--- title: "UnitedHealth Remarks 3" type: "Topics" locale: "en" url: "https://longbridge.com/en/topics/39597183.md" description: "What are CMS and MCR? First, clarify the two core concepts, then delve into UnitedHealth's two major pain points: persistently high MCR and CMS rate increases falling short of expectations. I. First, Understand: CMS and MCRCMS (Centers for Medicare & Medicaid Services)• Full name: Centers for Medicare & Medicaid Services (a federal agency)• Core role: The largest payer for healthcare in the U.S...." datetime: "2026-03-28T09:40:34.000Z" locales: - [en](https://longbridge.com/en/topics/39597183.md) - [zh-CN](https://longbridge.com/zh-CN/topics/39597183.md) - [zh-HK](https://longbridge.com/zh-HK/topics/39597183.md) author: "[小马哥的交易员](https://longbridge.com/en/profiles/15302149.md)" --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/topics/39597183.md) | [繁體中文](https://longbridge.com/zh-HK/topics/39597183.md) # UnitedHealth Remarks 3 ## What are CMS and MCR? First, clarify the two core concepts, then delve into UnitedHealth's two major pain points: persistently high MCR and CMS rate increases falling short of expectations. 1\. First, understand: CMS and MCR 1. CMS (Centers for Medicare & Medicaid Services) • Full name: Centers for Medicare & Medicaid Services (a federal government agency) • Core role: The largest payer for healthcare in the U.S., managing the two major government health insurance programs: ◦ Medicare: Federal insurance for people aged 65+ and those with disabilities ◦ Medicaid: State and federal joint insurance for low-income individuals • Impact on UnitedHealth: ◦ UnitedHealth's largest revenue source is Medicare Advantage (MA) (government-senior insurance outsourced to commercial insurers) ◦ CMS sets the MA benchmark rate annually: the per-capita subsidy the government pays to insurers, directly determining the revenue ceiling ◦ Also regulates MCR/MLR (medical loss ratio), requiring most premiums to be spent on medical services 1. MCR (Medical Care Ratio, also often called MLR) • Definition: Medical care expenses ÷ Total premium revenue × 100% • In plain terms: Out of every $100 in premiums collected, how much is spent on medical care • For insurers: The lower, the better (lower = greater profit margin) • Industry rule: MA plans typically require MCR ≥ 85% (otherwise, money must be refunded to the government/members) • UnitedHealth's historical healthy range: 84%–86%; soared to 88.9%–89.1% in 2025, with MA business even reaching 92% 2\. Core reasons for UnitedHealth's persistently high MCR (2025–2026) 1. Medical cost "double whammy": Rising utilization + unit prices (most crucial) • Post-pandemic demand rebound (pent-up release) 2020–2022: Seniors postponed checkups, chronic disease management, elective surgeries (joint replacements, cataracts, etc.); 2023–2025: Concentrated surge, utilization far exceeded expectations • Uncontrolled medical inflation Unit service prices + complexity soared, medical cost trend 7%–8%, far exceeding the 5% assumption used in pricing • MA population aging + sicker New members are in worse health, with significantly higher per capita medical spending than existing members 1. Pricing severely lags behind costs • Premiums/government subsidies are priced a year in advance (based on cost assumptions for that year) • When pricing for 2024, the cost surge in 2025 was not anticipated; revenue growth (13%) was far lower than claims growth (20%) • Result: MCR was passively pulled higher, profits eroded 1. Regulatory squeeze: Risk adjustment model (V28) tightening • CMS implemented the V28 HCC risk model, more accurately assessing health conditions • Excess subsidies insurers previously obtained through "coding" were compressed, actual revenue decreased, indirectly pushing up MCR 1. Short-term shock: Change Healthcare cyberattack • Claims, settlement, and cost-control systems affected, short-term cost control failed, claims efficiency declined, further pushing up MCR 3\. Reasons for CMS rate increases falling short of expectations (2026–2027) 1. 2027 CMS proposal: 0.09% near-zero growth (far below the expected 4%–6%) • Direct trigger: On January 26, 2026, CMS released the 2027 MA rate advance notice, net increase only 0.09% • Comparison: Final 2026 increase was 5.06%; market expected 4%–6% 1. Government cost-control backdrop (root cause) • Federal fiscal pressure: Medicare spending grows over 7% annually, government must curb payment growth • Policy shift: From "encouraging MA expansion" to "controlling costs, preventing overpayment" • CMS logic: MA plans "made too much" in the past, now need to return to reasonable levels 1. Rate increase eaten up by three major "deductions" • V28 risk adjustment continues to reduce spending: approx. -3.32% (primary factor) • Elimination of non-related diagnosis payments: CMS no longer pays for "unrelated diagnoses," UnitedHealth expects a loss of approx. $6 billion • Star rating bonus reduction: Quality incentives decreased, -0.03% • Effective growth (approx. +2.54%) completely offset, final net increase 0.09% 1. Industry-wide "real negative growth" • Medical cost inflation 7%–8%, while government subsidy increase only 0.09% • Equivalent to: Real income shrinkage of about 7%, insurers forced to bear all cost pressure 4\. One-sentence summary of the current dilemma MCR is high because costs are rising faster than revenue; CMS rates are low because the government is aggressively controlling costs. Combined, this leads to dual pressure on UnitedHealth's profits, causing a significant valuation decline. ## Why is UnitedHealth's MCR so bad? UnitedHealth · MA Business & MCR Tracking Cheat Sheet (Ultra-simplified, save to phone for direct reference) 1\. MA Business Core Data 1. Business Share ◦ Share of Insurance segment (UHC): ≈ 50% ◦ Share of total company revenue: ≈ 38% ◦ Profit contribution: Over 60% of the Insurance segment → MA is UnitedHealth's true lifeline 1. Scale ◦ MA members: Approx. 7.5 million (No. 1 in the U.S.) ◦ 2026 strategy: Actively reduce 1.3–1.4 million members, abandon low-margin regions 2\. Can MCR drop to 88% in 2026? Official Clear Conclusion • 2025 full-year MCR: 89.1% • 2026 full-year guidance: 88.8% ± 0.5% • Midpoint = 88.8% • 88% and below: Very low probability (<20%) Why it can't reach 88% Medical cost growth rate remains high at around 10% CMS subsidies continue to be squeezed by V28, revenue can't keep up After shedding low-quality members, the remaining population is sicker, making it difficult for MCR to drop quickly The company's goal is slight stabilization, not major recovery Most likely range for 2026 • Base case: 88.6% ~ 89.0% • Optimistic case: 88.3% ~ 88.5% • Below 88.0%: Requires an unexpected, significant cooling in medical costs, basically not expected 3\. Key Dates to Watch (just these few) • 2026 Q2 Earnings (July) Watch: Whether MCR declines sequentially, below 88.8% • 2026 Q4 Earnings (January next year) Watch: Whether the full year falls within the 88.3%～89.3% guidance range • Not until 2027: MCR truly breaks below 88%, possibly even approaching 86% 4\. One-sentence Summary MA accounts for half the business, MCR in 2026 can only be slightly improved to around 88.8%, a drop to 88% is basically impossible. ### Related Stocks - [UnitedHealth Group Incorporated (UNH.US)](https://longbridge.com/en/quote/UNH.US.md)