With Medical Costs Up and Earnings Down, UnitedHealth Group Leaves PPOs Behind

With medical costs increasing much higher than expected and earnings falling far short of earlier projections, UnitedHealth Group executives announced during an earnings call today that the company is exiting Medicare Advantage plans next year that currently serve 600,000 members, most of them organized as preferred provider organizations (PPO)

During the same call, a company executive announced that its Optum division would “cease arrangements” next year for about 200,000 patients in valued-based PPO.

Steve Hemsley, the newly reinstated CEO of the troubled healthcare conglomerate, and others on a call that lasted more than an hour, spoke about transparency, humility and change. Hemsley said independent experts are reviewing the company processes that determine risk status, care management and pharmaceutical services.

“We’ve made pricing and operational mistakes,” said Hemsley, who said the company’s turnaround would begin with “respecting pricing basics” and “just better, more intense, more decisive overall management.”

UnitedHealth Group, which encompasses the health insurer UnitedHealthcare and Optum, a multifaceted health services division, has been buffeted by crisis after crisis over the past year and a half, starting with the Change Healthcare cyberattack in February 2024. In December 2024, the UnitedHealthcare CEO was shot and killed on a street in midtown Manhattan. In May 2025, Hemsley took over after CEO Andrew Witty unexpectedly stepped down. and the company suspended its 2025 financial guidance as its earnings sank. The stock price of the once-steady, Minnesota-based company has fallen by 44% this year.

In this morning’s much-anticipated earnings report and call, the company said it expected to have adjusted earnings of “at least” $16 per share this year, which was below analysts’ expectations of approximately $20 per share and approximately half of what the company projected late last year.

Tim Noel, CEO of UnitedHealthcare, said during the call that the main reason for UnitedHealth’s shortfall was pricing assumptions that did not anticipate rising 2025 medical costs, which he said were $6.5 billion more than what the company had planned for, with about half, or $3.6 billion, of those unanticipated costs affecting its Medicare offerings, which include Medicare Advantage and supplemental plans. Noel said “service intensity” was driving the rise in medical costs and that in Medicare Advantage, physician services and outpatient care accounted for 70% of the cost pressure but that utilization of inpatient care was also increasing. He noted that when UnitedHealthcare filed its Medicare Advantage bids for 2025, it had planned on a medical cost trend of 5% this year but that it now expects the increase to be 7.5% this year. He said Medicaid medical costs are also increasing, particularly for behavioral health services, which are running 20% higher than in the past.

Noel said the company’s “increasingly flexible orientation to our Medicare networks and plan design” meant the company was less able to respond to medical costs than it might have been otherwise. As a result, he said UnitedHealth was moving to narrower networks and “more disciplined managed products,” particularly in Medicare Advantage.

Patrick Conway, who was named CEO of Optum in May 2025, said that Optum’s 2025 earnings were $6.6 billion below expectations and that approximately $3.6 billion of the shortfall was in Optum’ value-based care business. Conway praised the long-term potential of value-based care but said Optum was taking steps to improve earnings and margins in the short term, including terminating about 40% of its PPO arrangements that currently cover 200,000 individuals.