U.S. healthcare services: Bernstein highlights margin recovery and structural growth across U.S. healthcare services

Overview

This teach-in recap presents Bernstein's six major views on U.S. healthcare services: recovering managed-care margins, a reset PBM model, specialty-pharmacy concentration, expanding value-based care, and AI-led opportunities at Optum Insight. The institution is constructive on the sector's longer-term structural drivers but notes policy, regulatory, and execution uncertainties.

Core views

Medicare Advantage (MA) is expected to enter a multi-year margin recovery. Bernstein attributes the 2025 pressure to negative rate increases in 2024 and 2025, elevated post-COVID utilization, and intense competition. The number of MA plans per senior doubled from 2011 to 2023, while estimated companies competing for each senior rose from three in the late 2000s to six in 2018 and nine in 2023; supplemental benefits also more than doubled from the mid-2010s to the mid-2020s. Insurers are now reducing benefits, membership, and unprofitable market exposure. Humana and CVS reduced MA membership by about 390,000 and 180,000 in 2025, respectively; UnitedHealth and Elevance announced expected 2026 reductions of 1.1 million and 395,000 members. Bernstein expects about 100 bps of margin expansion in 2026 and roughly 50 bps annually through 2030, supported by less competition, improved rates, slower utilization, benefit cuts, and pricing discipline. It projects long-term MA membership growth of 4%-5%, while cautioning that part of this outlook may already be reflected in valuations. For Medicaid, the report sees the early stages of a margin turnaround as rate increases catch up with cost trends. Enrollment rose from about 23 million in 1990 to about 93 million in 2023, then fell by about 15 million from the peak following post-COVID redeterminations and related policy actions. Bernstein says work requirements and other OBBBA restrictions could subtract a further 10 million enrollees over the next decade. Even so, it sees a structural managed-care opportunity because roughly 25% of Medicaid enrollment and nearly half of Medicaid spending remain outside managed care, particularly among higher-cost aged, blind, and disabled populations. Greater cost-management needs could accelerate states' transition from fee-for-service arrangements. Bernstein expects the rate-cost mismatch to inflect toward roughly 5% rate trend and 4% cost trend in the second half of 2026; political shifts could either ease coverage losses or speed the industry's growth opportunity. Bernstein believes PBMs are moving away from spread pricing and rebate retention toward transparent, self-insured-employer-style economics centered on administrative fees and add-on services. The report notes that UNH's commercial business shifted from roughly three-quarters fully insured in 2000 to about one-quarter in 2025, while Elevance moved from more than half fully insured to the low double digits over the same period. It expects a similar transition in PBMs. Traditional PBM margins have compressed below 2%, with Cigna reporting about 1.8%-1.9%; Bernstein views a 1.5%-2.0% range as a stable long-term base for claims processing, customer service, network management, and drug-cost negotiation. Growth could instead come from utilization management, generic and biosimilar optimization, risk-based therapeutic products such as for GLP-1s, cash-pay solutions, and management of costly specialty or orphan drugs. Using Cigna as an example, the report suggests these products could lift a roughly 1.8% margin by 10%-20% over time to approximately 2.0%-2.25%. Specialty pharmacy remains a faster-growing healthcare segment, driven by product launches and shifts to generics. CVS and Accredo together account for more than half of the market, and Optum's addition brings the combined share to nearly 70%. Bernstein argues that scale provides purchasing power, manufacturer relationships, biosimilar access, and advantages in limited- and exclusive-distribution networks; Accredo and CVS each participate in slightly more than half of these networks. Smaller providers can still build niches, especially in oncology, rare diseases, and other limited-distribution therapies. Specialty cost trend was cited at 9% versus 2.5% for traditional drugs in the recent period, and 64% of specialty-drug spending is under the pharmacy benefit versus 34% under the medical benefit. The central risk is regulatory scrutiny of vertical integration: Bernstein assigns a meaningful 25%-35% possibility that PBMs and specialty pharmacies could ultimately be separated. It believes a separation would favor smaller standalone players; UNH and Cigna would be better positioned to tolerate a spinoff than smaller-scale CenterWell and Carelon, with CVS in between because its PBM, specialty-pharmacy, and retail operations are closely intertwined. For Optum Health, Bernstein identifies value-based care (VBC) as the principal long-term growth driver. MA is estimated to be about one-third penetrated by VBC and could reach 80%-100% over time; Medicaid and commercial insurance could each reach 50% penetration as payers and employers seek better cost management. The report estimates that, across 2024 and 2025, Optum Health earnings came approximately 25% from capitated practices, 32% from legacy cost containment, 24% from non-practice care delivery, and 19% from fee-for-service practices. Capitated practices generated no earnings in 2025, but Bernstein expects them to regain strategic importance and represent an estimated 57% of total earnings by 2030. Optum Health's operating margin fell from about 8% during 2017-2024 to negative 0.3% in 2025, while earnings fell from about $7.8 billion in 2024 to a roughly $0.3 billion loss. Bernstein expects risk repricing, better execution, and broader VBC adoption to support recovery toward nearly 5% margins and more than $6 billion of earnings by 2030. Optum Insight is presented as a technology and services platform built through acquisitions and internal development across payer efficiency, provider efficiency, revenue-cycle management, connectivity, and payments. Its payer offerings benefit from scale, proprietary data, and asset-light economics, while its provider franchise spans revenue-cycle management, administrative operations, payment services, consulting, VBC enablement, and care-extension services. Bernstein sees the provider side as the most compelling AI opportunity because Optum already has a large installed base and distribution network in back-office services. Near- and medium-term AI applications include ambient documentation, automated coding, scheduling, workforce management, and other administrative workflows; longer term, the firm sees care automation and clinical-capacity extension as potentially much larger opportunities. With roughly $2.7 trillion spent annually on physician, hospital, and other non-pharmaceutical healthcare services, Bernstein argues that even modest provider-productivity improvements could have substantial economic value, although expanding into clinical workflows may require further product development, partnerships, or acquisitions.

