Written before the UNH 10.28 earnings release

@嘿嘿^  @Miracle Trader cola

(Data sourced from AI, I only organized it)

(At the same time, I am a UNH shareholder, and my stance is more likely to favor UNH's positive direction, please view with caution)

On October 21, the second-largest healthcare insurance company ELV with a market cap of $77.7 billion released its Q3 earnings report, with revenue up 12.43% YoY to $50.711 billion, EPS up 22% YoY to $5.32. However, the company did not raise its full-year profit guidance, and the medical loss ratio continues to rise. Free cash flow decreased by 66.95% YoY to $775 million, while Q2 free cash flow was $1.787 billion. Moreover, the health insurance business accounts for a highly distorted 83.31% of total revenue. Additionally, the short interest ratio of ELV reached 18.66% one week before the earnings release, with continuous net capital outflows, and a single-day net outflow of $1.458 billion on October 15.

On October 23, Molina released its Q3 earnings report, with results far below expectations, leading to a -19% drop in stock price. Free cash flow decreased by 39.84% to -$344 million, gross margin fell 16.89% YoY, net margin dropped 26.75% YoY, and EPS declined 8.12% YoY to $4.75, significantly below the expected $5.046. The earnings call further pointed out that the ACA healthcare costs in the company are out of control and may lead to a full-year loss, even lowering the full-year EPS guidance to $11.9. Before the earnings release, the short interest ratio reached 21.86%, with continuous net capital outflows and increased trading volume in the two days prior, while the proportion of call options plummeted.

Affected by Molina's earnings bomb, the entire U.S. healthcare insurance sector saw varying degrees of decline, with CNC directly dropping 6.6%. However, this seems to be a misjudgment of the entire healthcare insurance sector, as many have expressed pessimistic expectations for UNH's upcoming earnings report, but the actual situation may not be so bad.

The reasons are as follows:

UNH should be compared with ELV, the second-largest player.

UNH's Medicare business accounts for 35-40%, while ACA business only 5-8%.

ELV's Medicare business accounts for 45-50%, while ACA business is as high as 15-20%.

Molina's Q3 earnings call disclosed that the main issue is the near-out-of-control cost ratio of ACA business, and Molina's ACA business accounts for 10.5%, meaning the main problem lies in ACA business. Theoretically, ELV, with ACA business accounting for 15-20%, should have been the one to bomb, but surprisingly, ELV delivered an earnings report that exceeded expectations, with revenue up 12.43% YoY and net profit up 17.03% YoY, benefiting from premium income growth and Carelon business expansion. This means leading healthcare insurance companies can still have enough confidence and capability to counter the impact of rising medical costs through diversified businesses. The stock price drop is more due to the 66.95% plunge in free cash flow and the unchanged full-year EPS guidance, raising concerns about further medical cost pressures.

Compared to ELV, UNH has even greater advantages in diversified businesses. UNH's Q2 free cash flow still grew 6.94% YoY to $6.302 billion, while ELV's was $775 million, meaning UNH has a much stronger free cash flow position. ELV and Molina's Q3 earnings reports show that ACA business costs are rising the fastest and most significantly. UNH's ACA business accounts for only 5-8%, Molina's 10.5%, and ELV's 15-20%. Moreover, a key factor in the U.S. government's delayed reopening is whether to continue ACA subsidies. Even if ACA is cut, UNH would still be the least affected.

The Republicans not only insist on cutting ACA but also advocate reducing Medicare subsidies. Medicare is mainly led by state governments, and interestingly, the biggest drag on Medicare is precisely in Republican-led states. Meanwhile, UNH has begun to scale back its business scope and exited dozens of underperforming counties, most of which are concentrated in Republican states. This measure may lead to some cost reductions for UNH.

The premium increase for 2026 is around 5%. Americans enroll from November 1 to December 15 each year. ELV expects to raise premiums by 4-6%, Molina by 5-8%, and UNH will also further increase premiums. Premium hikes help offset medical costs and improve profit margins. For UNH, every 1% premium increase can improve net margin by 0.3%.

As for why it followed Molina's earnings bomb and also declined, even though CNC raised its full-year expectations a few weeks ago? This is mainly because CNC's ACA business accounts for 20.67%, second only to OCSR's 94% ACA business (which is also why OCSR rebounded the fastest after rumors of the U.S. government reopening). Molina's 10.5% ACA business shows costs rising beyond expectations and the potential U.S. government cut to ACA, leading to price-in. Under the dual pressures of ACA business costs and ACA policy risks, CNC's stock price decline was expected.

In other words, UNH relies on a lower government healthcare share of 77%, below ELV's 83.31%; a lower ACA business share of 5-8%, below ELV's 15-20%; stronger cash flow of $6.302 billion, above ELV's $775 million; stronger political and business relationships, with UNH's CEO seeking a meeting with Trump; more diversified business contributions, with Optum continuing to deliver high margins; a new round of premium hikes and exiting loss-making county businesses; and the last earnings call where the CEO exhausted all negatives and deliberately suppressed expectations to the lowest. Therefore, UNH is more likely to deliver a surprising Q3 earnings report and is more likely to raise full-year guidance in the earnings call. So let's look forward to UNH's earnings performance on October 28.$Unitedhealth(UNH.US) $Centene(CNC.US) $Molina Healthcare(MOH.US)