UnitedHealth outperforms on Wall Street after Q1 earnings

Shares in UnitedHealth Group Inc. have outperformed both its managed care peers and the wider insurance industry since announcing first-quarter earnings.

From April 16, the day United released its first-quarter earnings, UnitedHealth rose 10.4% through May 15 and was trading at $522.68 a share as of noon Friday. It also outperformed both the S&P 500 and S&P 500 Insurance index during the same period, which rose 5.08% and 3.57%, respectively over the same period.

The health insurance giant has been engaged in repricing efforts meant to curb growing medical losses after it was the first to sound the alarm about growing costs associated with the senior-aimed Medicare Advantage program following the second quarter of 2023. Now, nearly a year later, repricing efforts are taking effect, according to Piper Sandler analyst Jessica Tassan.

"A good managed care company can be surprised by unexpected or elevated utilizations for a quarter or two, but the nature of managed care is such that you are able to observe the increase in utilization and adjust your benefit design and your pricing in the upcoming cycle," Tassan said.

Adjustments needed

By catching the elevated costs when it did, United was able to adjust its 2024 Medicare Advantage bids, Tassan said.

"They're pricing that a little bit less generously in Medicare Advantage, lowering benefits and implementing more aggressive pricing in an effort to recover the margins that they had sacrificed in the back half of 2023," Tassan said. "What we saw in early 2024 was basically the recovery of control over utilization cost and margins in the Medicare Advantage business."

Despite a widely publicized first-quarter cyberattack on its Change Healthcare Inc. subsidiary, the financial impact on United was less than expected, according to Tassan. "Effectively, I think the financial impact of the hack is ... transitory and immaterial."

While United has addressed headwinds posed by Medicare Advantage costs and the Change hack, headwinds still remain from a reported antitrust investigation by the US Department of Justice.

According to a Feb. 28 report by The Wall Street Journal, the investigation is reportedly looking into the relationships between the company's UnitedHealthcare insurance unit and its Optum Inc. health services arm, which owns physician groups, among other assets. United's stock value fell sharply following the Feb. 27 chatter about the investigation, falling from $524.76 a share to $440.34 a share by April 14, only recovering following the release of first-quarter earnings.

United did not respond to a request for comment regarding its repricing efforts and the impact of the DOJ investigation.

Managed care momentum

Other leading managed care insurers generally fared well following the April 16 release of United's earnings. Elevance Health Inc. grew 6.5%, Centene Corp. 8.1% and Humana Inc. 9.3%. The Cigna Group's value fell 1.0% during the same period.

During a first-quarter earnings call, Cigna President and CEO David Cordani noted a $277 million loss related to its VillageMD subsidiary, but the company still raised its 2024 earnings-per-share outlook.

VillageMD's woes were the result of market dislocation hitting the space, Cordani said during an earnings call, compounded by supply line issues constraining new clinic growth.

"At the macro level, our strategic direction in terms of what we were seeking to innovate with Village has not changed despite the write-down of the asset," Cordani said.