⚠ Medical Costs Ran Ahead of the PriceHigh threat

UnitedHealth Group (UNH) — threat to the moat

UnitedHealth's medical care ratio rose from 83.2% to 89.1% in two years, and each point costs about $3.5 billion.

UnitedHealth's profits depend on setting premiums a year ahead of medical costs, and in 2024 and 2025 the costs won. The medical care ratio rose from 83.2% in 2023 to 85.5% in 2024 and 89.1% in 20251. The company's 10-K says it had "observed increased care patterns that are above what we expected"2.

Medical care ratio by quarter (%)84.8%Q1 202589.4%Q2 202589.9%Q3 202583.9%Q1 202686.7%Q2 2026UnitedHealth results releases Q1-Q3 2025, Q1 and Q2 2026
The 2025 spike and the 2026 repair.

The damage showed up quarter by quarter. The ratio was 84.8% in the first quarter of 20253, 89.4% in the second4 and 89.9% in the third5. The second quarter of 2025 alone carried $1.2 billion of unfavorable discrete items, including $620 million related to the individual exchange business6.

The sensitivity is stark. A 1% change in the quarterly per-member medical cost trend moves medical costs payable by $501 million7, and each point of the full-year ratio on 2025 premiums is worth about $3.5 billion8.

The company has repriced, and 2026 is better: the ratio was 83.9% in the first quarter9 and 86.7% in the second10, and the full-year guidance is 88.1% plus or minus 25 basis points11. But the second-quarter figure included $860 million of favorable prior-period development12.

The damage was concentrated in the second half of 2025. In the fourth quarter the company earned $0.01 a diluted share, or $2.11 on an adjusted basis13, after charges of $2,878 million before tax, including $2,521 million of restructuring and other costs and a final $799 million related to the cyberattack14. The adjusted medical care ratio for the year was 88.9%, up 340 basis points15.

Part of the cost pressure came from policy rather than utilisation. The 10-K notes that Medicare Advantage rate notices have for years been below the industry forward medical cost trend16, and that Medicaid eligibility changes shrink membership toward sicker members17. A price set by someone else, on a population that is changing, is hard to get right even with the best data.

This threat is the business itself. The falsifying number is the full-year 2026 medical care ratio: at or below 88.1% the repricing has worked; above 89% again would say cost trends are still outrunning what UnitedHealth can charge.

The number that tests this threat
Reported
Medical care ratio, 2026 full-year guidance
88.1% plus or minus 25bps (July 2026)

The price-versus-cost gap for the year; a result above 89% would mean costs still outrun pricing.

