Good morning, and welcome to the UnitedHealth Group's Third Quarter 2024 Earnings Conference Call. A question-and-answer session will follow UnitedHealth Group's prepared remarks. As a reminder, this call is being recorded. Here are some important introductory information. This call contains forward-looking statements under U.S. federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the reports that we file with the Securities and Exchange Commission, including the cautionary statements included in our current and periodic filings. This call will also reference non-GAAP amounts. A reconciliation of the non-GAAP to GAAP amount is available on the financial and earnings reports section of the company's investor relations page. Information presented on this call is contained in the earnings release we issued this morning and in our form 8-K dated October 15, 2024, 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 UnitedHealth Group, Andrew Witty.

Good morning and thank you for joining us. As you saw in our release, the people of UnitedHealth Group continue to deliver on our growth pillars. Our teams are providing more people with more high-quality health care services and benefits and tirelessly looking for ways to simplify the health system and deliver more value for patients, employers, and providers alike. By the end of this year, we will have grown to serve more than 2 million new consumers with commercial offerings, fulfilled more than 1.6 billion prescriptions through Optum Rx, and cared for 4.7 million people in value-based arrangements. Our people have done this and more in a challenging period, navigating the first year of the CMS Medicare rate cuts and its impact on member mix. While many of those factors could not have been anticipated, thanks to our people's efforts, we affirm a full-year 2024 earnings outlook still within the range we first offered back in November 2023. It's a distinctive part of the culture of UnitedHealth Group that we continue to strive to deliver on our financial commitments to you through changing environments and unforeseen challenges. As we look to 2025, and I will address this shortly, we remain in a dynamic period for the healthcare sector. Amid this, it's important that we continue to invest in the durable value-creating capabilities of this company that support our 13% to 16% long-term growth objective. We will balance our commitments to investing in the promising future before us with managing known and potential challenges. We remain highly optimistic for the future, even as we are respectful of the pressures the sector faces again next year. Even within this environment, we're well positioned to continue our growth in the years ahead. I want to highlight two important reasons for this optimism. First is our relentless focus on execution, quality, and innovation. In particular, we continue to work tirelessly to improve people's experiences with the health system. To that end, this month we launched a first-of-its-kind national gold card program, which will reduce the number of prior authorizations by 500,000 every year for qualified in-network providers. This can help improve both the quality and affordability of care while reducing friction in the system. Artificial intelligence is becoming an important tool in improving our work. Our advanced practice clinicians use AI to summarize lengthy patient histories, freeing up hundreds of hours that can be better spent caring for people. Our nurses use generative AI to review documentation more efficiently, saving time and improving patient service. AI is helping our consumer advocates, powering tens of millions of consumer interactions and provider searches. This allows our advocates to spend more time with people on more complex inquiries, driving better efficiency while also improving the consumer experience as reflected in higher NPS scores. Finally, using AI to help build software is enabling technology engineering teams to enhance the speed and quality necessary to help drive our technology modernization. Our focus on execution and quality is also evident in the Medicare Advantage plans we are offering for 2025. Once again, we focused on consumer value and benefit stability as much as possible, even as we navigated the adverse Medicare funding environment. With annual enrollment beginning today, we believe we will continue to be a top choice for consumers. A second element underpinning our growth is delivery on our commitment to the transition of the health system to value-based care. For over 20 years, there has been a bipartisan consensus among healthcare experts and policymakers that value-based care, which is integrated, patient-centered, and outcome-focused care, is superior to the often fragmented and unnecessarily expensive fee-for-service system. Across four presidential administrations, CMS has called for private-public innovation in developing value-based care models in Medicare and Medicaid. It provides better outcomes for patients, saves money for customers and taxpayers who fund care, and empowers clinicians to focus on providing the most beneficial care. At UnitedHealth Group, we're purposefully organized to support the transition to value-based care. It requires deep engagement with patients, setting the foundation to move to more coordinated care, connecting patients to primary care earlier, driving clinically accurate diagnoses, more effectively recognizing and managing chronic conditions, and slowing disease progression. We're seeing the benefits of this work come to fruition. People served by OptumHealth's value-based care models are more likely to receive cancer screenings and better control their diabetes and hypertension than people in fee-for-service Medicare, and they are 10% less likely to visit the emergency room or be re-admitted to hospital programs. One example of the impact of better care coordination is our emergency room space discharge program, which helps patients who may be at risk for unnecessary and expensive ER use and readmissions. Our nurse care managers proactively engage the emergency teams to provide them relevant information from the outpatient medical record and facilitate a safe discharge. This approach, currently in eight markets, is already helping to avoid hundreds of inpatient stays each month. It preserves emergency resources for those who truly need them, saves money, and provides a better experience for patients. Our many care offerings now serve people in value-based care arrangements in dozens of service areas, integrating primary, surgical, behavioral, and home care. These patients come from many diverse payers and employers, a clear sign of confidence from the market that we're on the right track. Fundamentally, we continue to grow because more people and organizations are purchasing more of the products and services we offer. It's a simple statement to make, yet a hard thing to do year in and year out. But it's the enduring reason for our optimism about the long-term growth and future of this enterprise. Now I'll turn it over to John Rex, our President and Chief Financial Officer.

