. We're going to be looking at particular geographies, pacing through that to ensure that we're focusing on the new membership with our PCP network and with our in-home services. And I think Josh, I really appreciate the question and thanks everybody for allowing us to respond to that sort of as fully as we can. I mean, just maybe add a couple of comments to that. When we look into a new often heard us talk previously about cohorts of members who choose to join up to help value base care, what we're seeing in those early cohorts going back to say 2023, for example, those folks who first came in and started to benefit from our value base care approach was seen on all basically all metrics out performance in terms of the way in which that cohort and cohorts before them have performed. So what we're seeing here is not really a challenge to the underlying principle of value base care. What we're seeing is how to adjust to a very dramatic price cut in regime that's been implemented over the last couple years by the administration. It's important to recognize that that was across the average of the industry independent analysis would say that was about a 9% price cut across the industry. Now that's a significant down draft in terms of pressure. And obviously that affects participants whether you're a payer or provider in the marketplace and you've seen that effect over the last first year would now well into the second year of all of this. And what we're seeing during the second year is some of the let's call, I would call them second order derivative effects. So I give you just a couple of examples of that you've heard one very explicitly and we've mentioned the other already on the cool.

Second order effect would be for example as this price impression has continued to press down alongside a series of underfunded rating creases. You've seen premiums and benefits start to be affected in the marketplace. Group premiums have gone up because of these price cuts that is now drive in a different behavior from group members. And that's what we've picked up in this area and we need to do a better job of being able to predict and anticipate the second and third order effects when they come, but they are direct consequences of this transition. A second one which we referred to and is really important within the optimum health story for 2025 is plan exits. So we saw a very significant increase in the number of plan exits across the country last year as plans chose to respond to the price cutting pressure by essentially withdrawing their offer in multiple geographies across the country. And what we've seen is in unusually complete vacation of offers by certain plans. So to put it a different way, 100% of participants in a particular payers plan had to find a new home.

They had no way of staying in their old home. They had to find a new home. And what we saw when they came to us where we were still offering a plan option, we saw those members had not had the level of engagement in the price six a month before they they catered that plan at the level you would have expected that had a direct consequence on how they are understood in terms of the reimbursement model of the system. And that's what's driving a lot of our issues in optimum health this year. But again, that is a temporary phenomena which gets fixed during 2025. But it is simply an example of one of the second order derivative effects of its transition of absorb in this nine or more than a decrease in pricing. And that really speaks to the value of value base care. Value base care delivers a completely different approach of trying to ensure people have more years of health and less years of health care. A cuterie and trying to get ahead of the illness trying to avoid the high cost consequences of late diagnosis and tries to make sure that we are encouraging people to think about healthy lifestyle early engagement, making sure that we're heading off problems before they arrive. And we know that works based on multiple cohorts of patients that we've been privileged to have the right to manage. What we're going through like the rest of the industry is a dramatic really never seen before adjustment in pricing for this marketplace. And what we're seeing this year is two or three areas where the pressure that that has created across the market is creating new dynamics we haven't seen. Exactly what we're responding to here and we believe that they are largely addressable as we go through the rest of this year. And in no way under mine are confidence in the value base care strategy of the company. Josh, thanks so much for the question and I'll move on to the next question. Our next question comes from AJ Rice with UBS. Thanks,

I just to put a finer point on some of this discussion around this, especially what's happening in M.A. 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 upticking utilization. And I want to make sure I understood that also on the competitive exits and in the impact of that it doesn't sound like you're calling that out on the insurance side you're just calling that out on the optum side. And then finally on part D you had been cautious about that coming into the year but you're not mentioning that at all. So is that playing out about as expected? AJ, thank you for asking me. Thank you so much for the question. Let me ask you a tip to respond. Yes, tomorrow AJ, thanks for the question.

Yes, all of the last two pieces first. So yeah, you're correct. You know, we are really seeing this focused on our community Medicare Advantage. I and group Medicare Advantage book. So we're not seeing it on our chronic special needs population or duali-aligible population. I'm also not seeing this care activity pattern in our newer members on either new to Medicare or new to United. And the care activity items that we talked about last year, provider upcoding and some of the pressures on specialty drugs. I'm not seeing that on plan to this either on those at home and to both tracking very much in line with up in mind with how we've planned.

