UnitedHealth dips as cost concerns weigh on insurance unit

UnitedHealth (NYSE:UNH) reported better-than-expected financials for Q3 2024 on Tuesday. However, shares of the managed care giant traded lower in the premarket as cost concerns in its insurance unit unnerved Wall Street.

With UnitedHealth (UNH) being the industry bellwether in the earnings season, its managed care peers were also in the red. Notable decliners included Humana (HUM), Cigna (CI), CVS Health (CVS), Centene (CNC), Clover Health (CLOV), and Elevance Health (ELV).

Minnetonka, Minnesota-based UnitedHealth (UNH) indicated an increase in medical costs during the quarter. Its medical care ratio for Q3 2024 reached 85.2%, compared to 82.3% in the prior year quarter.

The medical care ratio, a key performance metric in the managed care industry, measures the share of premiums spent on healthcare costs. According to Bloomberg data, Wall Street projected UNH’s medical care ratio in Q3 to stand at 84.4%.

The company attributed the increase in medical costs to multiple factors, including Medicare funding reductions and business mix.

However, UnitedHealth’s (UNH) topline expanded ~9% YoY to $100.8B as its insurance business, UnitedHealthcare, added $74.9B in revenue with ~6% YoY growth.

Meanwhile, UNH’s Optum unit brought $63.9B to the topline unchanged from last year as its health services arm, OptumHealth, fell short of expectations, adding $25.9B in revenue compared to $27.5B in the consensus.

UNH’s pharmacy-benefits division, Optum Rx, generated $34.2B in revenue, improving $5.4B from the prior year period.

Despite an increase in medical costs, the company’s bottom line expanded, with adjusted earnings per share improving ~9% YoY to $7.15 as UNH’s operating cost ratio reached 13.2% from 13.3% in Q3 2023, beating analysts’ forecasts.

Citing an additional ~$0.10 impact attributed to business disruption from the recent cyberattack on the Change Healthcare unit, UnitedHealth (UNH) narrowed its adj. earnings outlook to $27.50-$27.75 compared to $27.50-$28.00 projected previously.

The company raised its full-year forecast related to impact from the cyberattack to $0.75 per share from its previous estimate of $0.60 – $0.70 per share given with its Q2 results in July.