UnitedHealth Warns Past Catastrophes Are No Gauge for Covid-19

April 15, 2020, 3:33 PM

As the coronavirus pandemic threatens to upend the U.S. health care system and the wider economy, UnitedHealth Group Inc. said that the consequences of the crisis are difficult to predict.

UnitedHealth has a broad view of the health-care system few companies can match. It operates America’s largest health-insurance business, UnitedHealthcare. Its Optum division is one of the country’s largest providers of medical care, with 1,500 facilities that span primary-care offices, urgent-care clinics and ambulatory surgery centers.

For the first quarter of 2020, UnitedHealth posted stronger-than-expected earnings and sales and maintained its earnings targets for the full year. But the company said the effects of the pandemic only started to be felt late in the quarter, which ended on March 31. Covid-19 infections began to soar in the U.S. in the middle of last month.

Other important business metrics “likely will play out differently than we expected,” Chief Executive Officer Dave Wichmann said on a call with analysts.

Past catastrophes such as natural disasters or the 2008 financial crisis may not offer a reliable guide to how the pandemic will change when and how people seek medical care and health insurance, company executives said.

“This situation is just so different from anything we’ve seen before,” Chief Financial Officer John Rex said on the conference call. While demand bounces back quickly after hurricanes or other disasters, he said, Covid-19 may not follow that pattern.

Shares of UnitedHealth gained 1.2% in at 10:34 a.m. in New York.

Separately, UnitedHealth said Andrew Witty, the chief executive officer of its Optum unit, would help lead a World Health Organization effort to speed up development of a Covid-19 vaccine. Witty will return at about year-end, the company said in a statement. Wichmann will oversee Optum during Witty’s appointment at the WHO, which is effective April 20.

Deferred Care

Demand for scheduled care like knee replacements, check-ups or mammograms has disappeared or shifted to virtual visits, as patients and clinicians reduce physical contact to slow the spread of Covid-19. The question of when or whether patients will ultimately get those procedures looms large for the health-care industry.

UnitedHealth saw medical procedures start to decline in late March, and continue to fall in April. Already, some medical providers are struggling as billings dry up. UnitedHealth said it sped up $2 billion in payments to help providers with liquidity.

It’s also beginning to see the stress on its employer clients. In a typical month, UnitedHealthcare extends a grace period for late premium payments to clients that represent about 0.4% of its insurance premium revenue. In April, that number is up to about 3%, said Dirk McMahon, president and CEO of the insurance division.

UnitedHealth reported adjusted earnings per share of $3.72, compared with $3.73 a year earlier. Analysts had expected $3.65 a share, on average, according to estimates compiled by Bloomberg. Revenue increased 6.8% to $64.4 billion. The results reflected “minimal impact” from the pandemic, the company said in a statement.

Some segments of UnitedHealth’s insurance business saw declines in membership. Its commercial plans lost 475,000 members year-over-year, while its Medicaid business lost 545,000 as the company left some markets. Its Medicare Advantage plans added 410,000 members.

Revenue in the Optum health-services business increased by almost 25%.

Volatile Ratio

UnitedHealth’s medical-loss ratio, the percentage of premiums it pays out for medical care, was 81%, compared with the 82% a year earlier. The metric might drop significantly in the second quarter, the company said, and increase later in the year if demand for medical care unrelated to Covid-19 rebounds.

Health insurers are required to give rebates to clients if medical costs fall well below expected levels. UnitedHealth may consider “additional premium relief” beyond required rebates, Wichmann said.

UnitedHealth also left the door open to re-entering the Affordable Care Act marketplaces, a business it has largely withdrawn from. As people lose jobs, more may seek health coverage from Obamacare or state Medicaid programs. McMahon said the company would have a clearer view of whether it would participate in Obamacare markets next quarter.

The company won’t request, nor does it intend to retain, any government assistance, it said in its statement. Numerous industries have sought or received financial or other aid from the U.S. government as a result of the pandemic.

To contact the reporter on this story:
John Tozzi in New York at jtozzi2@bloomberg.net

To contact the editors responsible for this story:
Drew Armstrong at darmstrong17@bloomberg.net

Timothy Annett, Mark Schoifet

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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