US health insurers plunged Wednesday after comments from a UnitedHealth Group Inc. executive triggered concerns about rising costs. Device makers and hospital chains, meanwhile, were bolstered by the remarks.
(Bloomberg) — US health insurers plunged Wednesday after comments from a UnitedHealth Group Inc. executive triggered concerns about rising costs. Device makers and hospital chains, meanwhile, were bolstered by the remarks.
Humana Inc. dropped as much as 15% as of 10:28 a.m. in New York, the most intraday since early 2022. UnitedHealth fell as much as 9.3%, its biggest loss during the trading session since the Covid-19 crisis crashed stocks in March 2020.
UnitedHealth, the biggest US health insurer, is seeing more patients seek behavioral health care and procedures like joint replacements, Chief Financial Officer John Rex said at a conference late Tuesday, and the amount of premium revenue spent on care for the second quarter may be at the high end of or “moderately above” expectations.
Many patients put off care for elective procedures during the height of the pandemic, when hospitals focusing on the needs of Covid-19 patients were seen as risky to enter. The comments suggest a shift in care patterns are finally reverting, with patients who had deferred procedures like knee or hip surgeries now returning for care in greater numbers.
The insurers are highly sensitive to fluctuations in medical costs, and any indication of an unexpected upward trend can make investors jittery. Elevance Health Inc. fell as much as 8.5% at the New York market open, while CVS Health Corp. lost as much as 7%, the most since October.
Device manufacturers including Stryker Corp., Boston Scientific Corp., Medtronic PLC and Intuitive Surgical Inc. traded higher, with Stryker rising as much as 6.5%.
UnitedHealth also provides care through its Optum services businesses, and the company’s own surgery centers were seeing “strong volumes,” Rex said at the Goldman Sachs Global Healthcare Conference. Hospital chain Tenet Healthcare Corp. also said that post-Covid volume trends should remain strong over the next four to five years, Jefferies analyst Brian Tanquilut said in a note.
The comments suggest good news for hospitals and surgery-center operators like Tenet and Surgery Partners Inc., RBC Capital Markets analyst Ben Hendrix wrote in a research note. UnitedHealth isn’t seeing an overall sicker population, but rather pent-up demand for procedures deferred in recent years among Medicare Advantage patients, he wrote.
Medicare Problem
UnitedHealth has projected a key measure of medical expenses called the medical loss ratio to be between 82.1% and 83.1% for 2023. The indicator reflects how much premium revenue is spend on medical care. Rex said for the full-year it would likely be in the upper half of that range. The average estimate of analysts surveyed by Bloomberg is 82.53%.
The company didn’t change its earnings guidance. UnitedHealth “noted that this is a Medicare problem, and it is not experiencing above-trend activity in its commercial or Medicaid books of business,” Mizuho Securities USA analyst Ann Hynes wrote in a research note.
Medicare Advantage, the private version of the US health plan for seniors and the disabled, is a growing driver of the health insurance business. The program has come under pressure as US authorities seek to restrict ways insurers can manipulate payments, with adjustments to rates and payment methodologies starting next year.
The combination of higher medical-care needs with a less generous payment environment could pressure health insurers that have relied on the program for growth and profits. Humana has the greatest exposure to Medicare Advantage, according to Hynes, followed by UnitedHealth, Centene, Elevance and CVS.
UnitedHealth built assumptions about higher utilization rates into its pricing for 2024 Medicare Advantage plans that the company recently submitted to the US government, executives said at the conference.
–With assistance from Janet Freund.
(Updates with additional details of device-maker shares in first section)
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