UnitedHealth quarterly earnings a positive sign for health insurers
Despite the disruption in health care utilization caused by the virus, UnitedHealth is sticking to its 2020 profit outlook.
As analysts go back and forth on the impact COVID-19 will have on health care spending and premiums for 2021, UnitedHealth’s latest quarterly earnings offer a more concrete signal of what to expect.
The coronavirus pandemic has increased demand for health care services and hospitalizations, and health insurers are shouldering the costs of many tests and services that would typically be the responsibility of the patient. Offsetting this, at least to some degree has been a decrease in elective surgery and ambulatory services. Meanwhile, mass layoffs have led to many people losing their insurance.
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Despite these complications, UnitedHealth is sticking to profit outlook, the Star Tribune reports, and despite a 2 percent slip in enrollment and decrease in net income, earnings per share came in at $3.72–better than the forecasted $3.63.
“Like the broader health system, in recent weeks we have seen a reduction in elective care, which is impacting both the UnitedHealthcare benefits and the Optum care delivery businesses,” UnitedHealth CEO David Wichmann said in the company’s earnings call. “Most traditional procedural work has been postponed at our SCA ambulatory surgery centers. Likewise, the UnitedHealthcare and Optum at-risk care delivery businesses have seen lower demand for these services.”
Key to the question of the impact the pandemic will have on insurance premiums next year is the medical loss ratio. Under the provisions of the ACA, at least 85 percent of insurers’ premiums are required to go to health care and improvement work; if an insurer doesn’t meet this requirement, they must provide rebates to consumers. For the latest quarter, UnitedHealth’s medical loss ratio was 81 percent–below the 85 percent threshold, meaning that not only is there no indication that premiums for next year would need to be increased, but that at the current rate, they would still be required to provide rebates.
This forecast bodes well for other major insurers, such as Cigna or Anthem. Analysts commenting to CNBC noted that the loss of enrollees on the employer side offers an opportunity for those doing business in the marketplace exchanges or Medicaid. “If you’re UnitedHealthcare, Centene or Anthem, with massive Medicaid exposure … you can onboard those members on a different platform at a lower margin, but some others are not going to have that luxury,” said Kyle Roland, an analyst at Wells Fargo.
Though UnitedHealth is still sticking to its 2020 outlook, the pandemic could still have an impact on the bottom line. If the pandemic dies down, hospitals may be able to resume elective procedures sooner rather than later, which will impact UnitedHealth subsidiary Optum. “Optum could be affected by fewer elective procedures at surgery centers, and fewer home-health visits, and physician office visits. Clearly, the ultimate impact is difficult to quantify,” analyst Steven Halper told CNBC.
UnitedHealth has also taken up a role in the fight against the pandemic. Last week HHS announced it was partnering with UnitedHealth to handle the distribution of $30 billion in federal funding for health care providers. And this week, the company announced that president and Optum CEO Andrew Witty would be taking a leave of absence to join WHO in its vaccine development initiative.
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