Thank you, Andrew. Strong growth across the company sets us up well to deliver upon our commitments to you. Amid all the puts and takes of this unusual year, we are seeing what we always look for: new products and innovations taking root among customers, more people being served through our services, and continued improvement in the experience people have. I'll start today by offering some observations on care activity patterns, as we know that is most likely top of mind for many of you. Certain care patterns persisted at higher levels than we expected in the period for three specific reasons, two of which we noted last quarter. First, the still pronounced upshift in coding intensity by hospitals, which we flagged last quarter. In some cases, the coding actions are extreme. Certain entities have been notably and persistently aggressive, having upshifted their coding intensity factors by more than 20%. We are actively addressing this unnecessary additional cost burden to the health system. The second item, also noted last quarter, is the continued timing mismatch between the current health status of Medicaid members and state rate updates. States often use care activity data that is well over a year old in setting their rates. This typically has minimal impact when member mix levels are relatively stable. But with eligibility redetermination significantly shifting, both the number and average acuity of people covered has changed. As a result of the lagging care activity data as well as the annual rate cycle timing, updates remain well short of current care activity, a factor that for us was more pronounced through the period than anticipated. A third item that emerged more substantially in the period was a rather rapid acceleration in the prescribing of certain high-cost specialty medications, primarily those used to treat cardiovascular disease, autoimmune disorders and cancer. We believe a contributing factor to this acceleration was the Inflation Reduction Act, which eliminated the individual coinsurance requirement during the catastrophic coverage phase. As many of you know, more people enter this phase in the second half of the year. While we anticipated this will become a more meaningful factor in 2025, drug manufacturer campaigns pulled some of this activity into this year more sharply than anticipated. With that, let's turn to our Q3 results. Revenues of $101 billion grew more than 9% over the prior year, with strong growth again at both Optum and UnitedHealthcare. OptumHealth revenues grew by over $2 billion and are approaching $26 billion. This was driven by an increase in both the number and type of care services we offer and the patients we serve, especially in the home and among those with complex needs. OptumRx revenues grew by over $5 billion to more than $34 billion, driven by strength in our pharmacy care offerings, as well as growth in pharmacy benefits management from new customers and expanding specialty services. OptumInsight revenues in the quarter were stable, approaching $5 billion, and the nearly $33 billion revenue backlog increased by more than $1 billion from last year. Turning to UnitedHealthcare, our domestic commercial business has added more than 2.4 million people through the third quarter. Selling season indications are tracking favorably as we head into 2025, reflecting continued strong uptake of UnitedHealthcare's innovative offerings. Our Medicare Advantage plans on offer this fall balance providing as much benefit stability as possible for seniors while contending with the CMS funding cuts, IRA changes, and expected care patterns. The initial star ratings for plan year 2026 for consumers in four-star or better rated plans are largely consistent with what we saw in our initial results last year. As has been the case in recent years, we expect these percentages to increase. In Medicaid, our new state customer expansion and retention performance remains strong, including recent awards in Massachusetts, Colorado, Rhode Island, Florida, and Michigan. We hope to continue to support people and families in the post-redeterminations period and are advocating with states to ensure adequate funding and resources for these often underserved people. Our capital capacities remain strong and continue to underpin our long-term growth objectives. In the quarter, cash flows from operations were $14 billion or 2.2x net income, and year-to-date we’re nearly $22 billion. So far this year, we have returned $9.6 billion to shareholders via dividends and share repurchase. Additionally, we have invested more than $11 billion in a wide range of strategic opportunities, including updating and extending our long-standing and productive relationship with AARP to better serve older Americans. As highlighted last quarter, after the cyberattack, we prioritized devoting resources to support care providers over some activities such as share repurchase. Payments and claim flows for most care providers have normalized, and repayment of these capital advances is underway. Regarding Change Healthcare, for full year 2024, we now estimate the business disruption costs will be about $0.75 per share, an increase of $0.10 from the former midpoint. As you may recall, business disruption largely encompasses the loss of revenues combined with the cost of keeping these capabilities fully ready to serve. These effects are not excluded from adjusted earnings. We continue to work with customers to bring transaction volumes back to pre-event levels and to win new business with our now more modern, secure and capable offerings. We expect to continue to build back the business to pre-attack levels over the course of 2025 and estimate next year's full year impact will be roughly half of the 2024 level. As we enter the final quarter of the year, we are narrowing our 2024 adjusted earnings outlook to a range of $27.50 to $27.75 to reflect business disruption impacts and the care patterns we discussed. Our company's ability to deliver within the range of the commitments established nearly a year ago, even in challenging circumstances, is another example of the discipline and innovation of the enterprise and the confidence we have in delivering diverse growth for the long term. Now I'll turn it back to Andrew.

