UnitedHealth results: positive for insurers, dismal for hospitals

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UnitedHealth Group Inc.’s second-quarter results were lifted by lower costs of care that portend well for other health insurers but may be a warning sign for hospital companies.

Medical-loss ratio, a closely watched measure of the percentage of premium income spent on patient care, came in at 81.5%, down from 82.8% a year ago and roughly a percentage point below the average of analysts’ estimates compiled by Bloomberg. A lower number means the company has more money for administrative costs and profit.

That may mean good news for other insurers like Humana Inc. and Cigna Corp. UnitedHealth’s results are positive for other managed care companies, “reinforcing expectations for continued favorable utilization trends and beats & raises this quarter,” Evercore ISI’s Michael Newshel wrote in a research note Friday.

UnitedHealth rose as much as 5.2% as of 11 a.m in New York. Humana gained as much as 3%, and Cigna rose as much as 3.4%. Elevance Health Inc. – the insurer formerly called Anthem — rose as much as 4.2%.

But the implications are less cheerful for hospitals and other medical providers, whose revenues are UnitedHealthcare’s expenses. The hospital sector is facing a slower rebound in patient volume than anticipated, along with still-elevated labor costs, SVB Securities researchers wrote in a note Friday. They cut price targets on hospital operators including HCA Healthcare Inc., which rose as much as 2.2%, and Tenet Healthcare Corp., which rose as much as 3.1%. Universal Health Services Inc. also rose as much as 2.3%.

“Volume is likely as challenged as labor,” the SVB analysts wrote. “We’re less concerned on labor, which has improved, just not by a lot.”

When accounting for timing effects that influenced UnitedHealth’s medical-loss ratio in the second quarter, the outlook may not be as dire for hospitals, Bloomberg Intelligence analyst Glen Losev wrote.