UnitedHealth's higher medical costs cloud profit beat

[January 12, 2024]  (Reuters) -UnitedHealth topped Wall Street's expectations for fourth-quarter profit on Friday, but its shares declined more than 5% in premarket trade, as high demand for non-urgent medical procedures drove up costs for the healthcare conglomerate.

UnitedHealth's quarterly medical loss ratio - the percentage of spend on claims compared with premiums collected - was 85%, above the 82.8% reported for 2022. Analysts on average were expecting a ratio of 83.88% for the fourth quarter, according to LSEG data.

Health insurers like UnitedHealth and Humana have experienced an increase in medical costs in 2023 due to more elective surgeries, especially among older patients, who returned to clinics and hospitals for procedures delayed by the pandemic.

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 and plan benefits and ultimately impact their profit.

UnitedHealth Group's headquarters building is seen in Minnetonka, Minnesota, U.S. in this handout picture taken in 2019. UnitedHealth Group/Handout via REUTERS/File Photo

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.

For the full-year 2023, UnitedHealth's medical loss ratio was 83.2%, above the 82% reported for 2022.

It reaffirmed that its medical loss ratio for next year will be in the range of 83.5% to 84.5%.

The company posted an adjusted profit of $6.16 per share for the fourth quarter, compared with analysts' average estimate of $5.98, according to LSEG data.

Overall revenue for the quarter was $94.43 billion, beating analysts' estimate of $92.16 billion.

UnitedHealth also reaffirmed its profit expectations for 2024 of $27.50 to $28.00 per share.

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

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