Thanks, John. Before we turn to your questions, I want to provide some preliminary observations about next year, which we'll review in more depth at our upcoming investor conference. Perhaps the most important element is that our businesses are operating well, and our growth potential remains strong. We see continued momentum in the selling season performance for UnitedHealthcare's commercial business and Optum Rx, which both offer best-in-class innovation and performance for customers. The consumer value proposition of Medicare Advantage continues to be highly compelling, and we see strong growth potentially in this market for many years to come. The Optum Health value-based care businesses that we've been building for well over a decade are beginning to approach the very early stages of their potential and will be a key differentiating growth factor in the years ahead. At the same time, and as we build for the future and contemplate our 2025 outlook, we're taking into account several unique dynamics. First, the concurrent timing of the second year of the CMS Medicare rate cuts and the most significant Inflation Reduction Act impacts into a single year and the negative effects of that on the people we serve. Second, within Medicaid, the timing mismatch of state customer rate actions, which do not yet reflect the higher acuity of remaining consumers. And third, a respectful view of the care activity that John noted. We're actively addressing and managing for these and continuing to believe our 2025 planning assumptions appropriately capture these components, though we will be prudent in an initial early view. The majority of those 2025 factors are expected to be most impactful to the UnitedHealthcare businesses. As a result, we anticipate stepping out for 2025 more conservatively than is typical. At this distance, we expect the upper end of the likely range we will offer in December has been around $30 per share. As always, we will seek to advance beyond this initial view as the year progresses and we remain committed to and focused on our long-term 13% to 16% earnings per share growth objective. We see 2025 as a year of opportunity in building to that commitment, so you will see us investing in our growth pillars aggressively, modernizing our company with AI and other technologies, and always exercising discipline in our operating performance. We look forward to discussing this with you in much greater detail at our Investor Conference on December 4 in New York. Now operator, we'll take some questions.

Thank you. The floor is now open for questions. And we'll go first to Lisa Gill with JPMorgan.

Thank you for the comments. John, I want to go back to where you talked about your observations here in the fourth quarter. Can you talk about some of those that you expect to impact 2025? And I really want to focus on the third one, which you talked about the rapid acceleration in Rx, but you also talked about the positive impact that you're seeing within your OptumRx business on the specialty side. How do we think about that playing into 2025?

Let me ask John to start, then I'm going to ask Brian, UHC to make a couple of comments, and then we'll come back to Patrick at OptumRx. It's a wide range and set of impacts that you're alluding to. So let me start with John.

So just a few comments here and maybe kind of shape some of these messages here. First of all, in terms of what we would expect to persist, what we expect to subside here. So I'd start with our planning assumptions, as Andrew noted, we're looking for some of these elements here. What was different for us in the quarter than the thoughts we would have had at the end of last quarter is, most notably, what we saw in terms of the rapid increase in the specialty drugs. And we'll get a little bit more to that. There really was a midyear issue. We think really tied into the IRA and the components that shifted for that. And as you look at some of the prescribing patterns, those shifted sharply in the second half of the year. We would have been planned on some of that happening really more next year. The pull forward in this year was one of those elements that was a bit unexpected. I think the other elements are probably more understood out there. The timing mismatch in Medicaid has been in the conversation, what we've been seeing in the provider coding intensity is also more understood. So maybe we'll go around a little bit to Brian Thompson, let him address some of those elements.

Sure, John. As John mentioned, specialty Rx is again largely contained to our Medicare Advantage book. And let me start with, I feel very adequately priced for how this will play out in 2025, despite the surprise here in the second half. And you might ask how that's possible. What we had done is planned for the IRA to drive a greater induced utilization as it continued to roll out with the biggest elements being in 2025. Obviously, there's a lower out-of-pocket maximum for consumers in 2024. We expected that to play out more in 2025. We're seeing that accelerate into 2024, but not at levels that would suggest we're not covered for it in 2025. Again, we thought it would be a little more gradual. We've certainly seen some manufacturers doing some promotion. I believe that's also contributing. But, certainly feel good about how we priced for it in 2025 because we did anticipate these step-ups, particularly with the large-scale changes and more richness and benefit for consumers that will come to play out in 2025.

Patrick, maybe just reflect on it from an OptumRx position.

In terms of OptumRx, I want to highlight our record PBM selling season last year, which has positively impacted this year, along with renewal rates in the high 90s. The growth in our mix, especially in specialty services, significantly contributes to our revenue growth. I refer to it as pharmacy services, which encompasses notable growth in our specialty sector, as well as in infusion, hospital health systems, and community pharmacy platforms. Additionally, we are introducing new products and services in the specialty area, such as Savings IQ, which has saved consumers over $1 billion this year, and Price Edge, which serves over 9 million members and has saved consumers $125 million. We also have various new offerings in the specialty sector that continue to provide value to our clients. We are truly designed to assist our customers in managing specialty spending.

Thanks, Patrick. Thanks, Lisa, for the question. Next question.

We'll go next to A.J. Rice with UBS.

I appreciate the early comments on 2025. I'm curious if, compared to a typical year of 13% to 16% growth, you could provide insight into the various headwinds and tailwinds you're considering to arrive at what appears to be about 8% growth at $30.

