UnitedHealth posted quarterly profit above Wall Street estimates, on track to gain profit
Written by Amina Niasse
NEW YORK, April 21 (Reuters) – UnitedHealth raised its full-year profit forecast and beat expectations for first-quarter results on Tuesday, and its shares rose more than 10% as the company took steps to turn things around.
UnitedHealth said it is keeping costs down and receiving improved government payments for its health insurance services, a stark contrast to last May, when it withdrew its financial outlook and dismissed the CEO as the need for unexpected medical services by members hurt profits.
Chief executive Stephen Hemsley, who returned to lead the company almost a year ago, is seeking to rebuild investor confidence and reassure workers after the death of a top executive in late 2024 led to an outpouring of criticism of health insurance practices.
In the past year, it has exited non-U.S. businesses and some health plans, reshuffled leadership roles, and said Tuesday it is spending $1.5 billion on artificial intelligence.
“This was a strong quarter across the board, putting us in a position of consistent progress going forward,” Hemsley said.
Results for the nation’s largest health insurer boosted shares of rivals, with CVS Health rising more than 2% and Humana up 5%.
“Stocks are rising, as investors see that margins are likely to be available in 2025, and guidance for 2026 is higher rather than lower, which is a nice change of pace from last year,” said Morningstar analyst Julie Utterback.
COST CONTAINMENT
The industry has been facing rising costs since mid-2023 due to increased demand for health care services under government-backed Medicare programs for the elderly or people with disabilities.
Tim Noel, CEO of UnitedHealthcare’s insurance business, said in a conference call that the company expects 2026 medical spending in its Medicare Advantage plans for people age 65 and older to match 2025 levels.
UnitedHealth said the US government’s proposed 2.48% increase in payments to insurers by 2027 is still too low and is in active discussions with the Medicare agency.
Optum CEO Patrick Conway said during the call that the technology services division has begun offering AI-powered digital health products to payers and providers.
Changes in Medicaid program enrollment for low-income Americans have also left insurers and members requiring more medical care, adding to costs.
UnitedHealth reported a first-quarter medical expense ratio — the percentage of premiums spent on medical care — of 83.9%, an improvement on analysts’ estimates of 85.70%.
“We actually think we’re going to do a little better than we expected,” UnitedHealth Chief Financial Officer Wayne DeVeydt said in an interview, adding that the company expects to lose 1.3 million Medicaid members. “We still lost membership, but we kept a lot less than we thought,” he said.
UnitedHealth expects 2026 adjusted earnings to be more than $18.25 per share, an increase of 50 cents from its previous forecast. Analysts were expecting earnings of $17.86 per share, according to LSEG data.
Adjusted first-quarter earnings came in at $7.23 per share, beating estimates by 66 cents.
During the quarter, UnitedHealth agreed to buy Alegeus Technologies, a health technology platform, and sold its Optum UK business. The company also said it would buy back at least $2 billion of its own stock by the end of the second quarter.
OPTIM FOCUS
Operating income at the company’s health services unit Optum fell 15% to $3.3 billion, due to higher medical costs and ongoing investments. The unit also enrolled fewer patients in its integrated care programs.
The dip in enrollment is intentional, DeVeydt said, as the company exits from less-than-ideal contracts. UnitedHealth earlier this year said Optum faced regulatory and cost challenges, representing an $11 billion hit to the division over a three-year period.
First-quarter revenue at Optum Health, which provides primary care, was $24.1 billion. Revenue at Optum Rx, UnitedHealth’s pharmacy benefit manager, rose 2% to $35.7 billion.
The results are starting to give investors hope that Optum Health is on the mend, said Evercore ISI analyst Elizabeth Anderson.
(Reporting by Amina Niasse in New York, Sneha SK and Sriparna Roy in Bengaluru; Editing by Matthew Lewis, Anil D’Silva, Caroline Humer and Bill Berkrot)
