UnitedHealth (NYSE:UNH), a leading healthcare conglomerate, has exceeded analysts’ expectations for its third-quarter profit, primarily driven by lower-than-expected medical costs at its health insurance unit. The company’s shares rose by nearly 4% to $544.46, following the announcement of better-than-anticipated results, and it also slightly raised its annual forecast.
In June, UnitedHealth, along with Humana, had warned that older adults were increasingly opting for surgeries that were delayed during the pandemic, leading to concerns of a potential spike in medical costs. This warning resulted in a $60 billion decline in the market value of insurers. However, during the third quarter, levels of elective surgeries remained relatively stable, and they continued to be in demand among older adults.
UnitedHealth reported a third-quarter medical loss ratio of 82.3%, indicating the percentage of expenses on claims compared to premiums collected. This was an improvement from 83.2% in the second quarter and better than analysts’ expectations of 82.82%, according to LSEG data.
UnitedHealth’s CFO, John Rex, mentioned that the initial concerns about high demand for outpatient surgeries were diminishing, and the company was seeing improved stability in medical costs.
This strong third quarter marked the best quarter for UnitedHealth in the year, according to Jefferies analyst David Windley. The company’s announcement that it expects the upper end of its fiscal 2024 profit forecast to align with Wall Street estimates provided reassurance to investors concerned about the industry’s outlook for 2024, as noted by Morningstar analyst Julie Utterback.
For the full year, analysts expect UnitedHealth to report a profit of $27.86 per share. Health insurers are expected to face challenges in the coming year due to policy changes affecting government-backed health insurance plans, including lower government payment rates for Medicare Advantage.
On an adjusted basis, UnitedHealth’s earnings per share for the third quarter were $6.56, surpassing estimates of $6.32. The company has now raised the lower end of its fiscal 2023 adjusted profit forecast for the second time, setting it at $24.85 per share, while maintaining the upper end at $25.00. Analysts had anticipated an annual profit of $24.84 per share.
Shares of other insurers, such as Humana, Elevance Health (NYSE:ELV), Cigna Group (NYSE:CI), Centene (NYSE:CNC), and CVS Health (NYSE:CVS), also experienced positive gains, rising between 1% and 2% following the strong performance of UnitedHealth.
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