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UnitedHealth Group Incorporated (UNH) - free report >>
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UnitedHealth Group Incorporated (UNH) - free report >>
Humana Inc. (HUM) - free report >>
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UnitedHealth (UNH) Falls 6.4% on Cost Woes of Resumed Surgeries
UnitedHealth Group Incorporated (UNH - Free Report) shares slumped 6.4% yesterday after the company pointed out that seniors are resuming pent-up elective procedures, which will increase its medical costs.
Companies in the industry like Humana Inc. (HUM - Free Report) ,Centene Corporation (CNC - Free Report) and Molina Healthcare, Inc. (MOH - Free Report) also witnessed a decline of 11.2%, 6.9% and 5.3%, respectively.
UnitedHealth’s chief executive officer for Medicare and Retirement, Tim Noel, said at the Goldman Sachs Global Healthcare Conference that seniors are now undergoing delayed elective surgeries post-pandemic. Demand for procedures like hip and knee surgeries is rising again, which will leave fewer premiums in hand after paying for the procedures for the health insurers. This is likely to boost UNH's medical care ratio in the second quarter.
However, companies providing surgery services and medical equipment are expected to gain from the resumption of elective procedures. UnitedHealth’s Optum Health unit is likely to witness higher utilization, especially in ambulatory surgery operations. This can offset the negative impact.
UNH’s Optum Health segment, which has been gaining from a greater number of people served under value-based care arrangements and consistent strengthening of care delivery services, will likely continue its promising run.
In the first quarter, revenues from the Optum business line totaled $54.1 billion, up from $43.3 billion in the year-ago period. Also, earnings from overall Optum operations increased to $3.7 billion in the first quarter from the year-ago level of $3.2 billion.
Hence, even if the increased elective surgeries have the potential to have a short-term impact on UNH’s earnings, the effect is likely to diminish in the long run. Also, it will provide the company with a window to up the insurance rates.
Year-to-date Price Performance & Zacks Rank
UnitedHealth shares have declined 13.3% in the year-to-date period compared with the industry’s 6.8% fall. It currently has a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research