Health insurers slammed after UnitedHealth says more surgeries driving up costs

By Leroy Leo

(Reuters) -Health insurer stocks dropped sharply on Wednesday after UnitedHealth (NYSE:) said costs were on the rise for the largest U.S. healthcare provider by market value due to an increase in surgeries among older adults.

UnitedHealth’s shares were down 7.3% to $455.11, while shares of Medicare-focused insurer Humana Inc (NYSE:) fell 14%, and a broader index of managed care providers lost 8%, hitting a 17-month low in Wednesday trading.

Insurers had been benefiting from a delay in non-urgent surgeries due to the COVID-19 pandemic and hospital staffing shortages, but UnitedHealth’s comments show that the gains may be waning.

Meanwhile, stocks of medical device makers and hospital operators gained, as increased frequency of surgeries mean more revenues for them.

UnitedHealth, at a Goldman Sachs (NYSE:) healthcare conference on Tuesday, said it saw increased demand from patients in Medicare health plans for those aged 65 and above, particularly related to knees and hips.

“We’re seeing that more seniors are just more comfortable accessing services for things that they might have pushed off a bit like knees and hips,” Tim Noel, CEO of UnitedHealth’s Medicare and retirement business, said late Tuesday.

That hit insurer shares on Wednesday. Elevance Health and CVS Health Corp (NYSE:) were down between 6% and 7.5%.

Other insurers have not disclosed similar trends in the past few weeks, Oppenheimer analyst Michael Wiederhorn said, adding that Elevance Health as recently as Monday said that trends were in-line with expectations, including in Medicare Advantage.

Hospital operators HCA Healthcare (NYSE:) and Tenet Healthcare (NYSE:) rose between 3% and 6%, while medical device makers Stryker (NYSE:), Boston Scientific (NYSE:) and Zimmer Biomet Holdings (NYSE:) gained between 4% and 6%.

The pent-up demand for surgeries is expected to drive UnitedHealth’s second-quarter medical loss ratio – a percentage of spend on claims compared to premiums collected – to the high end, or moderately above its full-year outlook of 82.1% to 83.1%.

In April, Chief Financial Officer John Rex had said some healthcare services, such as physician office activity, were near pre-pandemic levels, while others including emergency room visits and pediatrics were below those levels.

UnitedHealth’s 18.51 forward 12-month price-to-earnings ratio, a common benchmark for valuing stocks, is higher than rival Cigna Corp (NYSE:)’s 10.29 and CVS Health Corp 8.26.

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