Older Americans are still getting lots of surgeries, and the outlook for the managed care sector doesn’t seem to be getting any better.
That’s the takeaway as healthcare earnings kicked off Tuesday morning, and UnitedHealth reported quarterly results that beat estimates on the top and bottom line, but still sent shares down in early trading.
UnitedHealth reported adjusted earnings of $7.15 a share for the quarter, better than the $7 per share FactSet consensus estimate, on revenue of $100.8 billion, beating the $99.1 billion consensus estimate.
The company’s spending on medical care for members of its insurance plans, however, was higher than expected. UnitedHealth said it paid out 85.2% of medical premiums to cover medical costs, a closely watched metric called the medical loss ratio, or the medical care ratio.
Analysts had been anticipating a medical care ratio of 84.4%. The ratio in the same quarter last year was 82.3%.
That higher-than-expected medical spending won’t ease worries about the future of the Medicare Advantage business, the government-funded program that managed care companies had come to rely on for persistent profits, and has turned sour this year.
UnitedHealth shares were down 10% in Tuesday trading. The results also weighed on other managed care names, amid apparent concerns that UnitedHealth’s high medical loss ratio for the quarter could preview higher medical loss ratios across the sector.
Humana shares were down 4.2% Tuesday, while CVS Health shares were down 4%.
Worries about high medical spending have hung over managed care stocks since early 2024, when UnitedHealth reported a medical care ratio for the end of 2023 that was sharply higher than expected and sparked a sector-wide selloff.
The fallout has rocked companies like CVS Health and Humana, which invested heavily in Medicare Advantage, and sparked major changes within the Medicare Advantage business. Companies are offering fewer Medicare Advantage plans next year, and many of the companies have cut the benefits their plans offer.
A third-quarter medical-cost report from UnitedHealth that fell within the range of expectations could have eased investors’ worries, and set a sunny tone for the earnings season to come. Instead, it seems to have done the opposite.
UnitedHealth had weathered the situation better than its peers to start the year. UnitedHealth shares were up 15% in 2024 as of the close of trading on Monday, while the S&P 500 had gained 23%. CVS was down 15%, while Humana was down more than 41%.
In its release early Tuesday, UnitedHealth attributed the lower-than-expected medical care ratio to “funding reductions” from the Centers for Medicare and Medicaid Services, which manages the Medicare Advantage program, among other factors.
Outside of its managed care business, news from UnitedHealth appeared to be good. Its Optum division, which operates a range of businesses, including a pharmacy benefit manager and medical practices, reported adjusted revenue of $63.9 billion for the quarter, up from $56.7 billion during the same quarter ast year. Analysts had expected revenue of $63.8 billion.
Early this year, a hack of payments tools operated by UnitedHealth subsidiary Change Healthcare led to chaos across the healthcare industry, derailing the operations of pharmacies, hospitals, and healthcare providers.
The company said Tuesday that it expects the hack to drag on its annual earnings by 75 cents per share, up from its prior estimate of between 60 and 70 cents.
Despite the impact of the hack, UnitedHealth only narrowed its earnings guidance, saying it expects adjusted net earnings of between $27.50 and $27.75, within the range of between $27.50 and $28 the company said it established last year. Analysts’ consensus call is in line with that guidance at $27.69, according to FactSet.
