UnitedHealth’s higher medical costs cloud fourth-quarter profit beat

By Bhanvi Satija and Christy Santhosh

(Reuters) -UnitedHealth’s quarterly profit beat on Friday was muddied by increased medical costs for the healthcare conglomerate, as demand for non-urgent procedures remained elevated, sending its shares down over 5% in premarket trade.

Full-year 2023 medical costs for the company came in at 83.2%, higher than the 82% reported for 2022 but consistent with its own target.

Analysts on average were expecting a ratio of 82.96% for the full year 2023.

The industry bellwether had warned in November that it expects the medical cost ratio for the year to be at the upper end of its 82.6% target, plus or minus 50 basis points.

Health insurers like UnitedHealth and Humana have experienced an increase in medical costs in 2023 as older patients returned to clinics and hospitals for procedures delayed by the pandemic.

UnitedHealth’s results showed “some signs of cost pressure”, which could continue in 2024, said Jeff Jonas, portfolio manager at Gabelli Funds.

Shares of rival health insurers CVS Health, Elevance Health, Centene, Cigna and Humana also fell between 2% and 5%.

UnitedHealth reaffirmed its medical cost ratio expectations for this year. It expects its medical cost ratio for 2024 to be in the 83.5% to 84.5% range.

Among the world’s largest healthcare companies, UnitedHealth is a provider of government-backed health insurance and private plans, pharmacy benefit management and specialty pharmacy services. It also operates medical practices and surgical centers. 

That combination is expected to help it mitigate the impact of government reimbursement cuts in Medicare in the coming years, compared to rivals like CVS Health, Cigna, Elevance and Humana.

Reimbursement rates – or the government’s payment rates – determine how much health insurers can charge as monthly premiums.

Reimbursement rates for 2024 were announced in March last year and resulted in a 1.1% average decline, compared with an increase of 5% in 2023.

The company posted an adjusted profit of $6.16 per share for the fourth quarter, compared with analysts’ average estimate of $5.98.

(Reporting by Bhanvi Satija and Christy Santhosh in Bengaluru; Editing by Pooja Desai)