Today's Fun Fact
Jackie Chan Can't Get Health Insurance.
Here's what you need to know before the US markets open.
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UnitedHealth: In The Pink Of Health?
UnitedHealth Group Inc. (UNH) is finally breathing easy. A US court has quashed the government’s antitrust lawsuit against the company and allowed the acquisition of Change Healthcare. The company also boosted its full-year profit forecast. Will this Change remain constant for the world’s largest health insurance provider?
Big Getting Bigger
Besides insurance, United also owns businesses comprising thousands of doctors, surgical centers, and other assets. Therefore, it has access to tonnes of health data about citizens.
In a bid to expand beyond insurance, United announced the acquisition of Change Healthcare in January last year in a $13B transaction, including $5B of the latter’s debt. Change is a payment processes services provider for healthcare systems that also provides financing and billing tools analytics.
United aimed to merge Change with its Optum business unit to connect and simplify the core clinical, administrative, and payment processes healthcare providers depend on. It asserted that the combination would benefit the entire system, resulting in lower costs and a better experience for all stakeholders.
The Biden administration, which has taken a hard line on any company looking to get bigger, sued United over antitrust concerns in February this year. The DoJ argued that the deal would give United a virtual monopoly on tools to determine when one should pay claims. They argued that these tools are generally used by United’s competitors and should not become part of the merged entity.
To convince the regulators, United agreed to divest its claims processing assets, which regulators said was insufficient.
In a blow to the DoJ, a US district judge, Carl Nichols, appointed by former President Donald Trump, rejected the department’s claims and allowed the deal to proceed in a one-page order. The complete statement is not public as it may consider sensitive information. As proposed earlier, the judge has asked the ClaimsXTen business to be sold to TPG Capital.
United completed the merger earlier this month, in line with the extended deadline of December after the DoJ lawsuit in February. The regulators are now mulling future courses of action following the “disappointing judgment.”
Coast Is Clear
United reported better-than-expected results for the quarter and raised its profit outlook for the third time in as many years, despite warning that medical costs may rise faster than historic levels next year.
Key Highlights From Q3 2022:
Revenue: $80.9B Vs $80.7B expected
Earnings per Share: $5.55 Vs $5.43 expected
Net Profit: $5.3B Vs $4.1B year-on-year
Growth in the quarter came from both the core business and the health services arm - Optum, which now contributes nearly half of the overall top line. The company has served 850K people this year, including additions of 185K in Q3. Over the last six months, it has added 100K people to its commercial plans.
United has now revised its 2022 EPS guidance higher, its third increase in as many quarters. It now expects full-year EPS between $21.85 - $22.05, compared to the earlier guidance of $21.40 - $21.90. The management also said it had not seen any evidence of recessionary economic trends so far.
CEO Andrew Witty says that analyst projections align with the company’s planned guidance and that it continues to aim for its long-term goal of 13%-16% earnings growth annually.
However, the company has warned that healthcare costs may increase faster than historical rates next year, whereas inflation and labor shortage may slow down non-urgent procedures. In addition, premiums for consumers buying health plans under Affordable care are also expected to rise significantly in 2023.
A lower-than-expected medical care ratio helped the company’s profits during the quarter. The ratio, a percentage of premiums versus payouts on claims, improved to 81% from 83% last year and was better than analyst expectations of 82.4%.
Insurance now covers more people in the US than ever. However, the management has warned that many people could lose coverage with medical redeterminations looming. Medical Redetermination is an annual exercise where those under coverage are reviewed to determine whether they are eligible for further coverage or not.
Once the public health emergency ends, the states will be left to determine who is eligible for the program, and experts believe that the process could take a year. The Kaiser Family Foundation has warned that close to 14.2M enrollees could lose Medicaid coverage, which according to United CEO Witty, would be a huge setback to the progress in boosting insurance coverage nationally.
When benchmark indices are fluctuating more than ever, United has been a beacon of stability, gaining 23% over the last 12 months. It is also boosting its presence in the home healthcare business with the $5.4B LHC Group acquisition. With regulators out of the way and Change now firmly in their grip, United would hope that the change it brings about is only for the better!
Market Reaction
UNH ended at $522.21, up +0.06%.Newsworthy 📰
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