UnitedHealth Profit Helps Surmount Cyberattack, Cost Pressures

(Bloomberg) — UnitedHealth Group Inc. reported second-quarter results that surpassed Wall Street’s expectations even as a key measure of the insurer’s medical costs was higher than anticipated.

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Adjusted earnings were $6.80 a share, UnitedHealth said Tuesday in a statement, while the company’s medical-loss ratio was higher than analysts expected. The closely watched measure shows how much premium revenue is paid out for medical care, and investors look for a lower number.

The shares gained as much as 4.8% at the New York market open, their biggest intraday gain since April 18. They had lost 2.1% this year through Monday’s close.

UnitedHealth warned in May that it saw a likely “disturbance” from US Medicaid payment rates that might not keep up with patients’ care expenses. Eligibility requirements for the safety-net program have tightened since the end of the pandemic, allowing states to purge millions of members. Insurers are also facing more restricted reimbursement for their management of Medicare plans that serve millions of older Americans.

Investors may have been braced for extended high medical costs, which were offset by lower selling, general and administrative expenses, JPMorgan’s Lisa Gill wrote. Meanwhile, she said, UnitedHealth’s Optum health services division outperformed, with the OptumRx prescription management service a “notable highlight.”

UnitedHealth, which recently sold its business in Brazil, said it intends to sell its remaining operations in South America. The decision marks a retreat from international expansion that began more than a decade ago but hasn’t been a significant focus for the company for years.

The company continues to feel the repercussions of a catastrophic cyberattack on its Change Healthcare unit earlier this year that compromised data on a vast swath of Americans and bottlenecked claims and payments across the health-care system. The hack amplified the uncertainty around medical expenses, raising scrutiny on UnitedHealth’s results this quarter.

What Bloomberg Intelligence Says:

UnitedHealth Group increased cyberattack-related direct-response costs and maintained its 2024 outlook even as it reported better-than-expected operating profit and EPS, tarnishing 2Q results. The company delivered the EPS beat on generally in-line 2Q results, including the medical-loss ratio when adjusting for the cyberattack and its international-business divestiture.

— BI analyst Glen Losev. Read the research here.

The company reaffirmed its full-year outlook for adjusted earnings of $27.50 to $28 a share, which includes some impacts from the February cyberattack. Revenue in the quarter was in line with analysts’ expectations.

The medical-loss ratio of 85.1% was driven higher by the company’s response to the hack. The company suspended some prior authorization rules while systems were down, which led to higher medical expenses. The metric also includes the impact of some activity in South America, along with reduced Medicare funding, the company said.

UnitedHealth’s outlook for the measure, excluding some items, was unchanged for the year, but would be at the “upper end” of its projected range, Chief Financial Officer John Rex said on a call with analysts.

UnitedHealth didn’t repurchase shares in the quarter, which could signal significant appetite for its own stock later this year. Rex said the company expects to meet its full-year targets for share repurchases.

(Updates with analyst comment starting in third paragraph)