Analysis framework

Bernstein synthesizes takeaways from six healthcare-services teach-ins using historical enrollment, competition, margins, rates, costs, market shares, company disclosures, and its own estimates. It links industry changes such as pricing discipline, policy, vertical integration, value-based-care adoption, and AI deployment to earnings and margin outcomes for managed-care organizations, PBMs, specialty pharmacies, and Optum businesses.

Methodology notes

• Industry AnalysisSupply-demand framework

  Managed-care margin analysis based on membership, competition, benefit levels, reimbursement rates, utilization, and cost trends.

  The report explains MA and Medicaid profitability through changes in competition, enrollment, pricing, benefit design, medical costs, and state or federal reimbursement.

• Industry AnalysisVolume-price decomposition

  Comparison of Medicaid rate trend and cost trend.

  Bernstein uses the expected 5% rate trend versus 4% cost trend in the second half of 2026 to support its view that Medicaid margins are inflecting upward.

• Competition & strategyValue chain analysis

  Analysis of PBM, specialty-pharmacy, payer, provider, and AI-service roles across healthcare delivery and drug spending.

  The report evaluates how vertical integration, distribution access, scale, administrative services, and clinical automation affect where profits and competitive advantages sit in the healthcare-services value chain.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• UnitedHealth Group (UNH)

  Covered company with exposure to MA, Optum Health, Optum Insight, specialty pharmacy, value-based care, and provider-side AI.

  Strengths

  Bernstein sees potential recovery at Optum Health and a strong provider-side AI position at Optum Insight; its specialty business is among the market leaders.

  Weaknesses

  Optum Health's capitated business drove the 2025 earnings decline.

  Comparison

  Bernstein believes UNH would be among the strongest companies in tolerating a specialty-pharmacy spinoff.

  Risks

  Risk repricing and execution at Optum Health, plus regulatory scrutiny of vertical integration.

• CVS Health (CVS)

  Covered company exposed to MA, PBM transition, and specialty pharmacy.

  Strengths

  CVS is a major specialty-pharmacy participant and has reduced MA membership to improve profitability.

  Weaknesses

  Its PBM, specialty-pharmacy, and retail businesses are heavily intertwined.

  Comparison

  Bernstein places CVS between UNH/Cigna and smaller specialty platforms in its ability to manage a potential separation.

  Risks

  PBM margin compression and potential separation of vertically integrated PBM and specialty-pharmacy operations.

• Cigna (CI)

  Covered company with PBM and specialty-pharmacy exposure.

  Strengths

  Cigna reported traditional PBM margins around 1.8%-1.9% and could benefit from higher-value add-on products.

  Weaknesses

  Traditional PBM economics have compressed below 2%.

  Comparison

  Bernstein believes Cigna would have strong ability to tolerate a potential specialty-pharmacy spinoff.

  Risks

  Ongoing PBM model transition and vertical-integration scrutiny.

• Elevance Health (ELV)

  Covered managed-care company exposed to MA and commercial self-insured trends.

  Strengths

  Expected 2026 MA membership reductions of about 395,000 support the sector's pricing discipline; its commercial business has shifted materially toward self-insurance.

  Weaknesses

  MA profitability remains sensitive to rates, utilization, and competition.

  Comparison

  Along with other MA insurers, Elevance is participating in the industry's withdrawal from unprofitable contracts.

