Unitedhealth Group Inc (UNH) — Q4 2024 Earnings Call Transcript

Jennifer, thank you very much, and good morning, everyone. I'd like to start by expressing a sincere thank you from my colleagues and from me for the overwhelming expressions of condolence and support following the murder of our friend, Brian Thompson. Many of you knew Brian personally. You knew how much he meant to all of us and how he devoted his time to helping make the health system work better for all of the people we're privileged to serve. He would dive in with passion and caring to find solutions to improve experiences, whether for an individual consumer, an employer or a public health agency. Right now, there are 400,000 nurses, doctors, case workers, customer service specialists, pharmacists, technologists and so many others in this organization, who share that commitment and are determined to advance that work. The task in front of us, all of us, healthcare providers, payers, employers, drug companies and policymakers is to continue improving quality and health outcomes for individuals and their families, while lowering costs for everyone. We need to build on the unique foundational strengths of healthcare in America and address the areas we can make work better. Among those strengths, world-leading innovation, the U.S. has developed the most advanced clinical approaches and patient-centered care at a pace not seen anywhere else. It's why, if provided with the option, people from all over the world come here to seek care for the most complex conditions. Yet, the health system needs to function better. Through decades of federal and state policymaking and private-sector innovation, we have a variety of program structures and processes. There are strong merits to that variety as they can be more tailored to meet the specific needs of individuals at various stages of life and health status and provide extra help for those who need it. It avoids a one-size-fits-all approach, but it needs to be less confusing, less complex and less costly. America faces the same fundamental healthcare dynamic as the rest of the world. The resources available to pay for healthcare are limited, while demand for healthcare is unlimited. Every society wrestles with that issue and approaches it in various ways. We have incredible opportunities here to improve system performance both from a care and a cost perspective, while building upon the foundational strengths I just mentioned. The mission of this company, why we exist, is to improve this system for everybody and help people live healthier lives. That means getting more people into high-quality value-based care and keeping them healthy in the first place, so fewer Americans find themselves with a chronic and, in many cases, preventable disease. It means continuing to invest in programs like Medicare Advantage, which by providing coordinated care to seniors is proven to deliver better health outcomes at lower cost to consumers and taxpayers compared to fee-for-service Medicare. Seniors recognize that value, which is why the majority of them choose Medicare Advantage. It means making healthcare easier to navigate. We're enhancing digital tools for consumers, harnessing data and using AI so they can find the best value care option and decide what is best for themselves and their families. People's health interaction should be as intuitive and seamless as every other aspect of their lives: banking, shopping, streaming. This past year, we saw an extraordinary increase in the use of these modern channels. We know there is still a large gap there, and we intend to keep at it until it is closed. It means making coverage and cost easier to understand. Just one example where we already have advanced plans, we're eager to work with policy leaders to use standardization and technology to speed up turnaround times for approval of procedures and services for Medicare Advantage patients and to materially reduce the overall number of prior authorizations used for certain MA services. Some of this work we can do on our own, and we're doing it, but we're encouraged also by industry and policymaker interest in solving for this particular friction across the whole system. Ultimately, improving healthcare means addressing the root cause of healthcare costs. Fundamentally, healthcare costs more in the U.S., because the price of a single procedure, visit or prescription is higher here than it is in other countries. The core fact is that price, more than utilization, drives system costs higher. Tackling that problem will require all parts of the system and policymakers to come together. Yet, there are participants in the system who benefit from these high prices, lower-cost equivalent quality sites of service, for example, can be good for consumers and patients, but threaten revenue streams for organizations that depend on charging more for care. Another example is the persistently high cost of drugs in the U.S., leaving American consumers, employers and public agencies to pay disproportionately more than people in other countries. Just look at GLP-1 prices. One drug, which costs $900 in the U.S., costs about a tenth of that in Europe. Pharmacy benefit managers play a vital role in holding those prices down, which is why drug companies and their allies have spent the past several years attacking them. Optum Rx alone delivers many tens of billions of dollars in savings annually versus the pricing set by the manufacturers, including on the GLP-1s. That sharply reduces the gap versus other countries, but even then prices in the U.S. are still multiples of what the rest of the world pays for the same drugs. Last year, our PBM passed through more than 98% of the rebate discounts we negotiated with drug companies to our clients. While we offer customers 100% pass-through options, a small number have historically elected other models. We're committed to fully phasing out those remaining arrangements so that 100% of rebates will go to customers by 2028 at the latest. We will continue to encourage all of our clients to fully pass these savings directly to patients at the point of sale, as we already do for all of the people we serve in our fully insured employer offerings. This will help make more transparent who is really responsible for drug pricing in this country, the drug companies themselves. Healthcare in every country is complex and the solutions are not simple, but you should expect this company to continue to work at it, finding what is needed, developing solutions, bringing those solutions to scale, making a positive impact on the lives of millions of people. We deliver on our commitments to the people we serve, including our investors. Even in highly challenging periods like 2024, our results bear out that we find a way, even if it's not always how we may have initially envisioned the path. Among some of the formidable challenges we navigated over the course of the year were the first year of the three-year CMS Medicare rate cuts, the effects of the state-driven Medicaid member redeterminations, and the Change Healthcare cyberattack. Our people found a way to deliver solidly within the range we first offered back in November of 2023, all while improving patient and consumer health outcomes and experiences, focusing on quality and expanding upon our potential to help make the health system work better for everyone. We're invigorated by the path ahead. There are so many areas that can be enhanced, reworked, reengineered or even scrapped to make the health system work better as we know it needs to. That is both our responsibility and it's our passion. We begin 2025 with a strong outlook for the year as we continue to deliver on our commitments and excel for those we serve in all of our key growth pillars. Now, John will walk you through this performance in a little more detail.

