UnitedHealth faces DOJ investigation into Medicare billing practices
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Yahoo
42 minutes ago
- Yahoo
Health insurance companies have a problem — people are using their plans more
When medical insurance provider Centene (CNC) opened its books to investors on Friday, the company reported a surprising loss and an uptick in usage. The latter is a broader problem for the industry. In the second quarter, Centene reported an adjusted loss of $79 million and a "health benefits ratio" of 93%. Its benefits ratio, or the amount of its revenue derived from premiums that it pays out for medical care, jumped from 87.6% in the same quarter last year. Moves in that figure can have outsized effects on health insurers' financial performance. "Because of the narrow margins of our health plan business, relatively small changes in our HBR can create significant changes in our financial results," Centene wrote in its Q2 earnings report. And the problem is not isolated to Centene. Elevance Health (ELV), which offers plans including Blue Cross and Blue Shield, reported a similar jump in its "benefit expense ratio" to 88.9% in the second quarter, up from 86.3% in the same quarter last year. Both Centene and Elevance attributed the jump especially to their government-subsidized offerings under the Medicaid and Medicare programs. Molina Healthcare (MOH), which reported Q2 earnings earlier this month, reported a similar outlook, attributing its lowered earnings guidance to the same trend facing other medical insurers. "The short-term earnings pressure we are experiencing results from what we believe to be a temporary dislocation between premium rates and medical cost trend which has recently accelerated,' Molina CEO Joseph Zubretsky said in a statement. Elevance stock dropped by roughly 12% after its report earlier this month, while Molina stock dropped by roughly 8%. Both stocks have remained depressed since. Health Care (XLV) is the worst-performing sector in the S&P 500 this year. Centene stock dropped by roughly 15% in premarket trading after its earnings release before recovering to a positive gain of roughly 6% by the closing bell on Friday. The buoy was led by CEO Sarah London's announcement that Centene was reinstating earnings guidance after pulling this forecast earlier in the month. The company also reported revenue of $48.7 billion, which topped estimates for $44.2 billion, and said it expects to be able to raise the payments it gets from states for Medicaid plans, which would improve its margins. UnitedHealth's MCR challenge The premium-to-cost ratio will be closely watched at UnitedHealth Group (UNH), which refers to this measure as its "medical care ratio" (MCR) and is slated to release Q2 earnings next week. After seeing its medical care ratio rise to 85.1% in the second quarter last year, UnitedHealth is expected to see its ratio jump to 89.3% this year, according to Bloomberg consensus estimates. An increase like that would mean tighter margins and less overhead for a company that already slashed its forecast earlier this year. That news sent its stock price down by 22%, its biggest drop in a single day since 1998. "Management noted care activity trends continue to run ahead of its previous expectations driven by a greater than expected impact at UHC from new members, further acceleration of [Medicare Advantage] utilization and indications of potential broadening trend among adjacent, complex populations," Truist Securities analysts wrote in a May analyst note about UnitedHealth. Closely watched by investors and analysts will also be how UnitedHealth leadership addresses its disclosure Thursday morning that the insurer is facing and complying with a criminal and civil investigation by the Department of Justice over potential fraudulent billing practices in the insurer's Medicare Advantage program. The stock dropped 4.7% through Thursday trading after the disclosure. The probe comes after reporting by the Wall Street Journal earlier this year that documented the potentially fraudulent activity by UnitedHealth, among other medical insurers, which included insurers' staff doctors and nurses adding diagnoses to patients' profiles on top of those documented by the patients' doctors. UnitedHealth may have to answer investor inquiries about the investigation on its earnings call on Tuesday, though these are far from the only challenges facing the insurance giant. According to former federal prosecutor Scott Hogan, the DOJ's Medicare probe will be looking to establish a prolonged pattern of wrongdoing by the insurer. "If everything comes back good for the company, if the department [closes its investigation], I think the company will be able to reassure the marketplace," Hogan, who specialized in fraud investigations, told Yahoo Finance on Friday. Even if UnitedHealth is eventually cleared of wrongdoing, he said, "If the investigation takes next steps, whether it's a lawsuit or prolonged investigation, I don't think there are many companies that desire those kinds of headlines." Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at Click here for in-depth analysis of the latest stock market news and events moving stock prices
CNBC
44 minutes ago
- CNBC
UnitedHealth aims to reassure investors as profits plunge, DOJ investigates its Medicare business