A.J. thanks so much for the question. Let me just put some context around this a little bit. First off, as you would see in a typical year, we would always start the year with a plan to deliver and ideally beat, and that will continue to be the culture of the organization. We are clearly in an unusual situation right now in terms of the various pressures that we've seen coming externally, particularly government-funded reductions and to some extent the continued strength of MedEx cost. Probably net-net, all still somewhat hangover effects of the COVID pandemic still playing through the system, both in terms of volume and also some pressure on unit costs that we've seen, all of which you see in kind of the pressure that we see this year. Now, as we think about 2025, what we're trying to set out here, A.J., is something really important for the long-term future of the company. Those external pressures which we've described, I think, clearly both in the press release and in the commentary this morning, we're being clear about what they are. At the same time, what we mustn't do is pull away from investing in what's going to drive the future of this organization over the next decade. What does that mean? That means making sure we're investing in filling out and continuing to build out our value-based care platforms. It means really leaning into taking advantage of the technology opportunities, which now exist in reality. So the chance to really modernize our full stack across our organization, transform the development of new products, and give us the opportunity to bring forth a new look, OptumInsight based on much newer technologies, provide the opportunity to transform consumer experience, something which is sadly lacking across U.S. healthcare. All those opportunities sit right now. They sit in the same year, as we have these various headwinds that we've been talking about. What we're doing for 2025 is we're putting in place what we believe is a really responsible plan, really focused on ensuring we don't pull back from investment in the long-term, not shortchanging the next decade. That’s what we're leaning into in terms of making sure our ‘25 plan is responsible for longer-term value creation of the organization. Now, as I said at the beginning of the response to your good question, A.J., we're always going to go into every cycle aiming to do better than we lay out at the beginning. But I think it's appropriate for us to build a plan for 2025, which acknowledges the external pressures and ensures that we retain the capabilities to continue to build what we think is a really distinctive set of capabilities, which will play out very powerfully for the next 10 years. Next question, please.

We'll go next to Stephen Baxter with Wells Fargo.

Thanks for the color on the MLR factors that you called out. When you think about the Q3 MLR unfavorably developing in the quarter, is it fair to think that all three of those factors were about the same? Or would you call out one of them as maybe being larger? And when we think about the coding and utilization management, I guess, operationally, what needs to happen if you're to make progress on this front? I don't think you've attributed much of this to midnight rule to date. Can you update us on whether that changed at all in the quarter? And maybe if not, where the pressure is manifesting on the coding side?

I'm going to ask John to start and then ask Brian to give you a little bit more perspective on that also.

Yes, I would say in the quarter versus our initial expectations that we shared with you a quarter ago, all three of those factors had roughly the same zone in terms of impact in the quarter, give or take. Brian?

As it relates to upcoding new inpatient stays versus what we feel is more appropriately billed as outpatient, we did expect that behavior to somewhat subside here in the third quarter. Last quarter, we had talked about the timing of that spike being largely related to our own utilization management waivers during the cyber-attack, but it certainly has persisted. As John mentioned at the outset, this is a few large systems driving it. We remain focused on evaluation of this practice. It's a key part of our utilization management. The difference between an inpatient and outpatient stay is largely borne by our consumers on an already too expensive cost of care in a hospital setting. So we remain vigilant on focusing on this, hoping to see it abate to levels that we're more used to seeing in the past. And we'll continue to review this as we look forward.

Thanks so much. Next question please.

We'll go next to Josh Raskin with Nephron Research.

There seem to be more moving pieces to the Medicare Advantage landscape than usual entering 2025. So maybe can you just take a step back and speak to your strategy over the next few years? And specifically, how important is growth in Medicare Advantage to UnitedHealth's overall enterprise strategy? And then maybe a potential weakness from competitors changes how you think about coming to market?

Josh thanks very much for the question. Let me just make a couple of comments and then ask Tim Noll, who leads our MLR business to go a little deeper for you. And obviously, very timely given that today is the first day of the selling season for the new MA year going into 2025. So, as you look across the whole of UnitedHealth Group, Medicare Advantage, of course, is a very important part of the business, but it is one of several different pieces of what is really a very diversified group of healthcare businesses. There are linkages from Medicare Advantage to Optum, in particular obviously through Optum Health and elsewhere, but I would say over time, as important as MA is, you'll see many other elements of the business continue to grow, and that's critical for the long-term sustainability of the company. That's why we've laid out the five growth pillars of the business over the last two or three years as really signposts of where you should expect us to deploy capital. It's where we put our mindshare. It’s where we look for opportunities to improve the healthcare system. So whether that be in benefit design, building our value-based care, bringing new technologies to the marketplace, transforming and modernizing pharmacy, or bringing forward what ought to be a state-of-the-art financial services capability into a part of the economy which represents 20% of GDP. Those are the five growth areas of the company. MA is an important element within all of that, but it is one of several key opportunities for us to drive forward. Having said all of that, as we come into this cycle, what we're seeing is the benefits of some very thoughtful, calm, not over-reactive planning last year. I think the way in which the team led us through 2024 in terms of benefit design has proven out to be on balance, right given the many moving parts that you correctly alluded to. I think that sets us up in a good place in terms of how we enter this year. We'll see how this cycle goes. I'll ask Tim to give more comment. But most importantly, it really gives us confidence as we look out over the next four or five years that we're not having to fix significant problems that we avoided if you will. We didn’t make those stepped mistakes a year ago, which is always a thing to worry about in this situation. We have a lot of moving parts. It's critical to not be over-reactive. It’s critical to be very much consumer patient-centric, and that’s really been the guidepost that we followed. And I think it served us well. Tim, I think, is going to serve us well this year.

