October 2, 2023

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UnitedHealth’s lower-than-feared costs lift profit, shares By Reuters

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© Reuters. The corporate logo of the UnitedHealth Group appears on the side of one of their office buildings in Santa Ana, California, U.S., April 13, 2020. REUTERS/Mike Blake

By Bhanvi Satija and Raghav Mahobe

(Reuters) -UnitedHealth Group’s quarterly profit beat Wall Street estimates on Friday as a smaller-than-expected jump in medical costs allayed fears that a resumption in long-delayed surgical procedures would hit profit growth, sending its shares up 8%.

UnitedHealth (NYSE:)’s report allowed investors to breathe a sigh of relief following a $60-billion wipeout in industry market value last month, after the company raised alarms about rising costs.

Shares of rivals Humana (NYSE:), Cigna (NYSE:) and Elevance Health were up between 3% and 5% on Friday.

The results provide a “welcomed respite today”, after several weeks of pain for investors in health insurance companies, Stephens analyst Scott Fidel said in a note.

CFO John Rex said the company expects that premiums in its Medicare Advantage plans for 2024 would be priced to soften the blow from an increase in non-urgent surgeries.

Health insurers’ costs have been suppressed in recent years as pandemic-driven restrictions caused long delays in elective procedures such as hip and knee replacements, especially among older adults at higher risk of COVID.

UnitedHealth last month said Medicare-eligible adults were becoming more comfortable getting such procedures as COVID risks receded, leading to a spike in costs.

The company’s quarterly medical loss ratio – the percentage of spend on claims compared to premiums collected – was 83.2%, compared to analysts’ expectations of 83.4%, according to Refinitiv.

The healthcare conglomerate said it expects medical costs for the third quarter to be “a little bit lower” compared to the second quarter.

UnitedHealth raised the lower end of its annual adjusted profit forecast to $24.70, from $24.50 per share previously.

In June this year, Humana also warned of a jump in its medical expenses for this year, after noting similar concerns as UnitedHealth.

UnitedHealth’s second-quarter profit of $6.14 per share topped expectations of $5.99.

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