Thank you, Andrew. And I'll add my deep gratitude for the enormous outpouring of support over the past few weeks. Brian helped build this company and forged deep trusted relationships for over 20 years, and the positive impact he had on people will be felt for years to come. This morning, I'll discuss both 2024 results and our performance expectations for '25, including some of what we had planned to discuss with you in December. 2024 revenues of over $400 billion and adjusted earnings per share of $27.66 were well within the outlook ranges we set out over a year ago. To be sure, things played out differently than initially anticipated, but it is an enduring trait of this enterprise that we deliver on our commitments to the people we serve and to you, even amid unforeseen circumstances. Over the course of '24, we undertook initiatives and made investments to strengthen us for the future, initiatives to improve consumer experience and bring new innovations to market more quickly, drive the most compelling ways to further our mission to help make the health system work better for everyone, and continue to optimize and refine our offerings and business portfolio to enhance future growth potential, whether that meant moving into new opportunities, reconfiguring or moving out of areas that contributed historically but may no longer be core, all with an eye to unlocking value. We know you have a number of questions that we were not able to discuss last month. So, today, I'll start by stepping through a couple you have indicated are top of mind. The first one is, why our '24 medical care ratio was 150 basis points above our original outlook? It's important to frame up the challenges of '24 to offer some perspectives on the commitment and response of our people. Compared to the midpoint of the care ratio range we stepped out with over a year ago, that alone created a nearly $5 billion gap we needed to overcome and that's before we get to the nearly $1 billion in business disruption impact due to the cyberattack. So, we start with about $6 billion in unanticipated impacts just from these two examples, in addition to managing through the already known multi-billion dollar impact of the Medicare rate cuts, as we sought to preserve as much benefit stability for seniors as possible. Regarding the elements impacting our '24 care ratio, we've spoken about the key factors on prior earnings calls, so no surprises here. The first comprise about 70% of the total impact and are comparable in magnitude to each other. First, the mix of people served. We ended up with a different profile of consumer than expected. This is because of one factor. We didn't grow as anticipated due to the unusual Medicare Advantage benefit designs in the marketplace in '24. Next, the timing mismatch between the health status of the remaining people being served by Medicaid and lagging state rate updates. Then, there were the costs related to the cyberattack and our South America business impacts. The remaining two elements comprise about 30% of the impact and are evenly split. These include a more rapid-than-expected acceleration in the prescribing of certain high-cost medications as drug companies took early advantage of the Inflation Reduction Act, and an aggressive upshift in hospital coding intensity. This is incorporated into our outlook even as we work to get it back in line. Those are the '24 care ratio elements. Next question, given all that, are we confident in the adequacy of our pricing for '25? The answer is yes, and here's why. To start, for '25, the outlook we shared in December incorporates a view of care activity commensurate with what we saw in '24, even the care activity we experienced as we exited the year. I'll break that down with some business line perspectives. In Medicaid, we see the gap between people's health status and state rates narrowing over the course of the year. Our outlook assumes a measured pacing of that process. Actions to date, including the important January 1 renewal cycle, support this view. In commercial, pricing for '25 is appropriately capturing the care activity we are seeing. This is evidenced by growth heavily weighted towards self-funded offerings. We will continue our disciplined approach. In Medicare, we had strong AEP results, which included winning back people we had served previously and near-record retention. These are a direct result of our long history of offering sustainable benefits for seniors. With strong retention and the many returning consumers, we start the year with highly informed insights into the care needs of the people we will be serving. In addition, this year, we have seen a notable uptake of our more managed offerings; think HMO style, which provides strong value for consumers, effective care tools for doctors and more predictable performance. We expect a '25 full-year medical care ratio of 86.5%, plus or minus 50 basis points, 100 basis points above the '24 result. In addition to factors discussed earlier, the increase is driven by IRA impacts, the second year of the Medicare funding cuts, a continued mix shift toward public sector offerings, and a respectful view of care activity. Our '24 operating cost ratio improved about 150 basis points over the prior year. Roughly half of the change was driven by contributions from the business portfolio initiatives mentioned earlier. The other half was due to accelerating our efforts to realize operating efficiencies, even as we improve consumer experiences. Some of these advances are a result of the very early stage impacts we are beginning to realize from AI-driven initiatives to help our customer service representatives respond to consumers' needs more effectively and quickly. And we see continuing opportunities both in the near-term, with operating costs for '25 improving still further, and well beyond, given the rapidly expanding scope and impact of these initiatives. These actions and the resourcefulness of our people helped deliver upon the objectives set out over one year ago and helped to partially balance the multiple billions of unanticipated impacts.