Thanks, Josh, for the question. Yes, and I would underscore some of the pieces that Andrew mentioned. And yes, it is a very dynamic period right now in the Medicare marketplace. But our strategy and our vision here for the business really doesn't change a lot. I'll just underscore a couple of those that are key in this environment today. One is that we've always had a long-term planning view, and that's never more important than it is today. Right now, that includes a very rational response in any particular year to the revenue pressures that the program is facing. You saw that play out for us in 2024; you'll see that continue to play out. As Andrew alluded to, that ensures we don’t have any deferred maintenance and pricing carryover into a subsequent year. Along with that, we always strive to provide as much stability as possible to consumers in any one year. In this year, in 2025, that has meant preserving PCP co-pays of $0 for our consumers, and trying to ensure co-pays are near zero for the most commonly prescribed medications as well. Also, to preserve as much choice as possible for consumers; that's really important for Medicare beneficiaries that we design products and plans that meet their needs, and listening to what consumers want will always be a core element as well. Lastly, and this is really important, this environment is continuing to create more value. The headline there is around our partnership with our value-based care providers. That's the best opportunity for us to continue to create value in light of some of the pressures that the program is facing, and we continue to see great opportunities there. Emerging technologies around AI and ML are also providing significant opportunities to deliver efficiencies in our operation and pass those efficiencies along to beneficiaries as another considerable way to offset some of the headwinds of the program. So, yes, it's a very dynamic environment, but really our strategy and some of the core principles and foundations of our Medicare Advantage programs don't change.

Thanks Tim. And I just want to thank Tim and his team for if you just step back and you're super well aware of this. You just look at the amount of regulatory change, change in funding dynamics, IRA coming into the marketplace, insufficient growth coefficient in terms of future MA funding on top of the V28 cuts. What Tim's team has done is basically try to neutralize a lot of that volatility and noise in terms of how it flows through to touch patients and members. It's really important that stability is never more important than in this cycle we're in right now. Because otherwise you would see a tremendous amount of, I think, disturbing volatility flow through into the market. We're not going to do that. We will put our patients and our members first. We're going to strive to do everything we can to give them a fantastic experience. By working with Optum, we believe that for many of those patients, we can introduce them to an unparalleled set of quality outcomes, both in care and cost and experience. That work has never been more valuable than when you see the kind of volatility we have seen last year. We will plan for that. We're not going to sacrifice the long-term potential of all that we've built in this short period of volatility. What we're going to do is work to insulate members and ensure that they have a great experience. Today is the first sell-in day, and hopefully, lots of folks are going to be picking up the line to UHC today. Next question, please.

We'll go next to Justin Lake with Wolfe Research.

Given all the volatility we've witnessed in the sector, could you provide some insights on how your Medicaid business excluding Duals and your Medicare Advantage business including Duals are performing in the third quarter and for the entire year of 2024 compared to target margins? Additionally, could you share any expectations for the pace of potential improvement reflected in the 2025 guidance, if any improvements are anticipated?

Let me ask Brian to respond.

Let me start with Duals, and I would say we remain very encouraged about the outlook for our duals business. Certainly, about the position of those products as we approach 2025, I think that will be a growth element for us. Inside 2024, obviously, we talked about it in our prepared remarks last quarter as well as this quarter. One of the three items contributing is the pressure we see from redeterminations. And that's obviously impacting our Medicaid book. I'd like to say that we probably weathered the storm on the volume impact of redeterminations, and that's now behind us. What we're really looking at now is how these rates catch up to where our current cost trends are. I think we've seen some strong momentum with our state partners, but it's not yet responsive to the trends that we're seeing in real-time. We're hopeful that through our partnership and our advocacy, we'll close this gap on funding at a faster rate than normal rating cycles would suggest. But the key items in the quarter, again, were just higher volumes of disenrollment. If I was to point to one element beyond just the traditional acuity of those that left and stayed that we had planned for, I'd point to behavioral care. Many of our states have looked to us to expand access to behavioral care. I think many of us that partner with our states have done so. That does have some cost implications. So we're really hopeful that these states will be more responsive than traditional rating cycles would suggest and that we'll see these tailwinds soon as we pace through this big year again, of largely the volume being the driver of the implications in year, and now hopeful that we'll see these rating cycles catch up to our cost trends.

Great. Brian thanks so much. Next question please.

We'll go next to Scott Fidel with Stephens.

I wanted to discuss the commercial business and the three factors you mentioned, excluding Medicaid. Could you break down the cost issues you're experiencing between the commercial group and individual markets, and how these impacts are materializing in those areas? Additionally, on the individual side, how does this affect your pricing strategy for exchange products in 2025 and your confidence in the margin outlook?