When you think about the split, it is slightly more pronounced on our group business. But if you think about our overall fee for service business, it's just I would say just slightly more than the contribution that you'd expect on the group side. And while we certainly do see trends that suggest that where the premiums have increased and members are paying a high portion of that that is where we're seeing this pointed pressure on care activity on the group business. However, it's very likely that some of the same underlying trends that are generating higher care activity patterns in individual community M.A. are also at play in the group business. Great. Thanks so much. Next question, please.

And our next question comes from Lisa Gil with JP Morgan. >> I just want to go back to the past and the long term growth rate. You read it already 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 the 28th. How do I think about what the key elements are to get back to that long term growth rate? >> Lisa, thanks so much for the question. So clearly we're pleased to see the beginning of recognition of rate increases, which actually reflect reality, which we haven't seen for last couple of years.

But hopefully that will continue to be the stance and the data will drive that in the way we saw this year. So very pleased to see that. Also pleased to see in the Medicaid books of business come to continue to see great engagement with states that they also adjust to make sure that those rates are appropriate for what we're seeing. So those are important. Obviously next year there will be a further step down in terms of pricing from the V28 model. So we can't ignore that. That's clear here reality. For the way we look at this, we are very, very much where we see very much the end of this transition period in terms of having to absorb the amount of pressure. I mean clearly we're a leader in all of this marketplace.

We're taking almost certainly a bigger fraction if you will of the pressure because of our market leadership position here. We feel like we're very much getting through this. We obviously this year have picked up these two or three second order derivative effects, which we're going to do a much better job of anticipating and managing for as we go into 2026. And we think that an awful lot of the issue that we're seeing early in 25. We can fix in 25 and help us deliver stronger performance for 26. And we expect that to then be a kind of ramping into re acquiring our target growth rate momentum that we aspire to as an organization. Thank you very much. Next question. And we'll move to our next question from Stephen Baxter with Wells Fargo.

Yeah, hi. Thanks. Just a follow up on the trend discussion. Could you talk about where MAM origins 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 targetness business. Post B 28 and some of the issues you have adapting to it. And then again, like confident probably improve at MAM 2026. If trend is this level. Thank you. Thank you. Steve, thank you so much.

I'll have to respond to that. Thanks, Stephen, for the question. So the margins that we're anticipating consistent with the changes we 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 character that we're seeing both in 2025 portion of our bid and also pricing for 2026. At this distance, we can accommodate those character levels in return to the historical planning target levels that we've always historically assumed. Great. Thanks so much. Next question.

Our next question comes from Aaron Wright with Morgan Stanley. Great. Thanks for taking my questions. So under policy, Brian, I guess what is your latest thinking in terms of just PBM reform, your model is 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. Yeah, Aaron, thanks so much. Let me ask Patrick, come way to respond to on the PBM side and then on a Christian, maybe make a couple of comments on Medicaid if that's okay. So Patrick. Yeah, thanks, Aaron, for the question. So first in terms of policy, we're leading in the marketplace with transparency, choice and affordability. And we've had three major announcements that I think both help drive the policy environment, but also our reason we've had significant market growth. 100% commercial rebate pass through first large PBM to do that. And you're seeing that drive positive reaction in the marketplace and it's removing any lingering doubt about our incentives.

We want lower list prices and lower net prices. Andrew said second, removing 25% of prior authorizations over 10% of reauthorizations over 10% of prior authorizations, making the system simpler, better easier for consumers and clinicians. And then third, cost-based reimbursement for pharmacies. And it's really important to note that this is for all pharmacies, all drugs, all clients rolling out, already started and rolling out and put across the entire book. And you heard from independent and community pharmacies, they're supportive of these changes.