With that, I'll run through our businesses, offering some key points for each, starting with Optum Health, where revenues grew to about $105 billion in '24 and are expected to approach $117 billion in '25. Our care delivery business continues to deepen its presence in existing areas, while expanding into new geographies and services. In '25, we expect Optum Health will serve about 5.4 million value-based care patients, growth of 650,000 over '24. While our current position provides a solid footing, it's a small fraction of the hundreds of millions of patients who can ultimately benefit from value-based care. We see value-based care as foundational. It is perhaps the fullest expression of our mission. As Andrew noted, the outdated activities-based fee-for-service system won't help the health system work better for people. Value-based care is outcomes-based, aligning processes, actions and incentives, helping keep people healthy in the first place rather than just seeing them when they are sick. Optum Health is an integrated multi-payer care delivery company, helping to lead the transition to a truly sustainable value-based care system. As we move into '25, we will continue to enhance access and care integration through the home, a much-needed area to help people with their health. More than three quarters of our in-home patient visits result in a primary care visit within 90 days. Medicare Advantage patients with chronic conditions who receive a home care visit have a lower rate of ER visits, fewer in-patient stays, stronger health outcomes and a better experience, all while saving the health system billions. Turning to Optum Rx. Revenues in '24 grew to over $130 billion and will be about $146 billion in '25. Our pharmacy benefits management team again had customer retention exceeding 98%, while welcoming a record 750 new clients. Further proof of the value that employers, health plans, and labor unions see in Optum Rx's ability to negotiate lower drug prices for consumers. Optum Rx's pharmacy care services support the entire system in the delivery of clinically-driven pharmacy care, serving the highest need and hardest to reach patients. These offerings include community pharmacies, specialty and infusion drug services, all large, strongly growing areas, with our current presence quite small. Optum Insight revenues were $19 billion in '24, and in '25, we'll approach $22 billion, with a backlog of $35 billion as sales of new products begin to take hold and the customer clearinghouse business continues to rebuild. The solutions offered through Optum Insight and our health technology growth pillar, delivered at scale, will improve consumer experience and payment and claims flows, enable access to the next best action guidance in a doctor's workflow, and help life sciences customers more rapidly bring innovations to market. And there will be much more to follow. Shifting to UnitedHealthcare. Full-year revenues in '24 approached $300 billion, and for '25, we'll approach $340 billion as we grow to serve upwards of an additional 1.9 million people balanced across both the commercial and public sectors. Within our domestic commercial offerings, we grew to serve 2.4 million more people in '24 and expect to continue to grow strongly in '25, especially in our self-funded offerings, which serve some of the most sophisticated buyers of healthcare, large employers. The fact that so many more people are choosing UnitedHealthcare is a direct result of our bringing much-needed innovation to these more mature markets through consumer-centric offerings. As noted earlier, UnitedHealthcare's '24 Medicare Advantage growth was impacted by the unusual benefit designs in the market. Our focus has always been on providing consumer stability and sustainable value, a factor that has built confidence and trust over the long-term. As a result, in '25, we expect growth of up to 800,000 people in individual, group and special needs offerings. And the growth outlook for the years ahead remains strong, with nearly half of American seniors still in outdated Medicare fee-for-service offerings, which provide less value to them and cost taxpayers more. In Medicaid, we expect to serve more people in '25 with redetermination activities now concluded. UnitedHealthcare's value proposition is resonating with state customers, consumers and provider partners, and we are participating in a substantial number of expansion proposals. Most recently, we were honored to have been awarded a new opportunity in Georgia. Our growing businesses support and are supported by substantial financial capacities and a strong balance sheet. In '24, we deployed nearly $17 billion in growth capital to help build for the future, further strengthening our capabilities to serve more people more comprehensively. We also returned over $16 billion to shareholders through dividends and share repurchase. In '25, we expect cash flow from operations will approach $33 billion or 1.2 times net income. We will continue to deploy growth capital and remain committed to returning to shareholders as outlined in December. Our growth capital deployment efforts delivered their greatest benefits over the course of two, four, or even six years, and as new capabilities are scaled and deployed across the enterprise and beyond. To summarize, our strong start to the year reinforces the growth objectives we shared last month and is underpinned by the broad growth drivers, operational excellence and strategic capital deployment you have come to expect from us. Now, I'll turn it back to Andrew. John, thank you. The strength of this organization lies in the resilience of our people and the fundamental belief that there is no higher calling than helping other people and nothing more vital to the human condition than healthcare. Looking ahead to 2025 and beyond, we're confident in our ability to continue to add value to the health system through our focus on value-based care and consumer-oriented efforts to help build the health system America deserves. And that's also why we remain solidly committed to our long-term 13% to 16% growth objective, a goal that reflects both the opportunities and the capabilities that we have. And now, operator, we'll open it up for questions.

