UnitedHealth Stock Rises Despite Commercial Challenges

UnitedHealth's stock price has surged about 41% since early March, reaching around $400 per share. Despite this significant increase, analysts argue that the company still needs to recover in several areas.

The good news is that UnitedHealth has made substantial improvements in its Medicare and clinic segments. The company expects to achieve a Medicare medical cost trend below 10%, primarily due to its own benefit design, care management models, and network curation. Additionally, Optum Health's primary and specialist care services have resulted in a 10% reduction in hospitalizations in the Western and Southern regions since late last year.

However, the commercial book has experienced worsening trends, with medical costs rising above 11%. Two main drivers of this trend are increased coding for office visits and emergency department encounters by providers, as well as the arbitration process created by the No Surprises Act. This drag is estimated to be around 50 basis points of incremental trend in 2026, adding at least 100 basis points to total costs.

As a result, management now expects full margin recovery in the commercial book to occur past 2027, which is later than initially anticipated. The company's operating margin remains below its historic average, with a gap of about 2.3 percentage points.