Home Health Optum, UnitedHealth profits up despite higher Medicare Advantage costs

Optum, UnitedHealth profits up despite higher Medicare Advantage costs

by News7

UnitedHealth Group exceeded second-quarter earnings expectations despite its Medicare Advantage members continuing to report higher-than-anticipated medical costs.

The healthcare giant, which is the parent company of UnitedHealthcare, the largest insurer, and Optum, the largest employer of physicians, on Friday reported second-quarter net income of $5.4 billion, or $5.82 per share. That’s up nearly 8% from the same period last year.

Revenue increased 15.6% to $92.9 billion, driven by a spike in investment income, which grew 278% to $1.1 billion because of a rise in interest rates, Chief Financial Officer John Rex said during the company’s earnings call.

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The company boosted its full-year adjusted earnings per share guidance by 20 cents, to a range of $24.70 to $25 per share.

The insurer’s stock opened at $462.62 a share Friday, up 3% from Thursday’s close. The company’s warning last month that Medicare Advantage members’ medical costs were rising faster than expected has worried investors. UnitedHealth Group’s stock is down 7.73% this year, below the market average. 

“Next year, we will once again grow at a pace exceeding that of the broader market,” CEO Andrew Witty said on the call.

Within its insurance segment, UnitedHealthcare’s profit margin remained flat at 6.2%. Net income rose 13.1% to $4.4 billion on revenue growth of 13%, to $70.2 billion.

Medicare Advantage members continued to schedule more outpatient surgeries at higher-than-anticipated levels during the quarter, which reflects deferred care, Witty said. UnitedHealthcare is the largest Medicare Advantage insurer with 7.6 million members. The insurer counts 47.4 million enrollees across its commercial, Medicaid and Medicare business lines.

The company has priced for increased care in its 2024 Medicare Advantage bids, although federal regulators’ changes to the Medicare Advantage risk-adjustment program were a much more important consideration among actuaries when constructing its benefits packages, Witty said. 

The rise in Medicare Advantage utilization pressured profit margins at Optum because of the shared-risk relationships the healthcare services business has with outside payers. Coupled with increased demand for behavioral health services and growth in new patients served, Optum’s profit margin dipped to 6.6%, from 7.3% in last year’s second quarter. 

The healthcare services business’ net income grew 12.7% to $3.7 billion on 25% revenue growth, to $56.3 billion. 

Within the portfolio, the company’s OptumHealth provider business reported net income of $1.5 billion, up 9%. The company’s pharmacy benefit manager, OptumRx, reported a 16% rise in net income to $1.2 billion, driven by more patients filling prescriptions. UnitedHealth’s OptumInsight technology arm reported net income of $96.8 million, up 15.3%. 

The company is looking at using generative artificial intelligence to try and cut costs associated with prior authorization and call centers, Witty said. It will also continue to look for ways to cut its operating expenses, he said. “We continue to bear down on our core operating costs very, very assertively,” he said.

Source : Modern Healthcare

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