UnitedHealth Group (UNH) Q2 2023 outcomes

“United Health Group”Shares soared on Friday after the healthcare giant reported second-quarter sales and adjusted earnings that beat Wall Street expectations, despite rising medical costs.

The results eased investor concerns after the Minnesota-based company reported a surge in demand for non-urgent surgeries and outpatient services last month, unsettling the market.

UnitedHealth shares closed up more than 7% on Friday. However, the stock is down more than 9% so far this year.

UnitedHealth Group is the largest healthcare company in the United States by market cap and revenue, even larger than the country’s largest banks. Due to its size, the UnitedHealth Group is considered a pioneer for the entire health insurance sector. Its market value was around $447 billion at the close on Friday.

Here’s what UnitedHealth Group reported versus Wall Street expectations, based on a Refinitiv analyst poll:

  • Earnings per share: $6.14 adjusted vs. $5.99 expected
  • Revenue: $92.9 billion versus $91.01 billion expected

UnitedHealth Group reported net income of $5.47 billion, or $5.82 per share, for the quarter. This compares to $5.07 billion, or $5.34 per share, in the prior-year period. Excluding certain items, the company’s adjusted earnings per share for the period was $6.14.

The company reported total revenue of $92.9 billion for the quarter, up 16% from the same period last year. That excludes $33.6 billion in “eliminations,” which are payments from the company’s UnitedHealthcare business to its other division, Optum. UnitedHealth Group cannot book these transactions as revenue because it pays itself.

UnitedHealthcare, which provides insurance coverage and benefits to more than 50 million people, saw revenue increase 13% year over year to $70.2 billion in the second quarter.

The company’s other platform, Optum, reported a nearly 25% year-over-year increase in revenue to $56.3 billion. Optum provides healthcare services and operates one of the largest pharmacy benefit managers, or middlemen, negotiating drug discounts with drug manufacturers on behalf of health insurers and large employers.

Optum’s growth was helped in part by UnitedHealth Group’s roughly $8 billion acquisition of healthcare technology company Change Healthcare.

This is also due to the fact that the number of patients served by Optum’s healthcare services business under value-based care agreements increased by more than 900,000 compared to last year.

UnitedHealth Group raised the low end of its full-year adjusted earnings guidance to $24.70-$25.00 per share from a previous guidance of $24.50-$25.00 per share.

The company’s medical expense ratio – the percentage of claims paid out compared to premiums – was 83.2%. According to FactSet, analysts had estimated that the ratio would be 83.3% for the quarter.

The medical expense ratio has increased by almost 2% compared to the same period last year. UnitedHealth Care said this was due to previously noted increases in elective surgeries and home care activities, particularly among seniors.

“For illustration, in the second quarter, outpatient care activity among seniors was a few hundred basis points above our expectations,” UnitedHealth Group CFO John Rex said during a earnings call.

Noting that much of that care comes from seniors undergoing outpatient heart surgery and hip and knee replacements, Rex echoed his earlier comments at last month’s Goldman Sachs health conference.

UnitedHealth Group expects its medical expense ratio to be “slightly lower” in the third quarter compared to the second quarter, Rex said during the call.

He added that the company also expects the medical expense ratio to be “slightly higher” in the third quarter than in the fourth quarter, noting that this is “just a seasonal factor.”

But overall, the company expects “the overall pace of care activity to remain constant,” according to Rex.

Insurance companies have benefited in recent years from delays in non-urgent interventions due to staff shortages in hospitals and the pandemic that has caused hospitals to be inundated with Covid patients. Back then, hospitals were generally considered too risky to visit for elective procedures.

However, executives at UnitedHealth Group hinted that the trend could reverse.

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