UnitedHealth's stock jumps as earnings top estimates despite cyberattack costs

By Tomi Kilgore and Eleanor Laise

Full-year cost of Change Healthcare hack could hit $1.9 billion, company says

Shares of UnitedHealth Group Inc. climbed more than 5% Tuesday morning after the healthcare giant's second-quarter earnings beat forecasts, despite increasing medical and cyberattack-related costs and challenges in its Medicaid business.

UnitedHealth's medical loss ratio, or the percentage of premium dollars spent on services - lower is better - climbed to 85.1% in the quarter, up from 83.2% a year earlier and above the FactSet consensus of 84.5%.

The company estimates that the impact during the quarter of the Change Healthcare cyberattack earlier this year was 92 cents a share, or about $858 million.

The total cost of the cyberattack for the year is expected to be $1.90 to $2.05 a share, or about $1.79 billion to $1.90 billion. That includes $1.30 to $1.35 a share in direct-response costs, which is an increase of 40 cents to 45 cents a share from the initial estimate. The projected costs have grown due to financial support offered to care providers and the costs of notifying consumers, UnitedHealth said.

The quarter's medical loss ratio likely came as a disappointment to investors who were already expecting some deterioration in that metric, Mizuho Securities analysts said in a research note Tuesday. UnitedHealth executives warned at a late May conference that they didn't have a lot of visibility into patients' utilization of healthcare services, in part because the Change Healthcare cyberattack delayed the processing of claims.

Although the flow of payments and claims is back to normal for most care providers, "we know that is not the case for some," John Rex, UnitedHealth president and chief financial officer, said on a call with analysts Tuesday. "So we continue to work with those who are not there yet."

The company has encountered higher medical expenses "directly stemming from the temporary pause of some care-management activities," Rex said on the call. UnitedHealth temporarily relaxed prior-authorization requirements and other utilization-management programs due to the hack.

There's also a "mismatch" between the health status of the company's remaining Medicaid members and state Medicaid rates, Rex said on the call. Over 20 million people have lost Medicaid coverage since April of last year, when states were allowed to resume disenrolling people who were no longer eligible for the program. A pandemic-era law previously gave states extra federal funding in exchange for keeping people on the Medicaid rolls.

The Medicaid rate mismatch should start to be resolved in the coming months, Rex said.

The results come as major pharmacy benefit managers, including UnitedHealth's Optum Rx, are facing growing scrutiny from regulators and lawmakers over their business practices. Optum Rx revenues jumped 13% in the second quarter, to $28.6 billion.

For the quarter to June 30, UnitedHealth Group's net income fell to $4.22 billion, or $4.54 a share, from $5.47 billion, or $5.82 a share, in the same period a year ago.

Excluding nonrecurring items, such as one-time costs associated with its South America business and the cyberattack, adjusted earnings per share rose to $6.80 from $6.14 and beat the FactSet consensus of $6.66.

The company has now beat EPS expectations for at least the 21st straight quarter, according to available FactSet data.

Total revenue grew 6.4% to $98.86 billion, above the FactSet consensus of $98.7 billion, with UnitedHealthcare revenue up 5.3% to $73.9 billion and total Optum revenue rising 11.7% to $62.9 billion.

Total operating costs rose more than revenue, up 7.2% to $90.98 billion, including an 8.6% increase in medical costs to $65.46 billion.

Total people served domestically in UnitedHealthcare commercial plans increased to 29.57 million as of June 30 from 27.18 million a year ago.

People served in Medicare Advantage totaled 7.77 million as of June 30, little changed from the 7.76 million reported for the first quarter. Given the limited growth in the second quarter, UnitedHealth appears to be on track to fall short of its 2024 Medicare Advantage membership target, Leerink Partners analysts said in a research note Tuesday.

Looking ahead, the company affirmed its 2024 adjusted EPS guidance of $27.50 to $28.00 a share.

UnitedHealth's results helped boost the stocks of other major health insurers Tuesday, as Elevance Health Inc. shares (ELV) gained 3.4%, Centene Corp. shares (CNC) gained 2.9% and Humana Inc. shares (HUM) gained 2.5%.

UnitedHealth's stock (UNH) has climbed 3.4% in the year to date, while the S&P 500 has advanced 18.4%.

-Tomi Kilgore -Eleanor Laise

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

07-16-24 1057ET

Copyright (c) 2024 Dow Jones & Company, Inc.