UnitedHealth Group Hits the Deferred Care Wall

UnitedHealth Group’s (UNH) downward earnings guidance and the follow up conference call showed a continuation of middle market companies reducing healthcare benefits and seniors hitting the Medicare market in the worst shape ever. 

UnitedHealth showed complacency in accepting higher medical costs with few practical ways of raising premiums. Commercial risk based customers are negotiating harder (playing insurers against each other) and accepting lower benefits for lower premiums. As a result, their employees will have to defer all nonessential care.

UnitedHealth is predicting its risk based membership will drop an additional 100K during the remainder of 2008, bringing the estimated 2008 total loss to 800K risk based members. UnitedHealth plans to stem terminations by customizing their commercial offerings by locations, but they still showed little desire to compromise profitability to reduce terminations.

UnitedHealth seems trapped between customers resisting premium increases and healthcare providers showing increased pricing power. Why isn’t UnitedHealth able to transfer the resistance to premium increases back to the healthcare providers? They claim hospitals are either closing or consolidating in the Northeast and reduced Medicare reimbursements are causing hospitals to shift costs throughout the country.

When employees finally reach Medicare age, they are smarter than anticipated in purchasing their deferred medical needs. Apparently, too many “special needs” seniors chose UnitedHealth Medicare Advantage plans and UnitedHealth underestimated the cost of their needs. The special needs medical payout ratio was 100% (not including admin), whereas the regular Medicare Advantage payout ratio was 83.3%. UnitedHealth will seek increased reimbursements for chronic conditions going forward, and stop marketing to the sickest seniors.

UnitedHealth claimed shrinking commercial membership, premium pressure, and Medicare usage issues are not unique to them. But, they did not announce any breakthrough products to match medical costs with premiums. They also did not say how they would adapt to customers that are spent out.

Right now, UnitedHealth is drifting while conditions are steadily worsening. I started buying UnitedHealth recently in anticipation of “Medicare for All”, an environment where the great healthcare administrators will thrive. Without significant political change, my investment in UnitedHealth too will drift.

Disclosure: Author is long UNH.

Comments

[Donald E.L. Johnson]

UNH, like HUM, is a major Medicare contractor, and they are paying the price for contracting out their futures to the politicians.

A President Obama and a Democratic Congress will make being in the health insurance business much less profitable and a lot less uncomfortable for the executives and managers of health insurers.

As more consumers drop health insurance in the face of $4 gas, growing inflation and soaring premiums, the cost of covering their catastrophic losses will be shifted to those who continue to pay their premiums.

This will put even more pressure on politicians to enact government-funded health insurance schemes that will increase health insurance costs paid by taxpayers. And access and quality will slide.