UnitedHealth Group, one of the largest health care and insurance providers in the United States, surprised Wall Street with its better-than-expected fourth-quarter performance. However, the company also faced a significant increase in medical costs, causing shares of UnitedHealth and other major health insurers to slip.
Throughout last year, health insurers grappled with rising medical expenses, and UnitedHealth was no exception. The company disclosed that its medical claims surged by 16% in the fourth quarter. This spike was attributed to a higher volume of outpatient procedures for heart and orthopedic conditions within its Medicare Advantage business, which caters to seniors aged 65 and older.
UnitedHealth also observed a rise in claims towards the end of the year due to the ongoing COVID-19 pandemic. Additionally, people sought healthcare services such as vaccinations and other medical care, leading to increased medical costs. Chief Financial Officer John Rex highlighted the strong response from seniors regarding RSV vaccinations and scheduled physician visits.
Despite the significant increase in medical costs, UnitedHealth's leadership reassured investors that it would not impact their expectations for 2024. The company had previously projected adjusted earnings between $27.50 and $28 per share for the new year, while analysts anticipate earnings of $27.87 per share, according to FactSet.
In the final quarter of 2023, UnitedHealth's profit climbed nearly 15% to approximately $5.5 billion, and its total annual earnings surpassed $22 billion. Adjusted earnings, excluding one-time items, reached $6.16 per share in the fourth quarter, accompanied by a 14% increase in revenue to $94.43 billion. Analysts had predicted earnings of $5.98 per share on $92.13 billion in revenue for the quarter.
UnitedHealth provides health insurance coverage for over 47 million Americans and offers additional services through its Optum segment, including care provision, pharmacy benefits management, and technology solutions. However, despite the positive earnings performance, some analysts expressed concern over the company's Optum Health arm, which delivered earnings below expectations and experienced shrinking profitability.
As the first major health care player to report earnings each quarter, UnitedHealth is often seen as a bellwether for the industry. Consequently, its results can impact investor sentiment towards its peers. Following the announcement, shares of UnitedHealth Group Inc., based in Minnetonka, Minnesota, dropped by more than 4% to $516.63, while the broader Dow Jones Industrial Average experienced a mild decline.
In summary, UnitedHealth Group exceeded expectations with its fourth-quarter earnings, but the surge in medical costs raised concerns among investors. The company attributed the increase to a rise in outpatient procedures for Medicare Advantage beneficiaries, as well as greater demand for healthcare services amid the COVID-19 pandemic. While the rising costs did not dampen UnitedHealth's outlook for 2024, analysts pointed out challenges faced by its Optum Health segment. The company's performance remains closely watched as a gauge of the overall health care industry.
