UnitedHealth slides, drags peers on warning of higher medical costs

SVB Securities cuts UnitedHealth’s price target saying outpatient activity has run elevated throughout Q2

Shares of UnitedHealth (UHN) are under pressure pre-market opening on Wednesday after the company reportedly warned of a spike in medical costs in the second quarter as more older adults undergo non-urgent procedures that were delayed thanks to the COVID-19 pandemic. The news also sent several rival health insurers into negative territory, including Humana (HUM), Elevance Health (ELV), and Aetna owner CVS Health (CVS).

HIGHER MEDICAL COSTS: UnitedHealth warned of a spike in medical costs in the second quarter as more older adults undergo non-urgent procedures they had delayed during the pandemic, Reuters’ Leroy Leo reports. UnitedHealth, at a Goldman Sachs healthcare conference, highlighted elevated demand for outpatient medical procedures, particularly related to knees and hips, from patients in Medicare health plans meant for those aged 65 and above, the author notes.

"We’re seeing that more seniors are just more comfortable accessing services for things that they might have pushed off a bit like knees and hips," Tim Noel, CEO of UnitedHealth’s Medicare and retirement business, said late Tuesday. This pent-up demand is expected to drive up its second-quarter medical loss ratio – a percentage of its spend on claims compared to the premiums it collects – to the high-end or moderately above its full-year outlook of 82.1% to 83.1%.

TARGET CUT: SVB Securities analyst Whit Mayo lowered the firm’s price target on UnitedHealth to $560 from $625, while keeping an Outperform rating on the shares after the company noted during a competitor conference that outpatient activity particularly in the Medicare business has run elevated throughout Q2. UnitedHealth believes some of this activity relates to pent-up demand that is long dated enough to incorporate into 2024 MA bids, the firm notes. Further, the health insurer now expects Q2 MLR to be at the high-end or moderately above the full year guide and its 2023 MLR to be at the upper half of this guide.

PRICE TARGET: In pre-market open trading, shares of UnitedHealth have dropped almost 6%, while Humana’s stock is down about 7.5%, Elevance is trading 5% lower, and CVS has slipped almost 4%.