Financial Results

Although UnitedHealth Group is facing a host of headwinds — including responding to a massive cyberattack and managing elevated care utilization — Wall Street analysts largely deemed its first-quarter earnings report on April 16 “better than feared,” albeit with a few asterisks.

The cyberattack in question started in February and targeted UnitedHealth’s Change Healthcare division. It significantly disrupted providers’ ability to file claims and receive reimbursement, spurring UnitedHealth to issue short-term loans to some affected providers and temporarily suspend prior authorization for certain services, among other remediation measures.

Elevance Health, Inc. posted solid results in the first quarter of 2024 and announced an agreement to build a new primary care-focused provider unit with financing from private equity firm Clayton, Dubilier and Rice LLC (CD&R). Wall Street analysts were positive about the results, praising the firm’s relatively low care utilization — an area where other health insurers have struggled in recent quarters.

Elevance has been busy with dealmaking in recent months. The CD&R deal, announced April 15, will see the private equity firm and Elevance combine what a CD&R press release termed “certain care delivery and enablement assets of Elevance Health’s Carelon Health and CD&R portfolio companies, apree health and Millennium Physician Group” into a “payer-agnostic” primary care provider focused on value-based contracting, including for patients covered by commercial insurance. It will serve 1 million patients from its inception.

Although the cyberattack on its Change Healthcare subsidiary cost the company about $870 million, or 74 cents per share, in the first quarter of 2024, UnitedHealth Group on April 16 reaffirmed its full-year adjusted earnings per share (EPS) guidance of $27.50 to $28.00. Reporting financial results for the quarter ending March 31, the company said its Medicare Advantage business saw heightened outpatient care utilization that was consistent with what it experienced in the first half of 2023 and planned for in 2024. Winter seasonal activity that included vaccinations, higher incidents of respiratory illness and related physician office visits have subsided, management said. “If other MCOs had the same experience, it would be most positive” for Humana, “given its guidance for persistent, elevated utilization and investors’ likely preference for a 50%+ EPS recovery story (HUM) over slightly better revenue/EPS growth,” wrote Jefferies analysts on April 17. Revenue for the UnitedHealthcare segment grew 7% from the prior-year quarter to $75.4 billion, reflecting enrollment growth in its commercial and senior segments that was offset by expected declines in Medicaid due to ongoing eligibility redeterminations. UnitedHealthcare highlighted major managed Medicaid wins in Michigan, Texas and Virginia but expressed disappointment in the recent Florida selections.

Here’s how major health insurers’ stock performed in March 2024. Elevance Health, Inc. had the highest closing stock price among major commercial insurers as of March 28, 2024, at $518.24. Humana Inc. had the highest closing stock price among major Medicare insurers at $346.72.

Since last summer, major health insurers’ reports of unusually high outpatient care utilization have proven to be a thorn in the industry’s side — inflating medical loss ratios and forcing Humana Inc. to significantly downgrade its 2024 earnings outlook. And according to some Wall Street analysts, the trend isn’t likely to go anywhere soon.

With the COVID-19 pandemic winding down, “grandma has been locked in her house for the last three years; she’s ready to go on a cruise and she wants that new hip, she needs that new knee,” Deutsche Bank Managing Director George Hill said during the annual Wall Street Goes to Washington Roundtable on April 8, hosted by the Brookings Institution. That increased demand, he said, “has resulted in a surge in outpatient orthopedic procedures that we’ve seen, particularly among seniors, particularly impacting the Medicare Advantage books of business.”

Although NeueHealth Inc. — formerly known as Bright Health Group Inc. — still owes a substantial sum of money to health insurers and is struggling to stay afloat, its CEO received a $1.95 million cash bonus last year, according to a new regulatory filing.

“It really is just a mockery of good governance and fairness at this point,” remarks Ari Gottlieb, principal of A2 Strategies and a prominent critic of Bright and other startup "insurtech" firms.

NeueHealth did not respond to AIS Health’s questions about the basis for the bonus earned by G. Mike Mikan, who has served as the firm’s president and CEO since April 2020.

Recent reports from Wall Street analysts are shining a spotlight on challenges faced by UnitedHealth Group and Humana Inc., which are major players in the Medicare Advantage market. In particular, the authors cited increased utilization and potential lower reimbursement as reasons for pessimism, and they said they would be closely watching what insurers say during their upcoming first-quarter earnings calls.

Analysts’ concerns echo the sentiments that UnitedHealth and Humana executives expressed during their fourth-quarter earnings calls in January. However, it remains to be seen whether these are short-term trends or will continue for a longer period of time.

During its March 7 Investor Day, The Cigna Group raised its long-term earnings projection and highlighted the diverse offerings it believes will win client business and differentiate itself from competitors. The company placed particular emphasis on opportunities in the specialty pharmacy area, where it already has a strong foothold and plans on expanding in the coming years.

Cigna increased its long-term adjusted earnings per share (EPS) guidance range to an average growth of 10% to 14% per year, up from a range of 10% to 13%. For 2024, it kept its adjusted EPS target of at least $28.25, up from $25.09 last year.

UnitedHealth Group could face significant financial and legal consequences amid the ongoing cyberattack on its Change Healthcare subsidiary. A federal regulator is investigating the diversified health care giant for possible HIPAA violations; patients and providers have filed lawsuits; and the firm was forced to suspend prior authorization in many cases, which may hurt the bottom line of its UnitedHealthcare insurance arm, according to Wall Street analysts.

In addition to these immediate problems, Change Healthcare may lose the leading position it holds in its areas of operation. Some providers and insurers have already begun to switch to other revenue cycle management platforms and claims clearinghouses, one expert tells AIS Health, a division of MMIT.

The software-focused startup insurers known as “insurtechs” last year made tangible strides toward reaching profitability, according to their full-year earnings reports, backing up their executives’ statements that 2024 may see break-even results or better.

Financial institutions generally took a positive view toward Oscar Health Inc., Alignment Healthcare Inc. and Clover Health Investments Corp., but some analysts tempered their praise by pointing out holes in the firms’ growth and profitability strategies.

One former insurtech, the erstwhile Bright Health Group, Inc., exited the insurance business altogether, and now operates as a care delivery-focused business under the name NeueHealth.