The last thing I just call out just because it's new and it concerns us significantly is the Arkansas legislation that the governor signed yesterday. Around PBM and pharmacy ownership, we're honestly not sure what problem they're trying to solve. But let me be clear on the impact on patients. When you do that, we have general pharmacies in the state providing integrated mental and behavioral health care. This could cut off access for those patients with things like schizophrenia, severe depression. You have specialty medicine, or we may have been serving a patient with cancer for years.

And imagine that patient now not getting their medicine in their home. You have home infusions for elderly Americans. So they may not be able to get out of their home, but we're providing their medication. And you have home delivery for people in rural parts of Arkansas. We're significantly concerned on that out this. We'll work with the state in the regulatory process, post legislation, to try to address those populations and maintain access. But we want you to hear clearly from us that our concern is about patients and maintaining access to patients across the nation to these medicines. Patrick, thank you, Chris.

Yeah, thanks for the question. So on the Medicaid side, I think we won't speculate on any really specific. But what I do want to emphasize is just regardless of any changes. Our priority remains the health of our members and ensuring that they have access to high quality coverage. And there leads to our business. We have a really broad footprint across 32 states. We have a variety of programs and products and really decades of experience. So we're we're making confidence in the value that managed care can provide to our state partners and our ability to support our states as they really navigate through any changes. Great question.

Chris, the thanks so much. Just looping back to the pharmacy section. I think Patrick laid things out very well there, Aaron for you. But I also just I was encouraged to see in the president's executive order earlier in the week, a kind of an interest in really looking at multiple elements of the pharmacy value chain. I think one of the things that has been, you know, honestly most disappointing over the last year or two is the obsession with the role of the PBM versus everybody else in the system. And if you read the EO carefully what you'll see in there are quite good sensible questions to explore what's going on. E-decide of the PBM in terms of the manufacturers and also ultimately many of the providers in the network. And I think what you'll see from that is the PBM plays a unique role in trying to bring down drug prices for Americans.

It does that at very, very narrow margins oftentimes taking very significant risk in the process. And is really the only participant in the system that has that. It's the way a PBM wins more business is by successfully bringing, bringing down drug costs for his clients and that's how it wins more accounts. That is not how the rest of the system operates. And I'm hopeful as the administration explores the questions that the EO raises that this will become a much more thoughtful review of how to reform the whole value chain. And not simply one component where I think you can make very, very serious mistakes which could really damage patient access. So I was encouraged to see that from the administration.

Aaron, thanks so much for the question. Next question. And our next question comes from Andrew Moch with Barclays. Hi, good morning. 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. Thanks. Yeah, Andrew, thanks so much for the question. You know, 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 also don't know what may or may not come from that, but when we look at our extension exposures of that, we feel we feel pretty good. In fact, you know, it's a 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 pricing increases down through the system. So at this point, you know, and again, given that we don't know what any tariff may or may not be, but when you look at the structure of the marketplace, we feel pretty well positioned for Andrew. Next question. Our next question comes from date. Windley with Diffree. Good morning. Thanks for taking my question. Andrew, I appreciate your comments about 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 full philosophical question here is why isn't modest persistent underfunding of the system the right way to get those costs more in balance and the force innovation in the system? And how does United operate in an environment that might bring that without having, without having the staff who is or whatever that, like a V28 model brings? 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 we, 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 healthcare. One of the characteristics I think of the of all healthcare marketplace is, but perhaps particularly the US is there are, there is no shortage of innovation, but it tends to be point solutions, you device or a new drug or a new model of care. These things tend to show up in very isolated way. 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 send to 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 Valley Base cares about and it's what United Health because committed to innovate and drive behind it.

I think we have made extraordinary progress in that. Now unfortunately what we've seen through V28 is almost, you know, focus the price cut where the most innovation is going on. So you've seen this pressure come exactly into the program where historically the government has funded Medicare advantage and created a very thoughtful system, which incentivizes participants. The only way a participant can win in Medicare advantage is to incentivize be able to deliver a great care experience and access experience for the member. Really seeing enough costs through efficiency to provide benefits to members and then pay rebate back to the government. So everybody wins in that system and that was a very cleverly designed system by the government many years ago. It's been supported by multiple administrations of most directions since then. What we saw through V28 was really a kind of blunt instrument approach to just take money out of that system and that's what's caused in the disruption here.

