UnitedHealth’s quarterly beat clouded by 2024 Medicare uncertainty

11:22 am Friday, April 14th, 2023

By Khushi Mandowara and Bhanvi Satija

(Reuters) -UnitedHealth Group Inc on Friday topped expectations for first-quarter results but shares fell 3% after the company failed to address investor worries over high costs next year due to policy changes for government-backed health insurance plans.

U.S. health insurers have been under pressure since February when the government proposed new rules for an audit program to avoid overpayment.

Reimbursement rates – or the government payment rates – for health insurers for 2024 introduced in March resulted in a 1.1% average cut, though better than the initial proposal.

The rates determine how much health insurers can charge as monthly premiums, plan benefits and profits.

Emerging regulatory related concerns, including those around Medicare Advantage program, appear to be weighing on shares at UnitedHealth and the industry, as uncertainty about profit growth beyond 2023 continues, said Morningstar analyst Julie Utterback. 

Rivals Humana and Elevance Health fell between 1% and 2% in early trading. UnitedHealth was the biggest drag on the blue-chip Dow Jones Index.

Medicare Advantage are offered by private insurers as an alternative to the original Medicare – the federal government’s health insurance plan for people aged 65 and older or those with certain disabilities.

Medicare and Medicaid memberships make up a third of the UnitedHealth’s health insurance business. The company said it added 655,000 Medicare Advantage members and 570,000 Medicaid members in the quarter.

The company intends to pull back members no longer eligible for Medicaid – plans that cover costs for low-income individuals – to its commercial offerings by extending annual enrollment periods for employers and increase subsidies, including plans with no monthly premium.

UnitedHealth raised its adjusted 2023 profit forecast to between $24.50 and $25 per share, compared with its earlier estimate of $24.40 to $24.90 and market expectations of $24.94.

Excluding items, it reported a first-quarter profit of $6.26 per share, beating estimates of $6.13, helped by lower medical costs and strength in its government-backed insurance plans.

(Reporting by Khushi Mandowara and Bhanvi Satija in Bengaluru; Editing by Devika Syamnath and Sriraj Kalluvila)