Hello, everybody. I appreciate the kind words about Brian. He is missed by all of us. To focus on the comments regarding cost trends and the MLR, there was some variance in the fourth quarter compared to consensus expectations. It was likely a bit more significant than we originally thought. The cost items you've mentioned seem to be consistent with what we've observed throughout the year. Did anything change regarding the intensity of these trends? Were there any unusual items that affected the results? It appears that you're still confident in your MLR outlook for '25, so did anything in the fourth quarter alter your perspective on '25?

A.J., thanks so much for your question. I'm going to ask John in a sec to obviously go much deeper in response to your question, but just to the last part of your question, yeah, you're totally right, nothing we saw there that changes our view of '25. We feel very good about how we priced into '25. We feel really good about how the mix has come in, in terms of that growth. That's a huge difference to '24, and we really didn't see anything in Q4 that we believe represents a challenge to that view going to '25, but I'd love John to go deeper for you on the Q.

Good morning, A.J. Regarding the items we discussed during the third quarter call, the hospital coding intensity and specialty prescribing trends are consistent with what we observed in the third quarter as they carried over into the fourth. We are not witnessing acceleration in these areas; rather, we are seeing stabilization at the levels we had seen previously, and we expect this to continue. The specialty prescribing trends were something we had predicted in our '25 outlook, which moved faster in '24 than anticipated. However, we feel positive about the levels we are observing now, as they align with our expectations for '25. The coding intensity is also holding at the levels we anticipated. Looking at the fourth quarter, there are a couple of points I want to highlight. First, the overall move we experienced is primarily attributed to seasonal factors, such as typical seasonal effects and normal deductible wear-offs. The sequential movement is similar to what we saw from the third to the fourth quarter last year. I would estimate around 80 to 90 basis points of this sequential move relates to revenue effects, including group MA refunds stemming from our strong performance throughout the year. This would fall into the non-recurring revenue category. Additionally, the impact from flu and RSV seasonal effects was about 50 to 60 basis points, which is in line with what we normally expect. The remainder of the moves can be attributed to expected seasonal impacts, particularly those related to revenue effects. Thank you.

Great. Thanks so much, John, and thanks again, A.J., for your question. Next question, please.

Hi, thanks. A question on the Optum Health segment. I guess, and I apologize if I missed this, but did you comment on the change in the consumers? I know you talked about portfolio changes and things like that, but the consumer count dropped about 4 million. And then, sort of a noticeable drop in margins. And I'm wondering if some of that is related to the MA rebates that you just mentioned in terms of the impact on the UHC side as well.

Yeah, Josh, thanks so much for your question. Let me ask John to start and then ask Dr. Desai to pick up a few details on that, please.

Good morning, Josh. Regarding the consumer count and its impacts, this falls under the strategic initiatives we have been implementing. We are placing less emphasis on certain areas, particularly urgent care. In the past, standalone urgent care was a significant focus, but as we increase our geographic density, we can better serve patients by extending the hours of our clinics instead. Consequently, we have reduced our emphasis on urgent care and shifted away from that area. The consumer counts are influenced by narrower offerings that we have been scaling back as part of our strategic initiatives. Now, for a broader perspective on the margin impacts and Optum Health's direction in the fourth quarter, I'll hand it over to Dr. Amar Desai for additional insights.

