COVID-19 had minimal impact on UnitedHealth’s Q1 earnings
WHILE THE COVID-19 pandemic has drained hospitals and physician practices of revenue and prompted widespread furloughs, the crisis’ effect on health insurers has been less clear.
UnitedHealth Group, the parent company of the nation’s largest health insurer, on April 15 offered the first glimpse into how the pandemic could affect the insurance sector’s financials. The verdict? Not by much, at least in the first quarter.
UnitedHealth executives said COVID-19 has so far had limited effects on the company’s earnings, though that could change later in the year, and UnitedHealth is keeping its full-year earnings expectations.
Even though UnitedHealth pledged to eliminate patient costs for coronavirus-related testing and treatment and has donated funds to support communities most affected by the pandemic, it is benefiting from the postponement of high-cost, elective procedures across the nation.
These are the same elective procedures that many healthcare providers rely on but were forced to defer to conserve resources for a potential influx of COVID-19 patients. Routine doctor’s visits are also being canceled because of fear and state shelter-in-place orders.
UnitedHealth Chief Financial Officer John Rex explained that the pandemic’s effects on the company in the first quarter were limited because coronavirus cases in the U.S. began meaningfully rising in mid-March—the end of the quarter. The effects on elective care also began showing up late in March.
UnitedHealth’s revenue for the three months ended March 31 grew 6.8% year over year to $64.4 billion, while its earnings from operations increased 3.4% to $5 billion. The company’s net profit was $3.5 billion, down 2.6% from the same point in the previous year as medical and operating costs increased.
A fuller picture of the pandemic’s effects could come in the second quarter. It’s likely the company’s medical loss ratio, which illustrates the percentage of premium revenue that insurers spend on medical care, could be the lowest in the second quarter with elective care still postponed, but could increase again in the second half of the year as some of these procedures are rescheduled, Rex said.
UnitedHealth reported a loss ratio of 81% in the first quarter, down from 82% at the same time last year.
UnitedHealth CEO David Wichmann told investment analysts that the company is “committed to ensuring that any financial imbalances which arise from this situation are reconciled proactively and addressed fairly” and in a timely fashion.
That means that UnitedHealth may end up paying rebates to customers and providing “some additional premium relief” to employers, Wichmann said, but he warned it’s unclear if the company will be able to do this, given it has committed funds to address the broader healthcare system’s shortage of protective gear and accelerated $2 billion in provider claim payments in response to the pandemic.
Company officials expect commercial group membership to shrink as employers furlough and lay off workers amid the pandemic. More than 22 million people have filed for unemployment benefits since mid-March, the Labor Department reported last week.
At the same time, UnitedHealth could see membership increases in its individual and Medicaid health plans as those laid-off workers seek coverage elsewhere. The company is considering re-entering some Affordable Care Act individual exchange markets in 2020, executives said.
UnitedHealthcare membership decreased by about 2% to 48.5 million people in the first quarter.
Meanwhile, Optum, UnitedHealth’s fast-growing health services arm, has been disrupted by COVID-19 but could come out stronger on the other end as clients look for ways to improve their healthcare delivery and economics, company officials suggested. OptumHealth, which employs physicians and provides healthcare, has cared for more than 10,000 COVID-19 patients and is operating more than 400 test sites. ●