UnitedHealth Group exceeded earnings expectations for the second quarter even though its Medicare Advantage members continued to report higher-than-expected medical expenses.
The healthcare giant, the parent company of UnitedHealthcare, the largest insurer, and Optum, the largest employer of doctors, on Friday reported second-quarter net income of $5.4 billion. dollars, or $5.82 per share. This is an increase of nearly 8% compared to the same period last year.
Chief financial officer John Rex said revenue rose 15.6% to $92.9 billion as investment income rose 278 percent to $1.1 billion due to rising interest rates.
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The company increased its full-year adjusted earnings guidance per share by 20 cents, to between $24.70 and $25 per share.
The insurance company’s shares opened at $462.62 a share on Friday, up 3% from Thursday’s closing price. The company’s warning last month that Medicare Advantage members’ medical costs were rising faster than expected had investors nervous. Shares of UnitedHealth Group are down 7.73% this year, below the market average.
“Next year, we will once again grow at a rate that far exceeds that of the broader market,” said CEO Andrew Witty.
In its insurance segment, UnitedHealthcare’s profit margin remained flat at 6.2%. Net income rose 13.1% to $4.4 billion on the back of 13% revenue growth, to $70.2 billion.
Witty said Medicare Advantage members continued to schedule more outpatient surgeries at a higher rate than anticipated during the quarter, which reflects delayed care. UnitedHealthcare is the largest Medicare Advantage insurer with 7.6 million members. The insurer has 47.4 million subscribers across the commercial, Medicaid and Medicare businesses.
The company has priced to enhance care in its 2024 Medicare Advantage bids, though federal regulator changes to the Medicare Advantage risk-adjusted program are a more important consideration. many of actuaries when building its benefits packages, Witty speak.
Increased use of Medicare Advantage has put pressure on margins at Optum due to the risk-sharing relationship the healthcare business has with outside payers. Coupled with growing demand for behavioral health services and an increase in the number of new patients served, Optum’s profit margins fell to 6.6%, from 7.3% in the second quarter of last year.
Net income of the healthcare business grew 12.7% to $3.7 billion on top of 25% revenue growth to $56.3 billion.
In the portfolio, the company’s OptumHealth service provider business reported net income of $1.5 billion, up 9%. The company’s pharmaceutical benefits manager, OptumRx, reported a 16% increase in net income to $1.2 billion, thanks to more patients buying prescription drugs. UnitedHealth’s OptumInsight technology arm reported net income of $96.8 million, up 15.3%.
Witty said the company is looking at using generalized artificial intelligence to try and cut costs associated with pre-authorization and call centers. He will also continue to look for ways to cut operating costs, he said. “We continue to reduce our core operating costs in a very, very decisive way,” he said.
