UnitedHealth third-quarter earnings decline suggests COVID-19 boon is subsiding

UnitedHealth Group reported lower earnings in the third quarter of 2020 compared with a year ago, suggesting that the period of record profits large health insurers reaped early in the COVID-19 pandemic may have ended.

Last quarter, Minnetonka, Minn.-based UnitedHealth, the parent company of insurer UnitedHealthcare, nearly doubled its net income as healthcare providers deferred costly non-urgent procedures and patients put off routine care to comply with stay-at-home orders and practice social distancing.

Many patients have since returned to hospitals and doctor’s offices to get the healthcare services they put off earlier in the year, UnitedHealth said. At the same time, the company spent billions of dollars to prop up providers and lower premiums and waive copayments for customers, the company said.

Those actions, along with the rebound in healthcare use to near-normal levels, weighed down UnitedHealth’s bottom line. The company reported $3.3 billion in net earnings in the third quarter, a decrease of 10.3% over the same period in 2019. Its operating earnings totaled $4.7 billion, down 7.2% from a year ago.

“Third-quarter results continued to be impacted by disruptive care patterns, albeit to a much lesser extent than in the second quarter,” UnitedHealth Chief Financial Officer John Rex told analysts during a conference call Wednesday. “Care deferral impacts were more than offset by the proactive consumer and customer assistance measures we voluntarily undertook earlier this year, as well as COVID-19 care and testing costs and broader economic effects.”

UnitedHealth is still collecting gigantic profits, but those profits were driven less by the pandemic during the most recent quarter. Some of that is the company’s doing.

UnitedHealth returned excess profits it made earlier during the pandemic by donating meals to vulnerable patients and waiving cost-sharing for seniors for primary care and specialty care appointments. Like other insurers, it waived costs for COVID-19 treatment and provided free telehealth visits. Those actions took at least one quarter to reflect in the earnings.

Health insurers want to minimize the appearance that they are profiting from a global health crisis and reduce some of the rebates they will be forced to pay customers next year for failing to spend enough on medical claims in 2020. The Affordable Care Act caps insurers’ profit margins.

Americans are also beginning to seek care like they did before the pandemic. Even though the number of COVID-19 cases continues to grow, patients aren’t avoiding the healthcare system like they were, and hospitals haven’t shut down elective services like they did in March and April.

UnitedHealth said patients are getting care at about 95% the rate they normally do, whereas in the second quarter, utilization plummeted to about two-thirds of normal levels. Patients are still seeing their doctors less often, but inpatient care rates are now higher than normal, the company said.

Medical costs and operating costs were higher in the third quarter compared with a year ago. UnitedHealthcare’s medical-loss ratio, which hit 70% in the second quarter, rebounded to a near-normal level as well. The company’s medical-loss ratio, which represents the portion of premiums spent on medical care, was 81.9%, a slight decrease from 82.4% a year ago.

Still, the pandemic continued to affect UnitedHealthcare’s membership, which slipped 2.4%, or 1.2 million members, to 48.2 million. The insurer lost about 1.5 million commercially insured members, many of which were employed by large companies in the hospitality, transportation and energy sectors, UnitedHealth said.

Medicaid membership increased 7.9% to 6.4 million, driven by states pausing eligibility checks as required by federal law during the public health crisis. Company officials said they haven’t yet seen an increase in Medicaid rolls due to people who lost their jobs and coverage during the pandemic.

“Historically these transitions lag loss of healthcare coverage by about 6 months,” Rex said.

Medicare Advantage membership, meanwhile, grew 8.4% to 5.7 million members.

Health insurers have warned that they could see sicker patients and more expensive medical claims during the second half of the year and beyond, because the illnesses of patients who put off needed care during the pandemic may have worsened. So far, that hasn’t happened among UnitedHealthcare’s members who don’t have COVID-19. The company did see more severe COVID-19 cases in the quarter, however.

In total, UnitedHealth reported revenue of $65.1 billion, an increase of 7.9% over a year ago, driven by growth at health services subsidiary Optum and insurance arm UnitedHealthcare’s Medicare and Medicaid businesses. UnitedHealth raised its full-year earnings per share guidance.