UnitedHealth's medical costs rise in third quarter, shares fall

(Reuters) – UnitedHealth Group's third-quarter medical costs beat Wall Street estimates on Tuesday, as the insurer paid out more and received lower reimbursements for government-sponsored insurance plans due to continued high demand for health care services.

Demand for health care services under the government's Medicare plans — for people age 65 and older or those with disabilities — has surged since late last year as many older adults opted for procedures they had put off during the pandemic.

Shares of UnitedHealth fell 3% in premarket trading after the health care group also cut the top end of its annual adjusted profit forecast by 25 cents to $27.75 per share.

The cut was due in part to increased damage of 10 cents per share from a cyberattack on UnitedHealth's technology unit, Change, in February. The company expects a business disruption of $705 million, or 75 cents per share, this year.

UnitedHealth issued billions of dollars in loans to providers affected by the ransomware attack on Change, part of the group's Optum health services unit, and incurred costs associated with notifying customers of the breach.

Despite all the measures, UnitedHealth's smaller competitors say they are entering into longer-term contracts with hospitals and other customers that had temporarily switched from Change.

According to data compiled by LSEG, UnitedHealth's medical loss ratio – the percentage of premiums spent on medical care – was 85.2% in the third quarter, up from 82.3% a year ago and analysts' estimate of 84.2%.

Despite the rise in medical costs, UnitedHealth beat Wall Street estimates for adjusted profit by 15 cents, driven by increased membership across all divisions.

Higher medical costs were also partially offset by lower-than-expected sales and general expenses, said Lisa Gill, an analyst at JP Morgan.

The company reported revenue of $100.8 billion, compared to estimates of $99.28 billion.

(Reporting by Puyaan Singh and Leroy Leo in Bengaluru; Editing by Shinjini Ganguli)