UnitedHealth’s lower-than-feared costs lift profit, shares By Reuters
© Reuters. The corporate logo of the UnitedHealth Group appears on the side of one of their office buildings in Santa Ana, California, U.S., April 13, 2020. REUTERS/Mike Blake
By Bhanvi Satija and Raghav Mahobe
(Reuters) -UnitedHealth Group’s quarterly profit beat Wall Street estimates on Friday as a smaller-than-expected jump in medical costs allayed fears that a resumption in long-delayed surgical procedures would hit profit growth, sending its shares up 5%.
The beat from the industry bellwether lifted the shares of rivals Humana (NYSE:), Cigna (NYSE:), CVS Health (NYSE:) and Elevance Health between 2% and 5%.
Chief financial officer John Rex said the company expects medical costs for the third quarter to be “a little bit lower” compared to the second quarter.
The lower-than-expected costs provide a “welcomed respite today”, after several weeks of pain for investors in health insurance companies, Stephens analyst Scott Fidel said in a note.
Shares across the sector slumped last month, wiping off nearly $60 billion from the industry after UnitedHealth (NYSE:) said it was recording higher payouts over medical care between April and early June, as receding COVID risks made it easier for older adults to get non-urgent surgeries.
UnitedHealth’s medical loss ratio for the quarter – the percentage of spend on claims compared to premiums collected – was 83.2%, compared to analysts’ expectations of 83.4%.
Health insurers’ costs have been suppressed in recent years as pandemic-driven restrictions caused long delays in elective procedures such as hip and knee replacements, especially among older adults at higher risk of COVID.
UnitedHealth raised the lower end of its annual adjusted profit forecast to $24.70, from $24.50 per share previously, while keeping the top end unchanged at $25 per share.
Humana also warned of a jump in its medical expenses for this year in June after noting similar concerns as UnitedHealth. The two companies are the biggest providers of Medicare Advantage – the government-backed plans for older adults.
UnitedHealth’s profit of $6.14 per share for the second quarter beat analysts’ expectations of $5.99, according to Refinitiv.