UnitedHealth Group Chairman and CEO Stephen Hemsley will face the first real test Tuesday of his ability to regain investor confidence as the largest private U.S. insurer reports earnings. The Dow component has seen its share price cut nearly in half since mid-May, with the stock on pace for its worst year in more than a decade, after earnings in its flagship Medicare program and Optum Health physician practices plummeted. That led to the abrupt resignation of former CEO Andrew Witty, forcing the company to reinstate ex-CEO Hemsley to replace him and suspend earnings guidance. On top of that, the company is facing criminal and civil Department of Justice investigations into its Medicare billing practices. As UnitedHealth faces challenges on multiple fronts, it sits in a "perfect storm," said Mizuho Securities analyst Ann Hynes. Now, investors want to know how Hemsley plans to steer the company out of the whirlwind, after assuring them last June that "we're humbly determined to earn back your trust and your confidence." Here are three key things investors will be looking for from the company's earnings report. More so than the second-quarter numbers, analysts are focused on UnitedHealth's outlook for the full year. Hemsley told investors the company would provide an update on 2025 earnings guidance, after it suspended its forecast in May. Analysts expect UnitedHealth to post adjusted full-year earnings of $21.26 per share, according to consensus estimates from LSEG. Estimates range from a low of $18 per share to a peak of $26.44 a share. "Anything below $18 — that would be viewed as a negative by the street," Hynes said RBC Capital Markets analyst Ben Hendrix has set his estimate above consensus at $23.36, but said Wall Street remains bearish on UnitedHealth. "While we base our more optimistic outlook on management's assertion that Medicare Advantage remains profitable with the 3% low-end of target MA margin in sight for 2026, clients we've spoken to have expressed concern over continued margin compression in OptumHealth and accelerating (medical cost) trend in core Medicare Advantage," he wrote in a note earlier this month. Analysts are also focused on how the company plans to stabilize its physician practice unit, Optum Health. For years, it helped UnitedHealth outperform its peers in its flagship Medicare Advantage program, by leveraging its 90,000 employed or affiliated doctors to treat patients on UnitedHealth's own plans. "Investors with duration were investing in United really for the power of … Optum Health, the power of United steering their own Medicare Advantage members, extracting considerable margin that they hadn't been able to before," said Baird analyst Michael Ha. But in the first quarter this year, Optum Health saw a sharp decline in profits. Analysts said the plunge was due in part to a Biden-era change in Medicare reimbursement standards known as V28, which is making it harder for insurers and doctors to bill for extra services. Mizuho's Hynes said prior billing coding rules left a lot more room for plans to add billing codes related to chronic conditions, such as overall heart conditions, which would provide a higher risk score and reimbursement rate. Under the new V28 rule the billing codes are more specific, closing loopholes that could boost reimbursement. "V28 is very black and white, so you don't have that kind of ability to add codes, and a lot of codes are removed," she said, adding that has now "led to a structural shift in margins for Optum Health." But Ha noted the V28 changes began in 2024, at a time when seniors started utilizing more care. Many of UnitedHealth's Medicare Advantage competitors made adjustments over the last year to address the shift. The sudden collapse of Optum Health margins in the first quarter appears to have caught UnitedHealth off guard. "I think it's an example of misexecution. They knew the headwind heading into the year and even well before then, but for one reason or another couldn't find the offset," Ha said. "We're still confident that Optum Health and United can recover and rebuild unit economics, but we think over the next one to two years, it may potentially worsen." The company got out ahead of the earnings report on Thursday, acknowledging in an SEC filing that its Medicare program billing practices face criminal and civil probes by the Department of Justice. UnitedHealth said the company is cooperating the with the investigations, first reported by the Wall Street Journal. It also noted that in March, a court-appointed special master ruled in the company's favor in a case involving similar allegations brought by the DOJ during the first Trump administration. Hynes believes investor concern over the DOJ probes has been overblown. "The stock is trading like the government's going to kick them out of Medicare and Medicaid, and the likelihood of that is zero, in my view," she said. "It will probably end up with them writing a check and doing a Corporate Integrity Agreement … that's what has happened in the past." But the shooting death of UnitedHealth executive Brian Thompson last December, which prosecutors allege was carried out by a gunman who was motived by insurance denials, unleashed a groundswell of public criticism of health insurers' practices. Former whistleblower Wendell Potter, who has criticized industry practices after a career at Cigna, said the pressure on large insurers like UnitedHealth likely will not cease. Regulatory scrutiny in Congress has increased on both sides of the aisle, as Washington grapples with high health and drug costs in Medicare, Medicaid and other government health programs. "A lot of the members of Congress who are doctors or Republicans, some are pharmacists, and they see firsthand the heavy hand of these companies," said Potter, president of the Center for Health and Democracy. "And so you're seeing interest by Republicans, and I've not seen that before." In June, UnitedHealth announced that it had hired third party auditors to conduct a review of the company's practices in health insurance and pharmacy benefits services, in an effort "to provide our stakeholders transparency and confidence" in the company's business practices. The company told CNBC it will not have many details to offer about that audit during the second-quarter earnings call. It does not expect the review to be completed until the end of the third quarter of this year.
