(Jan 16): UnitedHealth Group Inc shares fell after elevated medical costs persisted in the fourth quarter (4Q) and revenue missed estimates.
The stock fell as much as 3% at the New York market open on Thursday, and other insurers including Elevance Health Inc and Humana Inc also declined.
UnitedHealth’s medical-loss ratio, which shows the percentage of premiums paid out for patients’ care, rose to 87.6% in 4Q, the health insurer said on Thursday. The cost ratio will be in the range of 86% to 87% in 2025, compared with analysts’ average estimate of 86%. Investors view a lower number more favorably.
Higher medical expenses combined with stricter government payment policies have pressured the earnings of US health insurers for more than a year. UnitedHealth’s results show those trends haven’t abated. The company affirmed its outlook for 2025 issued six weeks ago and said the higher costs are reflected in its guidance.
The 4Q medical costs were well ahead of even recently increased estimates, RBC Capital Markets Ben Hendrix said in a research note. Investors are seeking assurance that the company’s cost outlook for 2025 is on target, he said.
"UnitedHealth comments on utilisation patterns and premium rates, including progress in aligning with Medicaid acuity, will be our focus on its 4Q earnings call, to gauge whether the assumptions underlying the maintained 2025 forecast are too conservative. Premium revenue coming in 2.5% below consensus was behind the 4Q miss on adjusted operating income, despite lower medical costs," says Bloomberg Intelligence analyst Glen Losev
UnitedHealth, which operates the largest US health insurer, is the first company in the sector to report 4Q results and seen as a bellwether for the industry. The company said specialty drugs and hospital billing practices drove up medical costs, factors the company called out in October.
Still, its adjusted earnings were above Wall Street’s expectations in its first financial statement since a top executive was killed in New York last month. Profit was US$6.81 (RM30.64) a share in the quarter, the company said, compared with the US$6.71 average estimate of analysts surveyed by Bloomberg. Revenue of US$100.8 billion was slightly lower than projections.
UnitedHealth was struck by tragedy when one of its top executives was murdered on Dec 4 outside an investor conference in New York. The company’s earnings call on Thursday morning is the first time its executives have addressed the public since the incident. The shooting and online reaction to it focused attention on industry practices like claims denials and prior authorisations — as well as its profits — and heightened security concerns.
The Federal Trade Commission has been probing pharmacy benefit managers’ (PBM) handling of rebates, one of the price concessions that the middlemen negotiate with drugmakers on the behalf of employers and other clients. UnitedHealth chief executive officer Andrew Witty said the company’s PBM unit passes through 98% of these rebates to its customers. While some clients select other models that allow UnitedHealth’s PBM to keep some rebates, he said those arrangements will end by 2028, and all those discounts will be passed through to customers.
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