Dive Brief:
- UnitedHealth beat Wall Street expectations on both earnings and revenue in the third quarter with revenue of $80.9 billion, up 12% year over year. The healthcare giant increased its 2022 earnings expectations as a result.
- Minnetonka, Minnesota-based UnitedHealth chalked the rise up to an increase in members served by payer UnitedHealthcare and growth in value-based care arrangements and care delivery platforms at Optum. Both businesses reported double-digit growth.
- On a call with investors Friday morning, CFO John Rex said that UnitedHealth expects Change Healthcare — the data analytics business UnitedHealth acquired earlier this month despite a challenge from regulators — to be accretive to Optum’s earnings next year, not in 2022 as previously expected.
Dive Insight:
UnitedHealth kicked off managed care earnings season on Friday, reporting a quarter characterized by well-controlled medical costs, analysts said.
UnitedHealthcare’s medical cost ratio was 81.6% in the quarter, compared to 83% at the same time last year. The MLR was lower than analysts expected for the second straight quarter.
Rex told investors that UnitedHealth has seen reasonably stable utilization for the bulk of this year, with outpatient services generally back to normal. Inpatient utilization remains a little under the payer’s historical baseline.
“COVID effects appear to be muted this year,” Jefferies analyst David Windley wrote in a note on the results.
The disease is becoming less of a factor for UnitedHealth’s 2023 pricing, CEO Andrew Witty said, as other macro pressures rise in importance, like labor and inflationary effects.
UnitedHealthcare’s revenue grew 11% to $62 billion in the quarter. Its earnings were up 41% to $3.8 billion.
The payer ended the quarter with 51.3 million members, reporting slight sequential growth in commercial, Medicare Advantage and Medicaid rolls.
UnitedHealthcare is among payers that saw a hit to their most recent MA star ratings. The decline could cause the payer — the largest MA carrier in the U.S. — to lose out on government bonuses and valuable MA revenue in 2024.
However, Rex said the recently released ratings were “consistent with our long-term planning expectations,” and that UnitedHealthcare still has at least 80% of its members in plans with four stars or above.
The payer’s Medicaid rolls are still benefiting from a lack of redetermination as the COVID-19 public health emergency continues. UnitedHealth executives said they are working with states, community organizations and employers to educate consumers about alternative coverage arrangements once states resume eligibility checks.
UnitedHealthcare’s commercial business appears to have stabilized following a period of decline, analysts noted. UnitedHealth has been investing in Affordable Care Act exchanges over the past couple of years, and plans to expand into four new states in 2023.
Meanwhile, Optum’s revenue grew 17% year over year to $46.6 billion. Earnings were up 19% to $3.7 billion.
The unit’s medical practice OptumCare currently covers roughly 20 million lives, with a little under 15% in fully capitated arrangements. Despite that being a small fraction of total lives, those capitated members account for an outsized portion of Optum’s revenue, Witty said.
“There’s a lot of runway there and that’s really what underpins our confidence in sustained growth,” Witty said.
The earnings come less than a month after UnitedHealth closed its controversial acquisition of Change Healthcare, after a judge denied the Department of Justice’s attempt to block the combination. Regulators sued to block the deal in February, citing antitrust concerns, including worries the tie-up would allow UnitedHealth to mine data from billions of healthcare claims.
The judge did order UnitedHealth to divest its claims processing businesses.
Change is expected to bring about $800 million of revenue to Optum in the fourth quarter without any impact on operating earnings, though final figures will depend on factors like integration costs and potential additional investments in the business, Rex said.
