UnitedHealth Stock Plunges Following Surge in 4Q Medical Costs

UNH Stock

UnitedHealth Group (NYSE:UNH) surpassed fourth-quarter expectations, but Wall Street was caught off guard as medical costs soared by 16%, causing a downturn in shares of UnitedHealth and other major healthcare and insurance providers.

The surge in medical costs during the fourth quarter impacted health insurers, a trend observed throughout the previous year. UnitedHealth attributed the increase in claims to its Medicare Advantage business, where a rise in heart and orthopedic outpatient procedures among seniors led to escalated costs. The company covers approximately 7.7 million individuals with Medicare Advantage plans, which are privately managed versions of the government’s Medicare program, mainly for those aged 65 and older.

Additionally, the latter part of the year saw a spike in claims due to COVID-19-related expenses and increased doctor visits for vaccinations and other health concerns, according to company leaders. Chief Financial Officer John Rex highlighted the robust response of seniors to RSV vaccinations and scheduled physician visits.

Despite the substantial rise in medical costs to $62.23 billion in the quarter, up from $53.6 billion at the end of 2022, UnitedHealth leaders reassured investors that these increased costs would not impact their expectations for 2024. The company had previously stated in late November that it anticipated adjusted earnings between $27.50 and $28 per share for the new year. Analysts, according to FactSet, predict earnings of $27.87 per share.

For the final quarter of 2023, UnitedHealth reported a nearly 15% increase in profit, reaching approximately $5.5 billion. Adjusted earnings for the same period totaled $6.16 per share, exceeding analyst expectations, with revenue climbing 14% to $94.43 billion.

While the overall results surpassed expectations, Leerink Partners analyst Whit Mayo expressed a less optimistic view, noting that the company’s care-providing segment, Optum Health, had delivered “another lackluster quarter” with earnings falling below expectations and profitability shrinking.

As a major player in the healthcare industry, UnitedHealth, headquartered in Minnetonka, Minnesota, provides health insurance for over 47 million people in the United States and offers care, pharmacy benefits management, and technology services through its Optum segment. Often considered a bellwether for rivals, UnitedHealth’s performance is closely monitored by analysts. Following the announcement, shares of UnitedHealth Group Inc. dropped more than 4% to $516.63, while the Dow Jones Industrial Average, of which UnitedHealth is a member, experienced a less than 1% decline.

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