Health Insurers Gain Most Since 2013 as Medical Cost Fears Ease

(Bloomberg) -- U.S. health insurers had their biggest intraday gain in more than six years after the industry’s biggest company reported third-quarter earnings that gave investors confidence in coming results by its rivals.

UnitedHealth Group Inc. raised its full-year adjusted earnings forecast after a key measure of medical spending improved from the prior quarter. Known as the medical-loss ratio, or MLR, the crucial gauge measures the share of each premium dollar that goes to pay for customers’ medical care. A higher MLR can cut into profitability.

UnitedHealth is the first of the major insurers to report earnings, and its MLR is often seen as an indicator of medical spending trends. In the third quarter, UnitedHealth said its ratio was 82.4%, down from 83.1% in the second quarter. While the change seems small, it amounts to hundreds of millions of dollars in potential profit for company.

“We continue to see costs very well controlled and cost trends consistent with expectations,” said Jeff Putnam, chief financial officer of UnitedHealth’s insurance unit.

UnitedHealth’s shares rose as much as 6.6% in New York, their best intraday gain in about two years. Its health plan competitors rose as well, with Anthem Inc. up 4.4%, Centene Corp. up 1.7% and Humana Inc. up 2.5%. The S&P’s Managed Health Care Index had its biggest intraday gain in more than six years.

Health-insurance stocks had struggled this year, facing political worries from Democratic presidential candidates and more narrow concerns about their businesses.

“Investors are likely breathing a sigh of relief on this print” after shares fell about 17% since second-quarter earnings on political and fundamental concerns, JPMorgan Chase & Co. analyst Gary Taylor said in a note to clients earlier Tuesday.

The S&P 500 Managed Care Index has plunged into a correction twice this year already and is hovering around the lowest level since April, when insurers fell on worries about Democrats’ Medicare-for-All proposals, which would either eliminate private health insurance or create a government competitor to private plans. The presidential primary candidates face off in their fourth primary debate Tuesday evening in Ohio.

UnitedHealth said it now forecasts full-year adjusted earnings of $14.90 to $15 per share, up 15 cents from the projection it gave in July. Third-quarter adjusted earnings were $3.88 a share, topping the $3.75 average of analysts’ estimates.

UnitedHealth’s 2020 earnings growth estimate also came slightly above analyst expectations, based on estimates from Evercore ISI. The insurer guided for growth at the low end of its long-term 13% to 16% goal, while analysts were looking for 11%, analyst Michael Newshel said in a note to clients earlier Tuesday.

For more details on UnitedHealth’s third-quarter earnings results, click here.

To contact the reporters on this story: John Tozzi in New York at jtozzi2@bloomberg.net;Tatiana Darie in New York at tdarie1@bloomberg.net

To contact the editors responsible for this story: Drew Armstrong at darmstrong17@bloomberg.net, Cécile Daurat

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