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UnitedHealth’s Third-Quarter Results: Key Insights on Medical Costs and Healthcare Utilization Trends

All Eyes on Medical Costs as UnitedHealth Reports Third-Quarter Results

Investor Concerns Surrounding Healthcare Utilization

When UnitedHealth Group, a prominent healthcare services firm, releases its third-quarter financial results early Tuesday, the key focus for investors will be the trend in medical services utilization among seniors. The health sector has been in turmoil following UnitedHealth’s fourth-quarter earnings report earlier this year, which led to a significant selloff in healthcare stocks that the managed-care sector is still grappling with.

Impact of Higher Spending on Medicare Advantage Plans

In January, UnitedHealth’s report highlighted a crucial issue: spending on Medicare Advantage plans was exceeding expectations. This raised alarms within the industry, as several companies had previously relied on managing costs effectively within the government-funded Medicare program in order to secure their profits. The unexpectedly high utilization rates not only affected UnitedHealth but also sent shockwaves through other major companies like CVS Health and Humana, both of which had made heavy investments in Medicare Advantage plans.

Sector-wide Fallout and Changes in Medicare Advantage Offerings

The implications were significant, leading to major shifts in the Medicare Advantage business landscape. Companies are now planning to offer fewer plans for the upcoming year and have started to pare down the benefits available through these packages. While many companies in the sector struggle, UnitedHealth has managed to navigate the situation more effectively. As of now, UnitedHealth’s shares have seen a 15% increase in 2023, contrasting with the S&P 500’s 23% gain. Comparatively, CVS Health has faced a 15% decline, and Humana’s shares have plummeted over 41%.

Anticipated Financial Metrics and Market Reactions

The third-quarter medical-cost report is expected to fall within the analysts’ anticipated range, which could potentially mitigate investor anxiety regarding UnitedHealth and the overall healthcare sector. Typically, UnitedHealth is among the first of its peers to release earnings data each quarter, often setting the tone for the industry. Analysts project earnings of around $7 per share, based on revenues of $99.1 billion, as reported by FactSet. They are also expecting the company’s medical cost ratio, which measures the percentage of premiums spent on medical expenses, to be around 84.4%. This is an increase from last year’s 82.3% during the same quarter.

Cybersecurity Incident and Its Financial Implications

Adding to the challenges faced by UnitedHealth, the company experienced a hack in January that compromised payments tools associated with its subsidiary, Change Healthcare. This cybersecurity breach caused chaos within the healthcare sector, affecting pharmacies, hospitals, and healthcare providers, and resulted in considerable disruption of operations across the board. In July, UnitedHealth conceded that the hack would likely decrease its annual earnings by approximately 60 to 70 cents per share, attributing this charge to “business disruption impacts.”

Future Earnings Guidance and Analysts’ Consensus

Looking forward, UnitedHealth anticipates adjusted net earnings of between $27.50 and $28 per share for the full fiscal year of 2024. Currently, the consensus estimate among analysts aligns closely with this guidance, standing at $27.69 according to FactSet. As UnitedHealth approaches the release of its third-quarter earnings, stakeholders remain vigilant, hoping to see financial results that can allay fears regarding the current dynamics in the healthcare market.

Conclusion

In summary, UnitedHealth Group’s third-quarter report will be pivotal for investors as they monitor trends in medical costs and seniors’ healthcare utilization. The sector has been notably affected by recent events and challenges, including rising medical expenditures and cybersecurity disruptions. Analysts appear cautiously optimistic but are aware of the potential volatility ahead. Investors and industry watchers will be keenly awaiting the results to determine the future trajectory of UnitedHealth and its peers in the managed-care space.