Let me ask Brian to give you kind of an overarching view and then maybe pass to Dan Kueter to give you a little deeper on the commercial business.

Yes, Scott, thanks for the question. It provides me an opportunity to clarify. The three items that we mentioned at the outset and throughout really aren't a part of our commercial business. What we've talked about, obviously, redeterminations in the Medicaid space, and the other pressure points around inpatient stays and specialty are largely around Medicare Advantage. I feel really good about not only our performance but our cost management inside our commercial business. I'll hand it to Dan Keuter, our CEO of that business.

I can offer that in the exchange business, as you asked about, our pricing is respectful of the brand and the other market dynamics in that space, which include our product offering, our geographic footprint, and the competitive environment. For 2025, we have priced with a forward view of our cost in full respect for trend. As Brian and John have noted, those impacts that are driving some trend in the government programs are not applicable to the commercial business, whether that be on the individual side or the group side. So our outlook on trend for 2025 is consistent with our view for 2024, and the drivers in the commercial business remain the things that we have discussed for some time: provider unit cost, pharmacy cost, and enabling expanded access to behavioral health services. Those have been the drivers in '24, and we expect them to continue into '25. We have priced both the individual business and the group business with full respect and awareness of those trend items.

Dan, thank you so much. And really the two elements that Dan just raised, the pharmacy unit cost and utilization, and of course, the hospital unit cost, are two strategic areas that we really want to lean into. We've been very outspoken for years about the need to bring down the list price of drugs. We continue to advocate very strongly for that. Until that happens, we continue to utilize all of the tools at our disposal through OptumRx to try and bring down those costs on behalf of our members and on behalf of the companies we serve within the commercial books of business. We're also exploiting as much as we can opportunities to be leaders in how we think about biosimilar adoption and how we create wraparound programs on important areas like weight loss, all of which are designed to try and bring down the ever-increasing inflationary pressure that we see from the drug bill. The second one Dan referred to is hospital unit costs. We've seen some unusually aggressive and high unit cost asks. We recognize the critical role of the hospital systems within the care delivery environment. But we want to continue to work to try and find new compacts, new ways of working with hospitals. We want to see less abrasion in the marketplace. We believe that ought to come with more competitive rates in the marketplace. We see a critical role for hospitals as acuity needs rise and rise. But we see great opportunity for us to partner with the right health systems to create much better value for money for the overall system. So the two areas we want to be willing partners to innovate, whether that be with drug companies interested in new ways of working to bring down cost or with hospital systems who want to work with us to reimagine the patient experience, the doctor experience. All part of bringing down the unit cost, those are super important for the long run, and it's going to be a space where you're going to see us continue to be very active in terms of putting forward ideas and trying piloting new approaches. The national gold card program I mentioned 30 minutes ago, is just one example, and we're going to continue to look for those sorts of opportunities.

We'll go next to Lance Wilkes with Bernstein.

Could you talk a little bit about OptumHealth? And I had three points there. If you could talk a little bit about some of the drivers of margin improvement in the quarter. Could you talk about the outlook for ‘25 for risk contracting? In particular, what things might be driving that as far as adoption in MA and if you're seeing adoption in other segments like employer? And then maybe a sort of related question, are you seeing any other responses in the employer segment to the high premium inflation environment that's out there, like PBC adoption, but also things like binder or whatever?

Let me ask John just to comment on margin. And I'd like to go to Dr. Desai, who looks after OptumHealth, on your second two points.

A few things are benefiting Optum as it continues to progress. This is roughly a $100 billion a year business that we have been building over the past decade, making significant advancements along the way and refining the business. You should expect us to continue to refine our portfolio and the types of businesses we are in. Currently, OptumHealth is primarily a care delivery business compared to what it was maybe five years ago, so you will see us focus our portfolio strongly on that. We will concentrate on businesses that align well with our theme of value-based care for the upcoming decade, and we will move away from businesses that do not. Additionally, there are legacy elements, such as contracts that require refinements, which will be important components for us moving forward.

So first of all, we feel very good about the overall performance of OptumHealth. We are continuing to execute against our three-year plan that we put in place in 2023, focused on medical cost management and affordability initiatives, clinical engagement, our operating cost management activities, and then accelerated diversified growth in some of our services businesses. On that point, in particular, with services, we're pleased with the growth in our OptumServe business, where we've had new product launches in the areas of medical disability exams that have resonated very well in the marketplace and have contributed to a leading position as a clinical provider for the largest government and federal agencies in the country. As it relates to your broader question around growth across payers, we have strong relationships with over 100 planned partners and are poised to execute on a broad, diverse growth agenda. In fact, in this dynamic rate environment and benefit environment we've discussed here, we're actually seeing increased outreach from payers who are looking for really an enduring partner who can operate in capitated arrangements. In particular, a number of productive discussions ongoing around funding and market-level planning as we plan for AEP, but also in other lines of business. Foundational to all of these conversations is really the quality of our providers anchored in the community, particularly our ability to achieve clinical outcomes, including closing gaps in care for Stars programs and HEDIS measures, the strength of that network in the geographies that plan partners are looking to grow in, and then continued focus around our clinical engagement. In fact, year-to-date, we've engaged over 80% of our members. 90% year-to-date for our highest risk members. So when I take that together, great momentum and strength to not only grow but grow in a broad and diverse way across multiple lines of business.

