Rise in Medical Expenses Causes UnitedHealth Stock Drop, Affecting Competitors
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UnitedHealth Shares Drop 5% as Company Warns of Higher Medical Costs in Q2, Affecting Competitors
UnitedHealth Group experienced a 5% decrease in its stock value before the market opened on Wednesday following a cautionary statement from the health insurer regarding an anticipated increase in medical expenses during the second quarter. The rise in costs can be attributed to a surge in non-urgent procedures among senior citizens, which were postponed during the pandemic.
The warning also had a negative impact on the shares of rival health insurance companies that had benefited from the postponement of non-essential surgeries like hip and knee replacements. Additionally, staffing shortages in hospitals contributed to a decline in the overall number of procedures.
During a Goldman Sachs healthcare conference, UnitedHealth highlighted a growing demand for outpatient medical procedures, particularly related to knee and hip treatments, among patients covered by Medicare health plans designed for individuals aged 65 and above.
Tim Noel, CEO of UnitedHealth's Medicare and exit business, stated that more seniors now feel comfortable accessing services they had previously postponed. This pent-up demand is expected to drive the company's medical loss ratio for the second quarter higher, potentially exceeding the full-year outlook range of 82.1% to 83.1%.
UnitedHealth also anticipates that its full-year medical loss ratio will fall towards the upper end of its initial forecast.
Morningstar analyst Julie Utterback noted that the reduced demand for procedures during the pandemic had largely benefited health insurers while negatively impacting hospitals and other healthcare providers.
UnitedHealth's trailing price-to-earnings ratio of 18.51 is higher compared to its competitors Cigna Corp (10.29) and CVS Health Corp (8.26).
