That knee surgery you postponed could soon hobble insurance giants


One information level says all of it: the medical loss ratio at UnitedHealth Group, the biggest managed care firm, has crushed the Wall Avenue analyst consensus in 10 of the final 11 fiscal quarters, based on information from FactSet.

However that might begin to shift subsequent yr. UnitedHealth on Monday projected adjusted earnings per share for 2023 of $24.40 to $24.90, barely beneath analyst expectations of $24.92, based on FactSet.

The slight miss is being pushed by a medical loss ratio of 82.6%, which got here in greater than the analyst consensus of 82.3%. The upper the MLR quantity, the upper the prices for the insurance coverage corporations. For comparability sake, UNH’s MLR ratio in the latest quarter was 81.6%.

UNH’s greater MLR information suggests administration expects rising affected person utilization because the hospital labor scarcity eases, Sanford Bernstein’s Lance Wilkes wrote.

Because the begin of the pandemic, hospitals have confronted unprecedented margin pressures as practically 20% of their workforce stop. The large exodus of employees within the healthcare area drove up salaries for individuals who stayed whereas limiting hospitals’ capability to supply providers. The decrease capability, and maybe lingering considerations about Covid-19 among the many aged, meant many sufferers continued to postpone profitable procedures corresponding to hip replacements. That development is now lastly beginning to reverse.

In a current be aware downgrading UNH and Cigna shares earlier this month, Raymond James‘ John Ransom famous it is going to be powerful for managed care corporations to copy one other yr of low prices, with lots of the docs and nurses that escaped on “revenge journey” within the third quarter coming again, boosting capability. He additionally highlighted the “triple risk” of the flu, RSV and Covid hurting insurer income within the winter months.

It’s seemingly UnitedHealth is being overly cautious with its estimates. UNH is well-known for offering conservative outlooks after which persistently beating these projections. Mr. Wilkes wrote that UNH often improves earnings steerage by 3% to six% and it’s seemingly being cautious on medical prices.

A key query is simply how massive the backlog of procedures actually is. Many analysts have been mystified by the low utilization this yr at the same time as Covid-19 eased. Mr. Ransom, who continues to be optimistic on the sector, stated he doesn’t purchase “the notion that there’s some long-dated elective backlog that can emerge—we expect we might have seen it by now.”

Nonetheless, the problem for buyers is that managed care corporations have delivered glorious returns that shall be powerful to maintain replicating. Cigna‘s inventory is certainly one of healthcare’s high performers thus far this yr including 40%, whereas UNH is up 5.1%, and Humana is up 15%. That compares with a 17% decline for the S&P 500. In the meantime, managed-care price-to-earnings ratios are close to the highest of their four-year common.

Managed care corporations have been glorious defensive shares all through the pandemic, and particularly throughout the bear market this yr. Subsequent yr will not be all that dangerous, but it surely may nonetheless undergo by comparability.

This story has been revealed from a wire company feed with out modifications to the textual content

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