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UnitedHealth was slammed with medical costs as it closed out 2023. The health insurance behemoth still managed to exceed Wall Street’s financial expectations.
UnitedHealth posted a medical loss ratio of 85% in the fourth quarter — its highest MLR since the COVID-19 pandemic began early 2020.
MLR is a metric of how much payers shell out to cover their members’ medical expenses. Payers tried to shake the effects of higher medical costs all last year as patients who delayed healthcare during the pandemic returned to doctor’s offices.
The bulk of higher costs in the fourth quarter was driven by more seniors using outpatient services, a trend that first appeared in the second quarter of 2023, said UnitedHealth CEO Andrew Witty on a Friday morning call with investors.
UnitedHealth is the largest health insurer in the U.S., and the first to share earnings. As such, the Minnesota-based payer generally sets the stage for other managed care companies’ earnings each reporting season.
UnitedHealth’s MLR “will likely raise recent cost trend concerns for the rest of the managed care group,” J.P. Morgan analyst Lisa Gill wrote in a note Friday. The question is how much elevated utilization will continue into 2024. At the investment bank’s annual healthcare conference this week, CVS management also indicated they expected elevated costs to continue, though Cigna and Centene said cost trends are inline with prior forecasts.
UnitedHealth's Q4 medical costs were the highest in five years
$UNH medical loss ratio, Q1 2020-Q4 2023
UnitedHealth’s management said orthopedic and cardiac procedures were especially elevated. Later in the quarter, UnitedHealth also saw an increase in seasonal activity as more seniors sought out vaccinations for the respiratory virus RSV. Occasionally, those physician visits led seniors to receive additional care beyond the vaccination, said UnitedHealth CFO John Rex on the call.
COVID-19 activity was also higher than in past quarters. In December, UnitedHealth’s total number of COVID-19 hospital admissions was 50% to 60% higher than its October average, Rex said.
COVID-19 cases, emergency room visits and hospitalizations have been ticking up in the U.S., driven by a more infectious variant known as JN.1.
COVID-19 admissions for inpatient stays were also more expensive than normal in the fourth quarter, likely due to more intense cases heading into the hospital, Rex said.
However, higher utilization shouldn’t impact UnitedHealth’s 2024 outlook, since the payer changed its benefit design coming into the year to adjust for heightened outpatient care levels, Witty promised investors.