Great. Thanks, John. And Amar?

Thank you for the opportunity, Lance. You are correct that in this dynamic and complex funding environment, we are observing the value proposition of value-based care, as described by Amar, extending not just to plan sponsors who primarily take on risk for Medicare Advantage, but also to employers directly. As Andrew mentioned, key principles include a search for alternatives that offer clear predictability, a better holistic experience for members, which involves integrating wellness programs, improved access to necessary wraparound services such as behavioral health and home-based services, and ultimately, enhanced predictability that allows employers to invest in other areas of health and well-being. Additionally, we continue to invest in value-based care, with increasing numbers of aligned physicians utilizing better tools and platforms that drive focus on outcomes and affordability for our members. This is reflected in OptumHealth's performance. It is also important to acknowledge the other services within Optum that support our payers and employers, such as our risk and quality services offered through OptumInsight, which provide robust administrative and clinical services enhanced by AI to lower costs and broaden access. In OptumRx, employers or plans can opt for value-based accountable arrangements, whether through cost management pass-throughs or accountable constructs associated with our clear guarantee programs, where we assume the risk for all services, including specialty services. It’s crucial to emphasize that with guarantees or accountability, our clients maintain transparency. OptumRx is committed to transparency while simplifying accountability. I would highlight the value-based services across Optum as being well-received by payers, which contributes to our positive outlook on long-term value. Furthermore, all services offered across Insight, the Bank, and OptumRx align with our value-based mission to support all clients, including payers, state and federal customers, and employers, ultimately benefiting consumers through improved outcomes and experiences.

Heather, thanks so much. And Lance, thanks again for the question.

We'll go next to Joanna Gaik with Bank of America.

So I just have a follow-up question on the OptumHealth discussion. My question is about revenues. In the quarter, the revenues actually did decline sequentially quarter-over-quarter from second quarter by about 4%. So — and I know there was a commentary around streamlining the portfolio and some contracts. So, is that sequential decline and a fraction that you — there was something that actually did already take place in the third quarter in terms of exiting maybe some underperforming contracts or business lines? Could you comment on that? Also, were margins benefiting from investment income and to what degree? And I guess for the quarter, the real question is about trying to ask again what you assume for margins in OptumHealth next year?

Let me — I think actually the sequential is a pretty straightforward explanation; let me just ask John to give you a little detail on that.

The refinements that I was discussing would be the primary impact in terms of the sequential and what you're seeing sequentially in terms of revenues. As we continue to refine the portfolio, refine contracts, legacy contracts that might be out there, and work ahead on that, that would be the primary component we’d see in there.

We'll go next to Sarah James with Cantor Fitzgerald.

I was hoping you could give us a little bit more color on OptumInsight. So excluding Change, how are the sales pipeline and margins going versus your expectations on the non-Change business? And then on Change specifically, as we think about its transition into 2025, is that business an earnings drag? And how should we think about the revenue being a headwind or a tailwind compared to 2024?

Sarah, thanks so much. I'm going to ask Roger Connor, who leads OptumInsight, to give you a little deeper on this. But I just want to thank and acknowledge the tech team and the OptumInsight team more broadly for the extraordinary response to the Change attack, and Joe shared with you in a second, the great progress we've made in recovery in that business. Continues to be — work to do, obviously, bringing back all the clients who we asked to go work with other folks during the attack. We did the right thing in terms of protecting the system and encouraging people to find alternatives. We're now bringing them back. We've made a huge step forward in that. That work will continue as we roll into the New Year, as you heard in the introductory comments, but great progress on that. And the speed at which we will rebuild a modern platform has been just extraordinary. I think it actually bodes very well for us in the future in terms of how we think about our speed of technical modernization as an organization.

