UnitedHealth hit by stubbornly high medical costs, shares fall

9:18 am Thursday, January 16th, 2025

By Sriparna Roy and Bhanvi Satija

(Reuters) -UnitedHealth’s high medical costs and lower-than-expected revenue in the fourth quarter underscored persistent challenges at its insurance unit, sending the healthcare conglomerate’s shares down more than 3%.

The earnings report was the company’s first since the shock killing of Brian Thompson, the CEO of UnitedHealth’s insurance unit, that ignited conversations about denied health insurance claims and high premiums.

The insurance industry has also been grappling with increased medical costs for nearly two years due to high demand for healthcare services under government-backed Medicare plans for older adults.

UnitedHealth’s quarterly medical cost ratio — the percentage of premiums spent on medical care — stood at 87.6%, compared with estimates of 85.95%, according to data compiled by LSEG. Companies typically aim for a ratio close to around 80%.

“It just shows that this is an issue that’s not abating yet and some investors were hoping that we’d see maybe better trends going into 2025,” said James Harlow, senior vice president at Novare Capital Management, which owns shares of the firm.

“It’s going to continue to be a challenge that these companies (will) have to navigate,” he added.

Shares of rivals CVS Health and Elevance Health also fell about 3% in premarket trading.

At least two analysts said the results did not provide clarity about how confident the company is about cost pressures being appropriately included in the 2025 forecast.

“Once again, we have a lot more questions than answers,” said Baird analyst Michael Ha.

The company kept its 2025 adjusted profit forecast of $29.50 to $30.00 per share unchanged. It expects medical cost ratio to be in the range of 86% to 87% this year.

Overall fourth-quarter revenue came in at $100.81 billion, below the average expectation of $101.76 billion, hurt by lower-than-expected premiums.

On an adjusted basis, UnitedHealth earned $6.81 per share in the quarter, above estimates of $6.72 per share.

(Reporting by Sriparna Roy and Bhanvi Satija in Bengaluru; Editing by Shounak Dasgupta and Saumyadeb Chakrabarty)