UnitedHealth's 88.4% cost ratio includes a $610 million reserve release; without it, 89.1%

UnitedHealth Group reported third-quarter adjusted earnings of $4.69 a share on Tuesday and lifted its 2026 outlook to at least $20.50 a share, from $19.50 to $20, according to CNBC. The headline number was the medical care ratio of 88.4%, against 89.9% a year ago and 89.9% expected by analysts. The company's own earnings release shows how much of that came from the business and how much from the balance sheet.

The number behind the 88.4%

The release says the ratio "was impacted by $610 million of net favorable prior period reserve development related to 2026 dates of service." In plain terms, the company had set aside more for claims earlier this year than it ended up needing, and released the difference into this quarter's results.

Premiums were $87.08 billion and medical costs were $76.98 billion, which gives 88.4%. Add the $610 million back and costs are $77.59 billion, or 89.1% of premiums. That is still better than the 89.9% of a year ago, but the improvement is about 0.8 points rather than 1.5. The release does not give a comparable reserve figure for the year-ago quarter, so we cannot say how much of the difference is like for like.

Third quarter	2026	2025	Change
Premiums	$87.08B	$88.98B	-2.1%
Medical costs	$76.98B	$79.96B	-3.7%
Operating costs	$14.37B	$15.22B	-5.6%
Earnings from operations	$6.56B	$4.32B	+52%
Adjusted EPS	$4.69	$2.92	+61%

Revenue was $112.7 billion, down from $113.2 billion. Profit rose because costs fell faster than premiums did, and the company is shrinking on purpose: UnitedHealthcare served 48.3 million people, and Medicare Advantage membership has contracted by 935,000 since the end of 2025.

What the full-year guide implies

Adjusted earnings were $18.30 a share for the first nine months. A full-year floor of $20.50 therefore implies at least $2.20 for the fourth quarter, well below the $4.69 just reported. The previous range of $19.50 to $20 implied between $1.20 and $1.70, so the raise lifts the implied fourth quarter by at least $0.50. CFO Wayne DeVeydt told CNBC that medical costs "continue to be elevated versus historical norms" and that the No Surprises Act dispute process is adding at least 100 basis points to total medical costs.

At 10:51 a.m. ET, UNH traded at $375.98, down 0.7%, per Nasdaq, after CNBC reported a premarket gain of about 3%.

Who actually feels this

• Employers with fully insured plans. UnitedHealthcare's Employer & Individual membership fell by 165,000 in the quarter "due to employer attrition." The release credits "pricing discipline" and "benefit design changes" for the margin gain. For a 20-person firm with a January renewal, those two phrases are the conversation it will be having with its broker. Our earlier look at the shift away from fully insured plans shows the same direction.
• Independent pharmacies. Optum Rx adjusted scripts fell to 393 million from 414 million, a 5.1% drop the company attributes to membership declines. The company also says it is increasing brand-drug payments to about 2,300 independent and community pharmacies.
• Physician practices. The company says it will eliminate 30% of current prior approval volume by the end of 2026. That is a stated commitment, not a result, and practices will see whether it shows up in their own paperwork.

The bear case, fairly stated

Revenue is falling, a meaningful part of the margin gain came from reserves, and management itself is warning that cost trends are still above normal. Optum Health revenue fell 10% as the company dropped value-based care markets, though its earnings from operations rose to $735 million from $41 million. The company also faces the Justice Department legal actions it lists among its risk factors. The case for the stock rests on cash flow of $5.1 billion, 1.2 times net income, and on a cost ratio that is improving for reasons beyond the reserve.

Sources: UnitedHealth Group, third quarter 2026 results; CNBC; Nasdaq. Ratios and percentage changes are our calculations. This is market information, not investment advice.