UnitedHealth’s lower-than-feared costs lift profit, shares

By Bhanvi Satija and Raghav Mahobe

(Reuters) -UnitedHealth Group’s quarterly profit beat Wall Street estimates on Friday as a smaller-than-expected jump in medical costs allayed fears that a resumption in long-delayed surgical procedures would hit profit growth, sending its shares up 4%.

The beat from the industry bellwether also lifted the shares of rivals Humana (NYSE:), Cigna (NYSE:) and CVS Health (NYSE:) between 2% and 2.5% in premarket trading.

Shares across the health insurance sector slumped last month, wiping off nearly $60 billion from the industry after UnitedHealth (NYSE:) said it was recording higher payouts over medical care between April and early June, as receding COVID risks made it easier for older adults to get non-urgent surgeries.

The lower-than-expected costs provide a “welcomed respite today” after several weeks of pain for investors in health insurance companies, Stephens analyst Scott Fidel said in a note.

UnitedHealth’s medical loss ratio for the quarter – the percentage of spend on claims compared to premiums collected – was 83.2%, compared to analysts’ expectations of 83.4%.

Health insurers’ costs have been suppressed in recent years as pandemic-driven restrictions caused long delays in elective procedures such as hip and knee replacements, especially among older adults at higher risk of contracting severe COVID-19.

Oppenheimer analyst Michael Weiderhorn said UnitedHealth’s results revealed “no new concerns” around the increasing demand for outpatient activities.

UnitedHealth raised the lower end of its annual adjusted profit forecast to $24.70, from $24.50 per share previously, while keeping the top end unchanged at $25 per share.

Humana also warned of a jump in its medical costs for this year in June after noting similar concerns as UnitedHealth. The two companies are the biggest providers of Medicare Advantage – the government-backed plans for older adults.

UnitedHealth’s adjusted profit of $6.14 per share for the second quarter beat analysts’ expectations of $5.99, according to Refinitiv.