US health insurers: higher bills to follow as seniors book deferred operations

US private health insurers had a good pandemic. Lockdowns and fear of infection prompted many Americans to steer clear of clinics. Even after the worst of Covid-19 had passed, patients deferred costly procedures such as knee surgeries. With premiums still rolling in, the country’s leading health insurers — UnitedHealth, Cigna, Elevance Health (formerly known as Anthem) and Humana — raked in record revenues and robust profits in each of the past three years.

The four collectively made $35.6bn in profits on $753bn of revenues last year. Shares have risen in tandem. The S&P Managed Health Care index hit a record high last October and remains 80 per cent above its pandemic lows.

But claims for surgeries and other medical procedures have started rolling in again. Humana on Friday became the latest to warn on rising costs. The medical-loss ratio is a closely watched metric that measures how much of the premium an insurer collects gets paid out to medical providers. At Humana, the figure is expected to come in at the high end of its guidance of 86.3 per cent to 87.3 per cent this year. A higher number means the company makes less money.

Humana’s warning echoed comments made by UnitedHealth a day earlier. It too said it expects its full-year medical-loss ratio to come in at the upper end of its forecast of 82.1 per cent to 83.1 per cent. 

But among the four insurers, sector leader UnitedHealth looks best placed to absorb any rise in medical expenses. The company, which boasts a towering $432bn equity value, is far more diversified than its peers. Its fast- growing Optum unit, which offers everything from data analytics to pharmacy services to ambulatory care, accounted for half of group operating profits last year.

The stock is trading on 18 times forward earnings, a tenth below its three-year average. That is despite analysts forecasting double-digit growth in earnings for the next three years. Patient investors should use this opportunity.