Thanks, John. Hi, Josh. So, to take a step back, post V28, we've been executing on our multi-year plan to reshape the business, including efforts around direct patient engagement and medical management as well as integrating our business to deliver on operating cost efficiencies. So, as we look at the quarter, we took a number of planned actions, including restructuring and refining some of our legacy contracts, which had a one-time impact of the year. We had some membership mix changes, which has been noted. And then, we did make some investments in the quarter around clinical quality and the STARS program as well as onboarding for new membership coming on for 1/1. That being said, we feel very good about our position stepping into 2025. Our AEP growth was strong. We've also had very strong retention across our care delivery organizations, again reflecting the strength of our provider network and the differentiated care they provide. We also have a better understanding of V28 as we're in the second year of it. And with this progression, our payer relationships and contracts have evolved into the year. As we step into '25, we're in a more favorable spot. And then, the impact of our engagement efforts in 2024, 85% of our value-based patients were engaged and 90% among our highest risk patients. And again, this is best ever patient engagement for us and is the foundation for the maturation of our value-based cohorts over time. So, overall, our operating model for Optum Health is stronger, it's underpinned by significant momentum around these engagement and affordability as well as operating efficiencies and we're confident in delivering against our long-term margin targets. Thanks for the question, Josh.

Amar, thanks so much. And I'll maybe just finish off that response, Josh, if I might, by really reiterating something you heard me say just a month ago that even in a very challenging year of 2024 with a lot of changes coming from the outside world in terms of funding reductions and the like from the administration, alongside our commitment to perform, we're also relentless in how we continue to modernize and shape the company for the longer term. And what you heard John just talk about and you just heard Amar refer to really there is within Optum Health, alongside strengthening our core business, we recognize some parts of that business aren't necessarily as important in the future as they were in the past. We're not going to shy away from making the choices to ensure that we have real clarity and focus on what we know supports our business, and most importantly, gives us the highest chance of giving the best possible service to patients and members who we serve. And I think, during 2024, you saw the organization be very focused not just on the year, but on the shape of how we want the company to develop over the next several years. And that's really what you're seeing reflected in the commentary that John and Amar just touched on. Josh, thanks so much for your question. If we could go to the next question?

Thanks very much for taking my question. Andrew, I want to talk about PBM reform. There seems to be a very large drumbeat right now that will see reform at some point in 2025. Really two things here. One, what do you think that means to your business? And then, secondly, you talked about educating those in the marketplace to better understand what you actually bring to the market from a PBM perspective. Are there incremental ways that you can potentially maybe educate Congress? Because it seems to be a very big disconnect versus how Congress is viewing this versus what PBMs actually do.

Lisa, thanks so much for your question. And this is, obviously, a topic of a lot of people's interest. And that's not surprising, because pharmaceutical prices in the U.S. are too high. And I just made that very clear in my comments, and it's not the first time you've heard any of us at United make those comments over the last several years. As you think about that, the issue really is that you have a situation where the PBMs are really the only effective mechanism across the system, which really holds the pharmaceutical company to account once it chooses to set its price, and by the way, also has the freedom to inflate that price every single year, which is what we see happen. The PBM is there to try and hold that to account and negotiate on behalf of employers, unions, states and others to try and bring down those prices. But within that, Lisa, is the very first thing that people really need to truly understand. The PBM acts on behalf of the ultimate payer, the employer, the union, the state and such. It acts on their behalf because they're ultimately the ones who are typically underwriting the ultimate cost of the medicine for the patients, the consumers who are beneficiaries of their plans that are supported by those organizations. That is often lost in terms of how this mechanism works. And it's critical to understand it. What's important, therefore, is that we, and you heard me make a couple of references to this, and I hope alongside others across the sector really focus on the facts of the situation. Prices in America are de novo set too high relative to any other price in the world, first off. Secondly, they're inflated every year, which is pretty unusual when you compare that to the rest of the world. Thirdly, as we negotiate to bring those prices down, the benefit of that negotiation, those rebates which are achieved are very significant, are passed back to the employers, unions and states. They choose what to do with those rebates. Now, in the case of UnitedHealthcare, where in the population of employer benefits that we manage, where we have essentially control over that decision, we pass those all the way through to the consumer and the patient who receives the drug. So, they see the benefit of that rebate. We'd like to see others do the same. Within that overall system, there is also opportunity for people to lose a thread of where the money goes in the system. And that is often what you hear policymakers be concerned about. That is why this morning we are committing to a full 100% pass-through of all rebates that we negotiate at the PBM back to the payer, the state or the union. Right now, we already passed 98% of that through. But unfortunately, even that's just that small residual that we retain because those clients want to pay us that way is enough to give people the excuse to argue that the system is not working properly. We're taking that excuse off the table today. We are committed to full transparency. We are committed to full pass-through to clients. We believe that takes away the excuse of who really is setting the price, and we would like to work with others across the system to relentlessly achieve the lowest net cost for everybody in the system. We'd like to see patients see the benefits of that, and we'd like to work with anybody who wants to work with us to make it happen. And that's how we're going to engage this year with policymakers and others across the country. With that, Lisa, thanks so much for the question. Let me go to the next question, please.