Source: UnitedHealth Group Q2 2026 results release ↗
References
  1. ReportedThe medical care ratio rose from 83.2% in 2023 to 85.5% in 2024 and 89.1% in 2025.
    UnitedHealth Group Form 10-K for fiscal 2025 - Item 7 MD&A: consolidated and segment results, medical care ratio, membership and operating metrics. — FY2025 · publ. 2 March 2026 · source ↗
  2. ReportedThe company's 10-K says it had "observed increased care patterns that are above what we expected".
    UnitedHealth Group Form 10-K for fiscal 2025 - Item 1A risk factors, competition, rate notices, reserve sensitivities and legal matters. — FY2025 · publ. 2 March 2026 · source ↗
  3. ReportedThe ratio was 84.8% in the first quarter of 2025, 89.4% in the second and 89.9% in the third.
    UnitedHealth Group first-quarter 2025 results release, Form 8-K exhibit 99.1 - the 2025 outlook cut. — Q1 2025 · publ. 17 April 2025 · source ↗
  4. ReportedThe ratio was 84.8% in the first quarter of 2025, 89.4% in the second and 89.9% in the third.
    UnitedHealth Group second-quarter 2025 results release, Form 8-K exhibit 99.1 - the 2025 outlook re-established. — Q2 2025 · publ. 29 July 2025 · source ↗
  5. ReportedThe ratio was 84.8% in the first quarter of 2025, 89.4% in the second and 89.9% in the third.
    UnitedHealth Group third-quarter 2025 results release, Form 8-K exhibit 99.1. — Q3 2025 · publ. 28 October 2025 · source ↗
  6. ReportedThe second quarter of 2025 alone carried $1.2 billion of unfavorable discrete items, including $620 million related to the individual exchange business.
    UnitedHealth Group second-quarter 2025 results release, Form 8-K exhibit 99.1 - the 2025 outlook re-established. — Q2 2025 · publ. 29 July 2025 · source ↗
  7. ReportedA 1% change in the quarterly per-member medical cost trend moves medical costs payable by $501 million, and each point of the full-year ratio on 2025 premiums is worth about $3.5 billion.
    UnitedHealth Group Form 10-K for fiscal 2025 - financial statements and notes: segment note, CMS concentration, balance sheet, cash flow and capital. — FY2025 · publ. 2 March 2026 · source ↗
  8. Moat Explorer calcA 1% change in the quarterly per-member medical cost trend moves medical costs payable by $501 million, and each point of the full-year ratio on 2025 premiums is worth about $3.5 billion.
    Moat Explorer calculation from UnitedHealth Group's reported figures ($ millions unless stated). External revenue by segment = segment revenue less affiliated revenue (10-K segment notes): 2021 UnitedHealthcare 222,899; Optum Health 54,065 - 29,234 = 24,831; Optum Insight 12,199 - 7,867 = 4,332; Optum Rx 91,314 - 55,779 = 35,535; total 287,597. 2022: 249,741; 71,174 - 40,883 = 30,291; 14,581 - 9,288 = 5,293; 99,773 - 60,936 = 38,837; total 324,162. 2023: 281,360; 95,319 - 57,696 = 37,623; 18,932 - 10,896 = 8,036; 116,087 - 71,484 = 44,603; total 371,622. 2024: 298,208; 105,358 - 63,883 = 41,475; 18,757 - 11,881 = 6,876; 133,231 - 79,512 = 53,719; total 400,278. 2025: 344,903; 101,957 - 63,615 = 38,342; 19,417 - 12,948 = 6,469; 154,726 - 96,873 = 57,853; total 447,567. Q2 2026 (2026 basis): 86,017; 23,472 - 14,353 = 9,119; 5,402 - 3,556 = 1,846; 38,292 - 23,242 = 15,050; total 112,032; Optum external 9,119 + 1,846 + 15,050 = 26,015. Optum external revenue = Optum revenue less corporate eliminations: 155,565 - 90,867 = 64,698 (2021); 182,768 - 108,347 = 74,421 (2022); 226,635 - 136,373 = 90,262 (2023); 252,957 - 150,887 = 102,070 (2024); 270,620 - 167,956 = 102,664 (2025); 102,664 / 102,070 - 1 = 0.6%. Optum revenue from inside the group: 90,867 / 155,565 = 58.4%; 108,347 / 182,768 = 59.3%; 136,373 / 226,635 = 60.2%; 150,887 / 252,957 = 59.6%; 167,956 / 270,620 = 62.1%; Q2 2026 39,648 / 65,663 = 60.4%. Affiliated shares 2025: Optum Health 63,615 / 101,957 = 62%; Optum Insight 12,948 / 19,417 = 67%; Optum Rx 96,873 / 154,726 = 63%. Affiliated revenue as share of UnitedHealthcare revenue 167,956 / 344,903 = 49%. Segment shares of consolidated revenue 2025: UnitedHealthcare 344,903 / 447,567 = 77%; Optum Rx 57,853 / 447,567 = 12.9%; Optum Health 38,342 / 447,567 = 8.6%; Optum Insight 6,469 / 447,567 = 1.4%. Q2 2026 UnitedHealthcare 86,017 / 112,032 = 76.8%. Compound growth 2021-2025: UnitedHealthcare (344,903 / 222,899)^(1/4) - 1 = 11.5%; Optum Rx external (57,853 / 35,535)^(1/4) - 1 = 13.0%. Segment margins: UnitedHealthcare 11,975 / 222,899 = 5.4% (2021), 14,379 / 249,741 = 5.8% (2022); Optum Rx 4,135 / 91,314 = 4.5% (2021), 4,436 / 99,773 = 4.4% (2022); Optum Insight 3,398 / 12,199 = 27.9% (2021), 3,588 / 14,581 = 24.6% (2022); Optum Health H1 2026 2,331 / 47,581 = 4.9%. Optum earnings decline 16,703 - 9,539 = 7,164, 7,164 / 16,703 = 42.9%. Optum Health H1 2026 revenue 47,581 / 49,562 - 1 = -4.0%; earnings 2,331 / 1,840 - 1 = +26.7%; affiliated revenue Q2 14,353 / 15,845 - 1 = -9.4%. Optum Health 2025 recast margin -1,115 / 100,051 = -1.1%; 2024 6,902 / 103,516 = 6.7%. Medical care ratio 2015-2019 from EDGAR XBRL medical costs / premiums: 103,875 / 127,163 = 81.7%; 117,038 / 144,118 = 81.2%; 130,036 / 158,453 = 82.1%; 145,403 / 178,087 = 81.6%; 156,440 / 189,699 = 82.5%. Premiums 127,163 (2015) and 257,157 (2022). Operating earnings 11,021 (2015, XBRL). One point of medical care ratio on 2025 premiums: 352,229 x 1% = 3,522; 3,522 / 18,964 = 18.6% of operating earnings. Q2 2026 favorable development 860 / 86,956 premiums = 1.0 point. Membership: commercial risk-based 8,845 - 7,655 = 1,190 thousand, 1,190 / 8,845 = 13.5%; Medicare Advantage 8,445 - 7,565 = 880 thousand, 880 / 8,445 = 10.4%; Medicaid 7,845 - 6,780 = 1,065 thousand, 1,065 / 7,845 = 13.6%; Part D stand-alone (3,315 - 2,710) / 3,315 = 18.3%. Community & State revenue per year-end Medicaid member 75,004 / 7.845 = 9,561 dollars (2023); 94,390 / 7.380 = 12,790 dollars (2025). Optum Rx quarterly scripts (414 - 387) / 414 = 6.5%. Optum Insight backlog: external 32.8 - 12.5 = 20.3 bn (2024), 31.1 - 12.9 = 18.2 bn (2025), change -10.3%; affiliated share 12.5 / 32.8 = 38%, 12.9 / 31.1 = 41%. Cyberattack provider loans 9,033 - 4,514 - 1,680 = 2,839 not yet repaid at end-2025. Market value against peers: 108.78 + 86.37 + 70.16 + 45.67 + 30.59 + 10.07 = 351.64 bn; 338.03 / 351.64 = 96%. CMS premium revenue 44% x 447,567 = 196,929 (about 197 bn); all other 447,567 - 196,929 = 250,638. Medicare & Retirement share of UnitedHealthcare revenue Q2 2026: 42,390 / 86,017 = 49.3%. Premiums share of revenue Q2 2026: 86,956 / 112,032 = 77.6%. Capital returns 2025: dividends 7,916 + buybacks 5,545 = 13,461; 13,461 / 12,056 = 112% of net earnings; free cash flow 19,697 - 3,622 = 16,075; 13,461 / 16,075 = 84%. Goodwill 44,453 (2015, XBRL) and 110,499 (2025); goodwill plus other intangibles 110,499 + 20,474 = 130,973; 130,973 / 309,581 = 42.3% of assets. Long-term debt 25,331 (2015, XBRL). Interest expense / operating earnings: 3,246 / 32,358 = 10.0% (2023); 4,002 / 18,964 = 21.1% (2025). Rate sensitivity net 345 - 273 = 72. Investment income (3,920 - 5,202) / 5,202 = -24.6%; 4,089 / 371,622 = 1.1% of 2023 revenue. Net interest-bearing debt: 6,069 + 72,320 - 28,121 = 50,268 (Dec 2025); 3,827 + 69,501 - 31,468 = 41,860 (Jun 2026). 2025 guidance: original adjusted EPS midpoint (29.50 + 30.00) / 2 = 29.75; April (26.00 + 26.50) / 2 = 26.25; actual 16.35 / 29.75 - 1 = -45%. 2026 adjusted EPS midpoint (19.50 + 20.00) / 2 = 19.75. Progress vs 2026 guidance: operating earnings 16,981 / 25,450 = 66.7%. Q2 2026 operating earnings 7,991 / 5,150 - 1 = +55%. Gross segment revenue 2025: 344,903 + 101,957 + 19,417 + 154,726 = 621,003; less Optum eliminations 5,480 and corporate eliminations 167,956 = 447,567. Medical costs 313,995 / 264,185 - 1 = 18.9%; medical costs payable 39,337 / 34,224 - 1 = 14.9%. Commercial risk-based members 8,165 - 7,725 = 440 thousand (Q1 2026), 7,725 - 7,655 = 70 thousand (Q2 2026). Medicaid 7,380 - 6,780 = 600 thousand (six months to June 2026); 7,845 - 7,380 = 465 thousand (2023-2025). Optum Rx Q4 2025 share of year 2,885 / 7,193 = 40%. Goodwill 110,499 - 106,734 = 3,765. Total debt 6,069 + 72,320 = 78,389. Dividend at 9.28 x 897.6 million shares = 8,330, 8,330 / 16,750 = 50%. Year-end P/E 2015-2020: 19.3, 21.7, 20.2, 20.0, 20.1, 21.6 (market value / net earnings). H1 2026 medical care ratio 148,847 / 174,517 = 85.3%. Part D stand-alone 2,740 - 2,710 = 30 thousand (Q2 2026). Rounded external revenue ($bn): Optum Rx 35.5, 38.8, 44.6, 53.7, 57.9 (2021-2025), 15.1 (Q2 2026); Optum Health 24.8, 30.3, 37.6, 41.5, 38.3, 9.1 (Q2 2026); Optum Insight 4.3, 5.3, 8.0, 6.9, 6.5, 1.8 (Q2 2026); Optum 64.7, 74.4, 90.3, 102.1, 102.7; net debt 50.3 and 41.9; total debt 78.4; UnitedHealthcare revenue 222.9, 249.7, 281.4, 298.2, 344.9. Optum 2026 guidance 13,450 / 9,539 - 1 = +41%. Corporate eliminations Q2 39,648 / 41,712 - 1 = -4.9%. Net interest-bearing debt / total equity 50,268 / 100,090 = 0.50. Valuation: 2026 net margin implied by guidance 16,750 / 439,000 = 3.8%; 2023 net margin 6.0% x 439.0 bn = 26.3 bn; 338.03 / 26.34 = 12.8 times - ratios, growth rates and membership changes. — 2015-2026 · publ. September 2026 · source ↗
