UnitedHealth hit by stubbornly high medical costs, shares fall

On By Littum

By Sriparna Roy and Bhanvi Satija

(Reuters) – UnitedHealth’s high medical costs and lower-than-expected fourth-quarter revenue underscored ongoing challenges in its insurance unit, sending the health conglomerate’s shares down about 4% before midnight on Thursday.

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

Higher medical costs in government-sponsored Medicare plans for older adults as well as changes in enrollment standards for Medicaid plans have weighed on the health insurance industry for more than a year.

UnitedHealth’s quarterly medical expenses — 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 goes to show that this is a problem that’s not abating yet, and some investors were hoping that we might see better trends going into 2025,” said James Harlow, senior vice president at Novare Capital Management, which owns shares in the company.

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

UnitedHealth said reduced payments from U.S. states for members of Medicaid plans also weighed during the quarter.

Investors await details on cost trends for 2025 and whether the revenue miss is a concern for this year, said Jeffrey Rogers, senior analyst at F/m Investments.

“The market seemed disappointed that this quintessential outperformer just hit its 2024 targets and kept its weak 2025 outlook intact,” said Morningstar analyst Julie Utterback.

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

Total fourth-quarter revenue came in at $100.81 billion, below estimates of $101.76 billion, hurt by lower-than-expected premiums.

On an adjusted basis, UnitedHealth earned $6.81 per share, beating expectations of $6.72 per share.

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