Shares in several leading health insurers dropped dramatically this week following comments from UnitedHealth Group Inc. leadership indicating higher-than-anticipated medical cost losses for the second quarter.
During a Tuesday presentation at the Goldman Sachs Healthcare Conference, CFO John Rex said although inpatient levels were "pretty controlled," outpatient levels rose during the last quarter.
There is some indication that the rise in outpatient care is the result of pent-up demand due to COVID-19-related delays, Rex said, as the increase has been focused among seniors and Medicare business.
In its first-quarter earnings release, UnitedHealth projected a medical loss ratio of between 82.1% and 83.1% for the full year. The company's second-quarter medical loss ratio is likely to be in the upper bounds of that range or moderately above it, Rex said.
"I think the question is which quarter would you see [an increase in outpatient care] occur," Rex said. "So it's not really impacting the ranges of the full year that we've set up, but is more impacting what we're seeing right now."
First out the gate
UnitedHealth is typically the first major managed care insurer to report quarterly earnings and is expected to release its second-quarter figures in mid-July.
Following the presentation, Stephens analysts Scott Fidel and Raj Kumar expressed concerns about the medical loss ratio in a research note, lowering 2023-2025 EPS estimates from $605 a share to $560 while maintaining UnitedHealth's overweight ranking.
Similarly, J.P. Morgan analysts wrote in a research note that UnitedHealth is anticipated to miss the consensus medical loss ratio for the second quarter.
Additionally, managed care stocks will trade down and hospitals, specifically Surgery Partners Inc., could potentially trade up, according to the J.P. Morgan analysts.
"We think [UnitedHealth's] comments will increase the perceived risk for the group going into 2Q earnings even though the impact could vary significantly depending on each company's pricing/utilization assumptions," the analysts wrote.
Following the presentation on June 13, UnitedHealth's stock fell about 5% and was trading at $459.86 a share by the end of trading on June 14. The stock value recovered slightly and was trading at $460.68 a share by noon Friday, June 16.
The competition
Several other managed care insurers saw drops in stock price following the June 13 UnitedHealth presentation, although some had recovered by the week's end.
By noon Friday, CVS Health Corp. fell about 4% from its Monday value. After experiencing some decline on Wednesday following the UnitedHealth presentation, The Cigna Group had recovered by noon Friday, ending the week relatively flat. Humana Inc. fell the furthest, tumbling over 12%.
Prior to June 13, Humana had been outperforming its peers in the weeks since its first-quarter earnings report, which showed above-trend Medicare Advantage growth.
Humana reaffirmed its expense ratio guidance range of 86.3% to 87.3% in a Form 8-K released Friday and indicated that it now expects to be at the top end of that full-year range.
"This expectation is primarily driven by the emergence of higher than anticipated non-inpatient utilization trends, predominately in the categories of emergency room, outpatient surgeries, and dental services, as well as inpatient trends that have been stronger than anticipated in recent weeks, diverging from historical seasonality patterns," the 8-K said.
The S&P 500 fared better and rose 3.03% for the week ending June 16 and hit 4,429.26 by noon. The S&P 500 U.S. Insurance index rose 1.85% to 577.21 during the same period.