UnitedHealth's Rising Medical Costs Spotlight Profitability Risks

What happened

A Forbes article published in December 2025 examines UNH's stock outlook for 2026, identifying the Medical Care Ratio (MCR) as the primary driver of core profitability. MCR has surged unexpectedly from approximately 82% in 2022 to a projected 88% in 2025, leading to significant stock price declines as noted in the report. DeepValue's analysis confirms this trend, attributing elevated costs to Medicare Advantage growth, member mix shifts, and lingering effects from the Change Healthcare cyberattack. Despite a current valuation around $309.09 with a P/E of 16x, the stock remains under pressure from these medical cost headwinds. The DeepValue report maintains a BUY rating but warns that sustained high MCR without offsetting measures could weaken the investment thesis.

Implication

The rising MCR highlights acute profitability pressures from Medicare Advantage and cyber-related costs, which may erode margins if not managed through pricing or operational efficiencies in upcoming quarters. DeepValue's BUY thesis is contingent on MCR normalization; failure to improve could prompt a downgrade to HOLD, aligning with the report's watch items on medical cost ratios. Near-term tailwinds like the 5.06% MA benchmark increase offer partial relief, but regulatory scrutiny and Star Ratings volatility add layers of uncertainty for investor confidence. Monitoring quarterly results for cost control and integration benefits from Optum's vertical model is essential to gauge resilience against these headwinds. Long-term, UNH's diversified platform provides downside support, but near-term investment decisions should hinge on evidence of medical cost stabilization and execution on value-based care initiatives.

Thesis delta

The article reinforces existing concerns over medical cost ratios emphasized in the DeepValue report, but does not introduce new material risks. No immediate shift from the BUY rating is justified; however, the thesis delta underscores heightened vigilance, as persistent MCR elevation beyond 2025 without corrective actions would necessitate a reassessment to HOLD.