UnitedHealth Group struggles amid rising costs in Q3

UnitedHealth Group has had a tough year, but it’s still hanging on.

Executives shared in the company’s October 15 earnings call that an increase in customers for UnitedHealthcare and its subsidiary Optum has raised revenue nearly $8.5 billion in Q3 to total $100.8 billion year over year. The company’s adjusted net earnings outlook is $27.50 to $27.75 per share, which is within November 2023’s projections of $27.50 to $28.00 a share.

But the group’s 2025 forecast of up to $30 a share fell below Wall Street estimates of $31.18 a share, Reuters reported. It’s a “more conservatively than is typical” outlook, UnitedHealth Group CEO Andrew Witty said during the call.

Here’s why.

Change Healthcare. The system still hasn’t gotten back all the business it had before the Change Healthcare cyberattack that paralyzed the US healthcare system in late February, Roger Connor, CEO of UnitedHealth’s data and analytics company Optum Insight, said.

UnitedHealth has estimated the full 2024 business disruption costs from the cyberattack as 75 cents a share, up 10 cents from last quarter’s estimate, John Rex, UnitedHealth Group president and CFO, said.

Rex said the company will work on rebuilding in 2025. “We continue to work with customers to bring transaction volumes back to pre-event levels and to win new business with our now more modern, secure, and capable offerings,” he said.

Coding crisis. Rex said the company also continues to battle “extreme” upcoding by hospitals. Upcoding involves billing for more complex health services or diagnosing patients with more severe health conditions in order to increase reimbursement.

“Certain entities have been notably and persistently aggressive, having up-shifted their coding intensity factors,” Rex said.

Government gripes. Another issue persisting from last quarter comes from state Medicaid rates, execs noted on the call.

Rex said states often use care activity data that is “well over a year old” to set their rates. But since that data was collected, Medicaid redeterminations have left millions of beneficiaries ineligible for coverage due to changes in things like income and illness severity. 

Following the unwinding, beneficiaries still on Medicaid are sicker than the average member used to be, and state rates don’t reflect that, Witty said.

UnitedHealth also saw a rise in prescriptions for Medicare Advantage enrollees of high-cost specialty medications, mostly those used to treat cardiovascular disease, autoimmune disorders, and cancer, Rex said.

Inflation Reduction Act. Witty pointed to new rules in the Inflation Reduction Act (IRA) for catastrophic coverage as a potential “contributing factor” to these rising prescription costs.

Medicare Part D enrollees who spend enough out of pocket on drugs each year reach what’s called the catastrophic coverage phase. Prior to the IRA, this meant they only had to pay 5% of their drug costs out of pocket for the rest of the year.

But as of January 1, people in the catastrophic coverage phase pay $0 for the rest of the year, the Centers for Medicare and Medicaid Services reported. The previous 5% coinsurance that enrollees paid is now picked up by Part D plans, KFF reported.