UnitedHealth Predicts Greater Impact on Annual Earnings Due to February Hack but Maintains Full-Year Profit Forecast

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UnitedHealth announced a revised estimate of the impact from a significant cyberattack on its technology unit in February, expecting a larger hit to its annual earnings. Despite this, the company maintained its full-year profit forecast, leading to a surge in its share price by about 6% to $544.32. This rise came after the company exceeded Wall Street’s expectations for second-quarter profits and indicated plans to resume share buybacks, which had been paused due to the hack.

 Impact of the Cyberattack on UnitedHealth and the Healthcare Industry

The cyberattack targeted UnitedHealth’s Change Healthcare unit and is considered one of the most severe breaches to affect the American healthcare industry. It significantly disrupted payment systems for doctors and healthcare facilities. UnitedHealth’s Chief Financial Officer, John Rex, mentioned during a conference call that billing channels are still not fully restored for some providers.

Financial Implications and Forecasts

UnitedHealth expects the disruptions caused by the hack to result in a 30-cent per share reduction in full-year adjusted profits. This decrease is primarily due to a loan program established to support providers affected by the hack and the costs associated with notifications. Despite this setback, the company reaffirmed its full-year adjusted profit forecast, projecting earnings between $27.50 and $28.00 per share.

Although the exact number of affected individuals remains undisclosed, it is estimated that the hack could have compromised the data of one-third of Americans. The breach has had widespread repercussions across the healthcare industry, including increased medical costs for UnitedHealth due to the suspension of the prior authorization process for some insurance plans. Consequently, the company’s medical care ratio, which measures medical costs, rose to 85.1% in the second quarter, surpassing expectations of 84.40%.

Elevated Medical Costs and Industry Response

The healthcare industry has been grappling with elevated medical costs, partly due to the turnover of Medicaid enrollees, which has led to a shift towards sicker patients. During the pandemic, insurers were required to retain Medicaid members, making it challenging to project medical usage rates accurately. Following the termination of this policy in 2023, states have begun reassessing eligibility for low-income Americans. Rex noted that this trend should stabilize through 2025 as utilization rates are updated throughout the year.

Despite the elevated medical costs, the situation is not causing significant concern for UnitedHealth, according to James Harlow, senior vice president at Novare Capital Management. Stephens analyst Scott Fidel observed that UnitedHealth’s share price rose because the company did not identify any new trends indicating higher-than-expected medical care expenses. He attributed the higher quarterly costs to transient events such as the cyberattack and the sale of its South American operations.

Strong Financial Performance and Future Outlook

Other health insurers, including Humana and Elevance Health, saw their shares rise by 2-3% in morning trading following UnitedHealth’s announcement. UnitedHealth posted an adjusted quarterly profit of $6.80 per share, exceeding analysts’ expectations of $6.66 per share, according to LSEG data. The company’s strong performance was driven by growth in its healthcare services unit, with revenue from its Optum services unit increasing by approximately 12% to $62.9 billion in the second quarter.

In conclusion, despite the significant impact of the February hack, UnitedHealth remains resilient, maintaining its full-year profit forecast and demonstrating strong financial performance. The company’s proactive measures and strategic decisions have helped mitigate the adverse effects of the cyberattack, positioning it well for continued growth and stability in the future.