I don't think any book we would never have any anxiety about saying look we want to see the health care budget grow by less each year, but then we should look at the whole budget. We should look at the whole system and we should look at how we can use tools to do that. What we know is that Medicare advantage cost less than traditional Medicare. We know that when a Medicare advantage patient is in a fully delegated value-based care managed clinic like up to health, they will save even more money for the system and they will have better personal experience there. That's what the government spends less money. It's those sort of integrated approaches which we think are the response. It's a bit I made that comment about the president's executive order on pharmacy and I kind of invite the same. We should be thinking about the whole system and how we align the whole system not simply looking at these kind of individual component approaches which we've seen over the last few years.

I hope very much that just like the pharmacy agenda that the president is laying out for understanding that we might have a similar one here. That would be very positive because the answer to you question is yes. We should be able to deliver great health care at low cost with better experience, better clinical outcome for people and for the government. And that is what the mission of UHD is and that is what the goal of value-based care and not some care is also. Next question. Thank you very much. Our next question comes from Ben Hendrix with RBC Capital Markets. Hi, thank you very much. I'm going to ask you a question.

I've asked you a question. I've said earlier. Obviously, we don't know yet what if when might happen in this territory. So like you were watchfully waiting. As you alluded to, there's many kind of the layers of government protection, if you will, within the regulations that's 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 in it. And then of course, we have our various optomarex 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. But I just also just want to reiterate, like everybody else, we don't know yet what the reality of this is,

but we're very attuned to it. And I think I've tried to share with you, I'll sense that it should not be a significant exposure for us, certainly not this year. And we'll be working very carefully about bid and the rest as you suggest for next year. We have time for just one last question. And our last question comes from Jessica Tassan with Piper Samler. Hi guys, thank you so much for the question. I wanted to ask about, so you actually as a chief for really phenomenal growth in M.A.

year to date up 521,000 members through April, almost half of that growth has come from fee-snip plans. But it's wondering if you all can elaborate on UHC's dominance in the fee-snip market? What do these plans offer to beneficiary? Why is UHC been so successful in this segment? And what is fee-snip enrollment mean from an economic perspective for UHC in 2025 and then over the long term? Thanks. Jessica, thanks so much. I'll ask Bobby Hunt to who looks after M.A. business to respond to that, Bobby.

Yeah, thanks Jessica for the question. So I would say really just overall, you were very pleased with our year-to-date growth and Medicare Advantage. And as you know, we continue to be on track to deliver on the full-year growth target of up to 800,000 members. The momentum we had in AP carried over really nicely into OEP, including notably strong retention of our existing members. And then really diversified growth across our community, remote plans, full-dounel plans, and the plans you mentioned that are designed for members of chronic conditions. So really both from a mix and volume standpoint, we feel really good about where we fit in 25 and the outlook that that gives us around the membership growth. And I was just note really the Medicare Advantage plans that we offer, you know, the great work that we do from a VLB-based care integration standpoint with a collection of our providers, both internal and external, really position as well to manage these members with chronic complex conditions. And we're very proud to continue to get to serve more of those members as we progress throughout the year. Thanks so much for the question.

Bobby, thanks so much. And I'd like to thank everybody for all of your questions. We appreciate your engagement very much today. While we're not satisfied with our performance to the start of 2025, I hope you've heard today all determination to improve. And our enthusiasm about the path forward. We remain deeply committed to the value-based care strategy, the company, and we believe that that is the way to solve many of America's healthcare problems, both from a cost, but most importantly, from a patient experience of outcome perspective.

And I think you, many of you who know United well, will also know and recognize that when we encounter an issue, we figure out how to work it and how to deal with it and rest assured. We all united are going to work our issues that we've encountered in the first quarter, solve them and you should count on us to continue to strive towards delivering for everybody we serve and to make sure that the growth of this company returns to the kind of ranges that you would expect to us with that. I'd like to thank everybody for your time today and we appreciate it. And ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect and have a great day.