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

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.

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

Its shares ended up 7%, while rivals Humana (NYSE:), Cigna (NYSE:) and Elevance Health closed 2% to 5% higher on Friday.

The results were a “welcome respite,” 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 premiums for its 2024 Medicare Advantage plans would be priced to soften the blow from an increase in non-urgent surgeries.

Health insurers’ costs have stayed low in recent years as pandemic-driven restrictions led to extended 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 had started opting for these procedures as COVID risks had receded, leading to a spike in costs.

In June, Humana had warned of a jump in its medical expenses this year, noting similar concerns.

UnitedHealth’s quarterly medical loss ratio – the percentage of its spending on claims compared to premiums collected – was 83.2%, compared with 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 with second-quarter expenses.

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

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