Increased utilization negatively affecting UnitedHealth's medical loss ratio

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UnitedHealth Group closed out the final quarter of 2023 with $5.5 billion in profit, an increase from the $4.8 billion it posted in Q4 of 2022, the company revealed in its latest earnings report.

At the same time, UHG logged $94.4 billion in revenue during the quarter, up from $82.8 billion in Q4 2022. For the full year of 2023, UHG recorded $371.6 billion in revenue and $22.4 billion in profit – both increases over the $324.2 billion in revenue and $20.1 billion in profit it posted in 2022.

Despite the financial performance, the company saw utilization spike in Q4, attributing the trend to a rise in RSV vaccinations and higher COVID-19-related costs, particularly in December. Combined with seniors and other patients seeking services that were delayed during the pandemic, UHG's medical loss ratio was 85%, which Barron's reported put a scare into investors and drove down the company's stock price.

These cost pressures on UnitedHealthcare, the nation's largest insurer, may be an industry bellwether for other manager care players, according to Seeking Alpha. RBC Capital Markets analyst Ben Hendrix said UnitedHealth's medical costs could have a negative readthrough to other managed-care companies this earnings season, according to the report.

UnitedHealth Group CEO Andrew Witty said during the earnings call that higher utilization is good news for healthcare.

"So these are seniors, many of whom had not been to the office for a long time," Witty said. "They've come back in and now got vaccinated. The physicians have picked up other things while they've been there. So a little bit of that going on combined with a little bit of heightened COVID activity just as we rolled out of the year. None of which we really think is durably impacting our outlook for '24."

WHAT'S THE IMPACT?

Insurance arm UnitedHealthcare and health-services business Optum both experienced growth that drove the revenue increase, UHG said.

UnitedHealthcare's full year revenues of $281.4 billion grew $31.6 billion, or 12.7%, year-over-year, while operating earnings increased 14.2% to $16.4 billion. Members with commercial benefits grew by more than 800,000 for the full year, while the number of people served by the company's offerings for seniors and people with complex needs grew by 950,000.

At the same time, though, roughly 700,000 people fell off its Medicaid rolls during the redetermination process, prompting UHG to comment that it "remains actively engaged with the individuals impacted and continues with its comprehensive outreach to help families maintain, reinstate or find other affordable coverage."

Optum continued its solid performance, with $226.6 billion in revenue for the year and operating earnings of $15.9 billion. Revenue was 33% higher than last year, which UHG said was driven by growth in patients served under value-based arrangements, along with the continued expansion of the types and levels of care provided. The number of patients served under value-based arrangements grew by nearly 900,000 to more than 4.1 million.

Optum Rx revenue increased 16.4% in 2023 due to growth in serving new clients, expanded relationships with existing clients and continued advancement in the comprehensive scope of pharmacy services offered, including specialty and community-based pharmacies, UHG said. 

Optum Insight revenue, meanwhile, increased 29.8% due to the addition of Change Healthcare and growth in its technology-enabled offerings, which serve health systems, care providers, health plans and life sciences organizations.

THE LARGER TREND

UHG's $5.4 billion acquisition of home health company LHC Group formally closed in February 2023. LHC provides healthcare services in the home for a demographic of mostly older patients dealing with chronic illnesses and injuries. It will be melded with Optum, which manages drug benefits and offers data analytics services and works with more than 100 health plans.

Optum positioned the move as helping to advance value-based care and said it would accelerate the combined companies' ability to deliver integrated care, leading to improved outcomes.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.