Thanks, Andrew, and thanks very much for the question. I think hopefully, you’re going to get a sense of the confidence we feel in OptumInsight going into 2025 as we move through the Change event. Maybe if I just start there, first of all, with the cyber recovery and in terms of the progress that’s been going well. From a Q3 perspective, you'll see that the business disruption reduced quarter-on-quarter. I suppose where we're focused through the first half of the year has really been on the restoration of the systems, and we've made very good progress. Not really, it's all about reconnecting our customers. As John shared, we are seeing slightly higher business disruption trend going into the end of the year. Some of that will carry over. Maybe just a couple of reasons to dive a little deeper as to why that's happening. From a reconnection perspective, customers are coming back. We're making good progress there. What we’re seeing is the volume that’s coming back isn’t coming back to the pre-attack levels. Customers are really looking for vendor redundancy. What they're out there looking for is another one or two sources of their software systems, for example. Now, we understand that. We think that’s a good thing for the health system, but that is having an impact on us this year. But that also creates an opportunity for us. We’ve got an opportunity to go out and get new customers or sales and become an additional supplier for them. That’s going to take a little longer; a slightly more complex implementation time. So when you add those to factors together, that’s why you see that carryover impact into 2025. I think it’s important just to understand just the scope of OptumInsight overall. Because if you look at our core business outside of Change, which is the vast majority of OptumInsight, that’s where we’re feeling very confident about the opportunities that we’ve got through the end of this year and going into next year. You can see that we’re performing well. We’ve got momentum. You can see that in our operating earnings in terms of outperformance in terms of our growth year-to-year when you adjust for Change. That confidence comes really in a couple of areas. One, the market needs us. The payer and provider markets are where we see real opportunity. There’s significant cost pressure in that client base, and they really see our services and software as a bit of a sweet spot. Where I'm most excited is what we're going to do in innovation and what we’re doing in innovation to accelerate currently, because we’re building off that new modernized tech environment that we built this year at Insight. We’re using AI to not only transform the functionality of our current products, like payment integrity revenue cycle, but to create these differentiated products and create this exciting portfolio of AI-driven innovations. The good news about Insight is that we can go and test those with our partners, with UnitedHealthcare. We test them with OptumHealth. We conclude our big health system partnerships. That allows us to test these things quickly and bring them to market fast. You’re going to see us doing that more as we go into next year. So when I add that underlying market opportunity, add that AI-fueled acceleration of innovation, that’s why I think that we’re really set up well going into 2025 and for our performance next year.

Great. Thanks, Roger.

We'll go next to Andrew Mok with Barclays.

SG&A has been a strong contributor to earnings this year. Just curious how we should think about the permanency of some of those cost changes as we look forward to 2025. Is there anything that you would call out as being more temporary in nature?

Listen, I think you should expect us to be very disciplined around cost management. And again, I want to go back to first principles. I'll take you back to the investor conference last year in New York. I stood on the stage and I said, look, essentially, what you're seeing from the CMSP28 rate change is a price cut. I mean that's what it is. And the price cut requires us to respond accordingly. A key piece of that response, if you want to protect members, which we do, is to take costs down inside the organization, and try and eliminate waste in the MedEx environment outside of the company. Therefore, we have been relentless around how can we find sustainable cost reductions for the organization, particularly in both businesses. This year, Optum has been doing a remarkable job of taking cost out. I think there's more to go, and we will be very relentless about that. As an organization, we recognize the payer has the right to change the price they want, and we have to respond. Cost reduction is a key piece of it. MedEx management is the other key piece, and those are going to be two really important features of the future for the organization in terms of how we robustly respond to all of this. So yes, you should expect more of that, and it will be a key piece of the plan going forward.

Yes. We'll take our last question from Erin Wright with Morgan Stanley.

So you mentioned some of the internal investments just around AI and other initiatives into 2025. But what about broader capital deployment? I guess, how should we be thinking about the priorities heading into 2025 in the context of everything that’s going on in and otherwise, but also just what’s embedded in your expectation share buybacks or otherwise?

I'll ask John just to comment in a second. But broadly speaking, our capital deployment is going to be very much led by our five growth pillars of focus for the organization. As you think about those benefits, obviously, UnitedHealthcare, value-based care, technology-led opportunities, pharmacy businesses, and of course, financial services. Those will be the areas we think about capital deployment. Value-based care is really the organizing principle which binds all of that together. That’s going to be a key kind of element to that. I would add to that, something we’ve talked about over the last two years extensively is consumerization. You should expect us to continue to challenge and push on how we can constantly modernize the consumer experiences we are able to offer. Technology is a facilitator of that, but also philosophy as a facilitator of that. The organization is changing. It’s biased to being much more consumers in the way it thinks and operates. We want to continue to bring that to life. So those five growth pillars, the opportunities, the technology of the 2020s gives us, and then a shift in emphasis from the company towards a more consumerist experience; those are really the guide points. And then, John, maybe just more broadly summarize beyond that element if you could for capital.

You should expect our capital deployment agenda to remain very much like it has the past many years, focused on expanding the capabilities of the company, orienting how we look at that around our five growth pillars and where we need to be adding capabilities, clearly generating strong returns for shareholders as we deploy that capital. First and foremost, that’s always been the priority, how can we build new capabilities for the company that will deliver strong returns for shareholders for the next decade, and where should we be putting that capital? That will continue very much the same. You shouldn’t see any shift on that. That’s always the first priority. Then we look at other elements in share repurchase and dividend, and those other elements where we can return capital to shareholders. You should see that be very steady as you look to the decade ahead in terms of how we’ve always approached this business.

Thank you for the question, and thank you all for your questions this morning. As we look to conclude in this year and further preparing for 2025, we're excited about the future of UnitedHealth Group. We believe we have the focus, the discipline, and adaptability to continue to grow our 13% to 16% long-term target. We remain, as always, committed to the people we serve. Despite the challenges that we see in the environment externally, we believe at UnitedHealth Group, we have the right mix of people, capabilities, passion, and compassion to allow us to not just navigate 2025 but actually in doing so, set the foundations for continued differentiated performance for many years to come. We appreciate very much your attention this morning. We look forward to having the chance to see you in person in New York at our investor conference. Thank you.

This does conclude today's conference. We thank you for your participation.