UnitedHealth kicks off Q1 earnings season with 44% profit jump

Dive Brief:

  • Despite the coronavirus pandemic, UnitedHealth Group posted revenue and profit growth in the first quarter, driven by strong growth in insurance products for seniors and its health services segment.
  • The Minnetonka, Minn.-based health management behemoth handily beat Wall Street expectations for earnings and revenue, bringing in $70.2 billion in the first quarter, up 9% year over year. Net income of $4.9 billion was up almost 44% year over year, UnitedHealth said in financial results released premarket Thursday.
  • On a call with investors Thursday morning, management teased out Medicare Advantage and value-based arrangements in ambulatory care segment Optum Care as key focus areas for UnitedHealth’s future growth. Shares in UnitedHealth, which raised its full-year 2021 guidance following the results, were up almost 4% in mid-morning trading Thursday.

Dive Insight:

As the first major payer to report earnings, UnitedHealth is a bellwether for the insurance industry’s financial performance, a year into a pandemic that’s caused consumers to defer non-essential medical care in spades, leading to historic profits. Some analysts were leery that the dawn of the new year, growing vaccination efforts and coronavirus burnout would lead to patients consuming high levels of medical care, depressing payers’ bottom lines.

That doesn’t yet seem to be the case, as UnitedHealth reported muted use of health services despite a sharp drop in COVID-19 cases in the quarter.

“Total care activity ran marginally below the seasonal baseline,” CFO John Rex told investors on the call, noting the pacing of elective care was inversely proportional to the COVID-19 case rate, fluctuating throughout the quarter.

COVID-19 care levels in February and March were roughly half of January’s volume, and though UnitedHealth saw a small rise in COVID-19-related care by the end of the quarter, it didn’t reach January’s levels, Rex said.

Partially as a result of low utilization, insurance business UnitedHealthcare, the biggest private payer in the U.S., reported revenues up almost 8% in the quarter to $55.1 billion. The insurer saw particularly strong growth in its Medicare and Medicaid businesses, which saw their toplines jump 10% and 13% year over year, respectively.

Even during the difficult COVID-19 economic environment, UnitedHealth netted more than 1 million new members in the quarter, with more than half a million of those in privately run Medicare Advantage plans, bringing total medical membership to 49.5 million. 

Strong MA growth, several large Group MA business wins, growth in Dual Special Needs Plans members, a Medicaid contract award in Oklahoma, growth in specialty products and a strong commercial benefits selling season also benefited the payer, UnitedHealth said.

UnitedHealthcare had a medical loss ratio, a marker of how much its shelling out on patient care, of 80.9% in the quarter, about two percentage points lower than analysts predicted.

Health services unit Optum, a key growth area for UnitedHealth, also reported strong revenue growth, with its topline rising almost 11% year over year to $36.4 billion. Its medical delivery group, OptumHealth, saw its revenue per customer increase 31% year over year, mostly due to an increasing number of people in value-based arrangements.

Execs said they expected the number of seniors in accountable care arrangements to grow. Optum Care, UnitedHealth’s ambulatory care business, serves 20 million patients, and should transfer a quarter of a million of those lives into value-based arrangements this year, according to OptumHealth CEO Wyatt Decker said.

“You’ll also see us going in deeper in the markets that we’re in, and bringing our very mature risk-based platform in established markets to new markets where today we’re primarily fee-for-service,” Decker said on the call.

​Leadership also said they see opportunity for new product development between Optum and UnitedHealthcare, especially in digitally delivered care. A key driver of that strategy is data analytics business OptumInsight, which saw its revenue backlog increase to $20.8 billion in the quarter.

In January, UnitedHealth announced plans to acquire data analytics firm Change Healthcare for $13 billion, to beef up OptumInsight’s capabilities. But the deal hit a speed bump when the Department of Justice in late March said it would embark on a more stringent review of the merger, following concerns about potential anticompetitive ramifications raised by powerful hospital lobby the American Hospital Association.

Management said, despite the DOJ review, they still expect the deal to close in the second half of 2021.

“In terms of Change, obviously we are really keen to continue working through the regulatory process,” newly minted UnitedHealth CEO Andrew Witty said on the call, in his first quarterly earnings since taking the reins in February.

UnitedHealth did say it expects COVID-19 to have a slightly negative effect on full-year earnings, likely in the back half of the year as deferred care comes to a head. But following the performance, the healthcare giant raised its full-year 2021 guidance, predicting earnings per share between $17.15 and $17.65 and net income of $16.3 billion to $16.85 billion.

That’s “premised upon our expectation that as we get later in the year people are more going to access previously delayed care,” Rex said. “That’s what we built into that view. But it’s an unusual time, still.”