Forbes
44 minutes ago
- Forbes
Buy or Sell UNH Stock Ahead of Its Upcoming Earnings?
CHONGQING, CHINA - JULY 27: In this photo illustration, a smartphone displays the logo of ... More UnitedHealth Group Incorporated (NYSE: UNH), a leading American healthcare and insurance company, in front of a screen showing the company's latest stock market chart on July 27, 2025 in Chongqing, China. (Photo illustration by) UnitedHealth (NYSE:UNH) is set to release its earnings on Tuesday, July 29, 2025. Analyzing the past five years of data, UNH stock has exhibited a trend of positive one-day returns after earnings announcements in 53% of cases. The median one-day gain was 4.0%, with the highest single-day increase reaching 7.2%. While the actual results in comparison to consensus estimates will be vital, comprehending these historical patterns can offer an edge for event-driven traders. There are two primary strategies to leverage this information: Analysts' consensus estimates for the forthcoming quarter anticipate earnings of $4.94 per share on revenue of $111.6 billion. This stands in contrast to last year's quarter earnings of $6.80 per share on revenues of $98.86 billion. The expected contraction in profit margins, as indicated by the lower EPS estimate despite higher revenue, is mainly attributed to escalating medical costs. From a fundamental standpoint, UnitedHealth Group has a current market capitalization of roughly $267 billion. Over the past twelve months, the company generated $410 billion in revenue, reporting $33 billion in operating profits and a net income of $22 billion, showcasing robust operational profitability. That being said, if you're looking for potential upside with less volatility than individual stocks, the Trefis High Quality portfolio offers an alternative — having outperformed the S&P 500 and produced returns exceeding 91% since its inception. See earnings reaction history of all stocks UnitedHealth's Historical Odds Of Positive Post-Earnings Return Here are some insights on one-day (1D) post-earnings returns: Additional data for recorded 5-Day (5D) and 21-Day (21D) returns post earnings are detailed along with the statistics in the table below. UNH 1D, 5D, and 21D Post Earnings Return Correlation Between 1D, 5D, and 21D Historical Returns A relatively less risky approach (although not effective if the correlation is low) is to comprehend the correlation between short-term and medium-term returns following earnings, identify a pair that has the highest correlation, and execute the appropriate trade. For instance, if 1D and 5D reveal the highest correlation, a trader can position themselves "long" for the next 5 days if the 1D post-earnings return is positive. Below are some correlation statistics derived from the 5-year and 3-year (more recent) history. It is worth noting that the correlation 1D_5D refers to the correlation between 1D post-earnings returns and subsequent 5D returns. UNH Correlation Between 1D, 5D and 21D Historical Returns Discover more about Trefis RV strategy that has outperformed its all-cap stocks benchmark (combination of all 3, the S&P 500, S&P mid-cap, and Russell 2000), delivering strong returns for investors. Additionally, if you desire upside with a more stable experience than an individual stock like UnitedHealth, consider the High Quality portfolio, which has outperformed the S&P and achieved >91% returns since its launch.