  Risks

  MA rate, utilization, and membership trends.

• Humana (HUM)

  Covered MA-focused insurer.

  Strengths

  Its reduction of approximately 390,000 MA members in 2025 illustrates the industry's tighter profitability discipline.

  Weaknesses

  MA margins were pressured by competition, rates, and utilization.

  Comparison

  Humana and CVS were early participants in MA membership reductions before UNH and ELV announced 2026 reductions.

  Risks

  MA margin recovery may be slower than Bernstein expects.

• Centene (CNC)

  Covered managed-Medicaid company.

  Strengths

  Potential beneficiary of improving Medicaid rates, managed-care outsourcing, and enrollment of more complex populations.

  Weaknesses

  Medicaid margins remain exposed to risk-pool changes and cost-trend acceleration.

  Comparison

  The report cites Centene in discussing acceleration of core Medicaid cost trend.

  Risks

  Enrollment restrictions, rate lags, and medical-cost pressure.

• Molina Healthcare (MOH)

  Covered managed-Medicaid company.

  Strengths

  Potential beneficiary of Medicaid margin normalization and expansion of managed care among aged and disabled populations.

  Weaknesses

  Cost-trend dynamics remain a key constraint.

  Comparison

  Molina is cited in the report's Medicaid cost-trend discussion.

  Risks

  Policy-driven enrollment reductions and delayed reimbursement-rate increases.

• agilon health (AGL)

  Covered company in the U.S. healthcare-services universe.

• HCA Healthcare (HCA)

  Covered company in the U.S. healthcare-services universe.

Key data

• MA margin expansionAround 100 bps in 2026; approximately 50 bps per year through 2030Bernstein expectation based on retreating competition, better rates, slower utilization, benefit cuts, and pricing discipline.
• Long-term MA membership growth4%-5%Bernstein long-term expectation.
• Medicaid enrollment reduction from peakApproximately 15 million membersAttributed to redeterminations and related policy actions after the 2023 peak.
• Medicaid rate and cost trend5% rate trend versus 4% cost trendExpected by Bernstein in the second half of 2026.
• Traditional PBM margin1.5%-2.0%Bernstein's view of a stable long-term range; Cigna reported roughly 1.8%-1.9%.
• Big-three specialty pharmacy shareNearly 70%Combined share of CVS, Accredo, and Optum.
• Potential PBM-specialty pharmacy separation25%-35%Bernstein's estimated possibility arising from regulatory and policy scrutiny of vertical integration.
• Optum Health 2025 operating margin-0.3%Down from approximately 8% during 2017-2024.
• Optum Health 2030 outlookMargins approaching 5% and earnings exceeding $6 billionBernstein projection as risk is repriced and VBC adoption broadens.
• U.S. non-pharmaceutical healthcare-services spendingApproximately $2.7 trillion annuallyCited as the addressable economic base for provider productivity improvements from AI.

Impact & implications

Bernstein's industry view favors a healthcare-services landscape in which insurer pricing discipline and reimbursement normalization support managed-care profitability, while PBMs seek more stable fee and service economics. Scale remains important in specialty pharmacy and healthcare technology, but vertical-integration scrutiny and policy changes could redistribute competitive advantages. Value-based care and provider-side AI are presented as the largest longer-term growth vectors for Optum's healthcare-services businesses.

Risks

• MA margin recovery could be delayed if rates, utilization, competition, or pricing discipline develop less favorably than Bernstein expects.
• Medicaid enrollment could fall further under work requirements and other OBBBA restrictions, which Bernstein says could subtract an additional 10 million enrollees over the next decade.
• PBM and specialty-pharmacy margins face structural pressure as transparent models replace spread-pricing and rebate-retention economics.
• Regulatory and policy scrutiny of vertical integration could lead to a PBM-specialty pharmacy separation, which Bernstein estimates has a 25%-35% possibility.
• Optum Health's recovery depends on successful risk repricing, operating execution, and broader value-based-care adoption.
• Optum Insight's expansion into clinical AI may require additional product development, partnerships, or acquisitions.

What to watch

• The pace of MA membership reductions, supplemental-benefit cuts, utilization trends, and rate improvement through 2026.
• Whether Medicaid rate trends reach about 5% while cost trends move toward about 4% in the second half of 2026.
• State movement of aged, blind, and disabled Medicaid populations from fee-for-service to managed care.
• Adoption of transparent PBM pricing and higher-value cost-management services.
• Regulatory developments affecting PBM and specialty-pharmacy vertical integration.
• Optum Health's risk repricing and margin recovery, as well as value-based-care penetration.
• Provider-side AI adoption in documentation, coding, workflow, and clinical-capacity extension.