Hi, thanks. So, to stay on the policy front, I was wondering if you had any early perspective to share on the Medicare Advantage advance notice for 2026. I guess, anything you see as encouraging or any potential areas of concern as you progress from advance to final? And then, I guess as a related point, it seems like many would think that the reimbursement that's embedded in these rates is still not reflective of the elevated cost trend that we saw in 2024. Even if taking a step in the right direction, is that a company perspective that you share? Thank you.

Hey, Stephen, thank you for your question. I’m going to ask Tim Noel to provide some insights on that.

Yeah, thanks for the question, Stephen. As you know, these rates are preliminary at this point in time and won't be finalized until April. And so, therefore, probably not super productive to start speculating on elements of that. I will say we are looking forward very much to engaging the new administration on this item and also a host of other items as it relates to the Medicare Advantage program. Thanks.

Great. Thanks so much, Tim. And as you suggest, Stephen, what's most important is that this is all rational, right? So, it's not difficult to figure out in retrospect what trend was, and we'd like hope that over the next few cycles, we see that reflected in a way that it hasn't been over the last several years. And that, for us, is really the important element of what we hope will come. And it's simply just rational, and it's interesting. When you look at the states in Medicaid, you see that kind of rational behavior. We've seen that improve. We've been super clear that there's been historic offset lag, if you will, to that. That's not surprising. That can create some discontinuity as we saw this year in '24, but underneath all of that, we see rational understanding and engagement from the state. We super appreciate that. It's important, and that's what we want to hope to see a return around the MA rate setting in a way that we have not seen over the last several years. Okay. Next question, please.

Thank you. Good morning. I have a question, but first, I'd like to follow up on the Medicare Advantage revenue adjustment. Since the medical loss ratio for the quarter was higher than expected, this seems to have taken some by surprise, considering the size of the employer segment. It seems like this adjustment could be significant, possibly around 5% or more of annual revenue. Could you provide more details on this? How did it come about, and what is the situation? Can you explain why it was unexpected and the periods it affects? Is it all for 2024? Now, my main question is regarding MA growth. I'm interested in what you observed during the Annual Enrollment Period in terms of how much of your 8% growth expectation you anticipate will come from AEP. Also, do you still expect industry growth to be in the mid-single digits? Thank you.

Hey, Justin. Thanks so much for the question. That was an impressive way of sneaking two instead of one. I'll let you get away with it just this time. So, John, if you wouldn't mind taking the first part of Justin's good question, and then I'm going to ask Bobby Hunter to take the second. Bobby leads our business in Medicare. So, please go ahead.

Justin, good morning. Regarding those elements, group customer refunds in Medicare Advantage were one aspect. There were also a few other adjustments contributing to the non-run rate revenue impacts. As for whether these were expected, they may not have been anticipated a year ago when we made our projections for the medical care ratio and revenues. However, they aren't surprising considering our recent performance. As we see better results in certain group MA plans, refunds are issued to the employers when we perform well. Some of the other factors wouldn’t be considered surprises either. Relative to a year ago, we didn’t account for these adjustments, but a few months back, we would have understood them. All those elements totaled around 80 to 90 basis points, with group MA refunds being a key factor. That said, it’s not a surprise based on our recent perspective. Now, I’ll turn it over to Tim.

Yeah. Thanks, John, and thanks, Justin, for the question. So, in terms of AEP results, we are very pleased with how things played out for us. They're very much aligned to our expectations, and it puts us on track to achieve the full year MA growth target of up to 800,000 that we've communicated. Really important to remember that with the selling changes for 2025, we do expect more than 50% of our full year growth to come in AEP. Also worth noting, this level of growth is not something we're unfamiliar with, and I'm really proud of our teams and the 1/1 readiness activities we've executed on to ensure a smooth transition for our new and returning customers. Maybe to offer a few highlights on the growth itself, seeing really balanced and diversified growth across our products and our geographies, in particular, some really nice strength within our HMO and full dual plan offerings. John also mentioned retention performing at near record levels, a great testament to the value that we're offering to consumers. And maybe lastly, of the members who have left us in prior years, we are seeing about three times as many return to UHC this year as compared to last year. I really view that as a testament to the service models and experiences we offer. And folks clearly put a lot of value in that when they're making their decisions, and I'm really proud to see those individuals coming back to us this year. In terms of the growth rate, we certainly still continue to believe in our long-term growth rate of 7% to 9%, acknowledging that, in certain years, you can see fluctuations based on benefit changes and other factors. Some of that was present in 2024 and similar dynamics will play out here in 2025. So, we expect '25 to generally pace in line with '24 from a growth standpoint. That said, more confident than ever in the value that MA offers to consumers and the path that we're on for MA to surpass 70% penetration over time.

