After huge earnings this spring, UnitedHealth Group's profit returned to more typical levels during the third quarter as near-normal demand for health care services resumed following widespread delays with COVID-19.
The Minnetonka-based health care giant boosted its earnings outlook Wednesday and touted growth prospects for its large business selling Medicare Advantage health plans to seniors. Enrollment in commercial coverage purchased by employers slipped between summer and fall, executives said, but the decline wasn't as large as expected.
Third-quarter earnings solidly beat expectations, yet UnitedHealth Group Chief Executive David Wichmann said the company expects to issue cautious financial guidance for next year. Potential headwinds range from the cost of a COVID-19 vaccine to struggles for the broader economy.
"We remain deeply respectful of the environment, both the pandemic and related economic consequences," Wichmann said during a call with investors to discuss third quarter results. "There are a number of moving parts that are very difficult to predict."
He added: "Pandemic-related impacts [are] a headwind for the organization, but don't misread it — we are very bullish on the strong underlying growth performance of our business."
Earnings in the third quarter were far shy of UnitedHealth Group's huge profit of more than $6 billion in the second quarter, when the pandemic forced a broad shutdown of nonemergency services so health care providers could conserve resources to treat COVID-19 patients.
A report this week from the California-based Kaiser Family Foundation tracked a similar financial effect for many health insurers as carriers, in general, saw higher profit margins amid lower spending on medical care. The credit-rating agency AM Best reported Wednesday that net underwriting income for U.S. health insurers surged to $28.3 billion this year, up from $9.1 billion in last year's second quarter.
"The second quarter was very good to the health insurance industry because utilization was down," said Tricia Neuman, a senior vice president at the Kaiser Family Foundation.
UnitedHealth Group is Minnesota's largest company by revenue, with about 325,000 employees worldwide. By operating the nation's largest health insurer, UnitedHealthcare, the company has a platform for spotting broad health care trends, including those related to the pandemic.
Whereas demand for medical services hit a low this spring at roughly two-thirds of normal, it has now recovered to about 95% of baseline, said John Rex, the company's chief financial officer. Use of inpatient hospital care is even closer to normal, Rex said, while demand for physician services is further from baseline.
As patients have come back for care, UnitedHealthcare isn't yet finding that patients are sicker than normal, Rex said. That has been a fear, he noted, amid reports this year that fewer cancers were being diagnosed and patients were waiting on care for other serious conditions.
Where the company is seeing higher acuity among patients, he said, it stems from COVID-19 cases in which patients are requiring more care. If utilization is 95% of baseline, COVID-19 accounts for about five of those percentage points, Rex said.
There's evidence in different regions that rising and falling COVID-19 case rates are affecting regional demand for health care services.
"You would see as a particular part of the country — as you saw infection rates start to rise, you would see deferral come into the mix," Rex said.
In the third quarter, UnitedHealth Group reported a profit of $3.17 billion on revenue of $65.12 billion. Earnings were off 10% compared with the year-ago quarter, executives said, due to company spending to help consumers and customers during the pandemic.
Whereas the company in July said it was spending $1.5 billion on a variety of measures including premium credits and cost-sharing waivers, the estimate for those expenses is now up to $2 billion. The financial assistance could help keep customers in the market for coverage and is meant to address "imbalances," the company said, such as premium expenses that far exceed medical costs.
Enrollment in commercial coverage purchased by employers slipped by about 420,000 people, or 2%, between the ends of June and September.
"Our membership was a little less impacted than we thought it was going to be," said Dirk McMahon, the chief executive at UnitedHealthcare. After adjusting for one-time items in the third quarter, earnings per share of $3.51 at UnitedHealth Group far surpassed the $3.09 expected by analysts surveyed by Refinitiv.
The firm boosted full-year guidance for adjusted earnings per share to between $16.50 and $16.75, up from the range of $16.25 to $16.55 per share.
UnitedHealthcare covers about 43 million people in the U.S. UnitedHealth Group also operates a fast-growing division for health care services called Optum, which includes divisions for clinics, IT consulting and pharmacy benefit management.
UnitedHealth Group shares closed Wednesday at $321.85, off nearly 3% for the day. In a note to investors, analyst Steven Halper of Cantor Fitzgerald called the market reaction "overdone," and likely a response to the company's cautious tone on 2021.
"We believe a more conservative approach is appropriate at this juncture," Halper wrote.