    Method: Arithmetic on figures reported in UnitedHealth Group's Forms 10-K and 10-Q, results releases, SEC EDGAR XBRL and market data; operands shown in the source line.
  9. ReportedThe company has repriced, and 2026 is better: the ratio was 83.9% in the first quarter and 86.7% in the second, and the full-year guidance is 88.1% plus or minus 25 basis points.
    UnitedHealth Group first-quarter 2026 results release, Form 8-K exhibit 99.1 - including the recast of 2024 and 2025 segment results for the Optum Financial realignment. — Q1 2026 · publ. 21 April 2026 · source ↗
  10. ReportedThe company has repriced, and 2026 is better: the ratio was 83.9% in the first quarter and 86.7% in the second, and the full-year guidance is 88.1% plus or minus 25 basis points.
    UnitedHealth Group second-quarter 2026 results release, Form 8-K exhibit 99.1 - consolidated results, medical care ratio, cash flow, balance sheet and the raised 2026 outlook. — Q2 2026 · publ. 16 July 2026 · source ↗
  11. ReportedThe company has repriced, and 2026 is better: the ratio was 83.9% in the first quarter and 86.7% in the second, and the full-year guidance is 88.1% plus or minus 25 basis points.
    UnitedHealth Group second-quarter 2026 results release, Form 8-K exhibit 99.1 - consolidated results, medical care ratio, cash flow, balance sheet and the raised 2026 outlook. — Q2 2026 · publ. 16 July 2026 · source ↗
  12. ReportedBut the second-quarter figure included $860 million of favorable prior-period development.
    UnitedHealth Group second-quarter 2026 results release, Form 8-K exhibit 99.1 - consolidated results, medical care ratio, cash flow, balance sheet and the raised 2026 outlook. — Q2 2026 · publ. 16 July 2026 · source ↗
  13. ReportedIn the fourth quarter the company earned $0.01 a diluted share, or $2.11 on an adjusted basis, after charges of $2,878 million before tax, including $2,521 million of restructuring and other costs and a final $799 million related to the cyberattack.
    UnitedHealth Group fourth-quarter and full-year 2025 results release and 2026 outlook, Form 8-K exhibit 99.1. — FY2025 · publ. 27 January 2026 · source ↗
  14. ReportedIn the fourth quarter the company earned $0.01 a diluted share, or $2.11 on an adjusted basis, after charges of $2,878 million before tax, including $2,521 million of restructuring and other costs and a final $799 million related to the cyberattack.
    UnitedHealth Group fourth-quarter and full-year 2025 results release and 2026 outlook, Form 8-K exhibit 99.1. — FY2025 · publ. 27 January 2026 · source ↗
  15. ReportedThe adjusted medical care ratio for the year was 88.9%, up 340 basis points.
    UnitedHealth Group fourth-quarter and full-year 2025 results release and 2026 outlook, Form 8-K exhibit 99.1. — FY2025 · publ. 27 January 2026 · source ↗
  16. ReportedThe 10-K notes that Medicare Advantage rate notices have for years been below the industry forward medical cost trend, and that Medicaid eligibility changes shrink membership toward sicker members.
    UnitedHealth Group Form 10-K for fiscal 2025 - Item 1A risk factors, competition, rate notices, reserve sensitivities and legal matters. — FY2025 · publ. 2 March 2026 · source ↗
  17. ReportedThe 10-K notes that Medicare Advantage rate notices have for years been below the industry forward medical cost trend, and that Medicaid eligibility changes shrink membership toward sicker members.
    UnitedHealth Group Form 10-K for fiscal 2025 - Item 1A risk factors, competition, rate notices, reserve sensitivities and legal matters. — FY2025 · publ. 2 March 2026 · source ↗
Sources
Generated September 26, 2026