Bobby, thank you very much. I want to personally acknowledge Bobby for his leadership over the past couple of years in navigating the numerous external changes we've experienced, particularly through V28. We've consistently mentioned our multi-year strategy, and it's truly starting to take shape. Bobby deserves a significant amount of credit for this, and I'm thrilled to see that reflected in our current growth performance. The improvement in our mix, which Bobby referred to, is what sets 2025 apart from 2024 for UnitedHealthcare, and it's extremely important. All the elements we've discussed contribute to this crucial mix improvement that we have been targeting, and we feel very positive about it.

Great. Thanks so much. And really appreciate your comments at the beginning of the call. Could you talk a little bit about one of the things I think is hanging over long-term investors out there, which is levels of customer satisfaction. I know that's difficult to measure, but I know NDS and other metrics are things you guys look at. Can you talk a little bit about what you perceive to be the major sources of dissatisfaction in those sorts of measures? And then, what are some of your strategies and priorities? And does it have any impacts on long-term algorithms for the company as far as economic algorithms, growth algorithms or just where you prioritize your capabilities? Thanks.

Thank you for the question, Lance. At the heart of our company’s mission is the goal of enhancing the health system for everyone. This not only involves making healthcare more affordable by reducing costs, but also simplifying access to care, making it less complicated and confusing. As I mentioned earlier, we know there's still significant work to be done in this area. Specifically, we are focused on claim processing, where frustrations often arise due to delays and confusion. Although less than half of one percent of claims are ultimately rejected for clinical reasons, many are stalled in the system because they were sent to the wrong provider, lacked proper information, or because the patient did not have the necessary benefits. These issues can largely be addressed through technology and a more standardized approach across the industry. I'm excited to note that we are witnessing increased enthusiasm within our organization to tackle these challenges collaboratively across the sector. I believe that a significant percentage of claims that go to the wrong place—and subsequently require resubmission—could be prevented through real-time processing and a standardized intake process. This focus is part of our broader efforts, including our recent initiatives to improve Medicare Advantage. The work that Brian has led over recent years to minimize prior authorizations is also crucial, and we will continue in that direction. It’s essential for us to collaborate in designing solutions that benefit all stakeholders, not just one company or patient. I’m eager to engage with the administration on these matters as they can play a vital role in fostering these changes. Another area where we are making great strides is in enhancing the consumer experience. Interacting with the healthcare system should be as straightforward as any other aspect of life, and we have committed to developing consumer capabilities across our company. For instance, in January of this year, visits to our UHC mobile app increased by 66% year-over-year, setting a new growth record. Our app remains the top healthcare application in the Google and Apple App Stores. Overall, our consumers are increasing their digital engagement with us by about a third each year, with app registrations nearly doubling. This shift demonstrates that American consumers prefer digital communication, as they increasingly rely on their phones rather than making traditional phone calls, with 10% fewer members contacting us by phone each year. Additionally, at Optum Rx, which serves as a key interaction point in American healthcare, we enrolled 750 new clients on January 1st, representing 1.6 million new consumers who now use Optum Rx. We successfully onboarded them at a cost that is one-third less than the previous year, attributable to our use of digital technology and modern capabilities. Our digital engagement registrations at Optum Rx increased by 16%. These examples reflect our ongoing investment in understanding consumer needs and building the right solutions. We are committed to enhancing these capabilities and ensuring a convenient experience, both in our insurance and Optum service businesses. We will continue to strive to make engaging with the healthcare system easier and more efficient. Thank you for your question.

Thank you for taking my questions. Andrew, I want to commend you for highlighting the importance of pricing, which I believe is often overlooked in the United States. My question pertains to SG&A. If I set aside the portfolio changes, the normal course SG&A improvement and efficiency advancements for 2024 are quite significant. According to your guidance, we need an additional reduction in 2025. Both of these improvements are quite notable compared to historical standards. Can you discuss the sources of this efficiency? I'm curious about the role of AI and the technology you've mentioned, as well as the sustainability of the savings you're achieving. Thank you.

Thank you, David. I'm going to ask John to provide an overview, and then I will invite our Chief Technology Officer to share some examples and insights into our comprehensive modernization agenda regarding technology. This encompasses more than just AI; it includes various aspects. I believe it would be beneficial for you to hear from Sandeep. John, would you please start?

Good morning, David. The savings we are experiencing, as Andrew mentioned earlier, are largely driven by digital adoption. We serve nearly 150 million individuals across UnitedHealth Group, and our goal is to enhance those experiences by making them smoother, simpler, and faster through digital initiatives. This is supported by having our customer service representatives more knowledgeable when they interact with customers, allowing for better understanding of their frustrations and experiences. This enables us to address issues more efficiently. We are just at the beginning of this journey, and as I collaborate with Sandeep and the technology teams, we realize that we are only beginning to tap into the opportunities available to us. When discussing the sustainability of these efforts, I want to emphasize that it is still very early, and what we are currently doing feels like just the initial stages of what we believe we can achieve and the potential we see ahead.

Sure. Thank you, John, and thanks, David, for the question. Our AI, digital, automation and in general, our modernization agenda has focused largely on removing administrative menial tasks in the system and improving consumer experiences. Some examples earlier that you have noticed have been around our call center efforts. Andrew just mentioned, we received 10% less calls for the same consumer base compared to last year. And we haven't even scaled this fully. By the end of 2025, we will be scaling this fully, and that's one of hundreds of use cases that we are scaling. Last quarter, we talked about clinical summaries for nurses that help our nurses focus on healthcare, and that's getting scaled fully. As we focus in 2025, we actually are excited about more compelling consumer experiences, helping providers and clinicians with documentation and summaries, and frankly, digitizing all the paperwork in the entire healthcare experience; think of benefits documents, facilities, provider contracts, helping drive much more automated seamless, frictionless claims processing as well. So, we're excited about the agenda. Thank you.

Sandeep, thanks so much. David, I appreciate the question. If we could move on to the next question, please?

Hi, thanks. I was hoping just given some of the unusual patterns that we saw in '24 and that then will have effects on 2025 when thinking about the sequencing of Medicaid margins and MLRs and some of the utilization patterns, if you would help us maybe in thinking about any comments on EPS seasonality that may be different in 2025 relative to '24? And then similarly, MLR sequencing that you're thinking maybe having a bit of a different pattern around that guidance that you gave for the full year? Thanks.

Scott, thanks so much. John?

Good morning, Scott. So, I'd say in terms of seasonality, first half, second half, think of that as relatively balanced in terms of seasonality for earnings progression. In terms of medical care ratio and thinking about kind of those elements, you start first, of course, with a view that at the midpoint, the full year care ratio will be 86.5%. So, as we noted earlier, about 100 basis points above the elevated '24 level. And I just had discussed '24, it's included a number of discrete items. Within that, the quarterly pattern will look familiar with the first quarter below the midpoint of that and the fourth quarter above the midpoint and trending up to the middle of the year. And then, within the year, the pattern familiar. So, those would be the elements we'd kind of think about as that patterns through. Slope a little impacted, of course, by some of the Part D changes that are out there also that I think you're well aware of already because those have been out for a while. So, the slope of that will be impacted a bit by that also. Those would be the key elements.

Great. John, thanks so much. Appreciate it. Next question?

Thank you. I'll stick on MLR. John, could you help us bridge '24 to '25 by sizing some of the impact of the components that you called out, like your assumptions on core trends versus IRA, and any offsets like rates or non-repeat of the MA Group refunds? Thanks.

Good morning, Sarah. Certainly. There are a few key factors to highlight here, particularly the impacts from the IRA and the mix of our clients, as we are serving more individuals than public sector plans, which is typical. Additionally, this marks the second year of funding rate reductions from CMS. On the other hand, we are also facing challenges such as cyber impacts in South America, which we estimate could affect us by about 30 basis points in 2024. We have also been considering trend affordability and other initiatives. Finally, as I mentioned, we are being mindful of the care activity environment as we move forward. Thank you.

Thanks so much, John. We just have time for one last question, and operator?

Hey, good morning. Thanks for squeezing me in. So, I guess something that maybe didn't come up probably in the discussion of MLR being high in '24, but also the outlook for '25, can you talk about the margins in your Medicare Advantage business? So, I appreciate the second year of V28 and such, but just can you explain for us how the margin in that particular business was in '24 versus your target margins? And do you expect the margins to improve year-over-year in '25? Thank you.

Joanna, thanks so much. Let me ask Tim Noel to respond to that.

Thanks, Joanna, for the question. As we think about our long-term planning approach to Medicare Advantage, we remain consistent in our view of targeted margins. And that doesn't change as we were thinking about '25 like any other year, which is good because as we think about our forward view in any sequential year, not a lot of pricing catch-up that we need to engage in, and it can really focus on stability for people, the people we serve and the prospects who may want to choose us in the future. So, really not a lot of change here, very consistent with how we've thought about it previously.

Great. Tim, thanks so much. And Joanna, thanks so much for the question. Unfortunately, that's all the time we have this morning. And I want to thank you all for a robust and productive discussion. I hope that during our session today, you heard a team that is very focused on both effectively navigating the challenges and distinct growth opportunities ahead for UnitedHealth Group. A team leading an enterprise with the capabilities and energy to help each day to make healthcare better for the people we are privileged and proud to serve. Thanks so much for your time.