UnitedHealth Expects $2 Billion Covid Earnings Hit Next Year

Bookmark

UnitedHealth Group Inc. expects the pandemic to carve $2 billion out of its profits next year, with Covid-19 testing and treatment costs remaining steady even as more Americans return to their doctors’ offices for routine care.

Executives said costs for virus testing and treatment won’t be offset by widespread deferrals in care in 2021, as they were in 2020 when U.S. medical providers shut down most non-urgent in-person care for weeks during the spring.

The company unveiled its outlook for the year ahead in its annual investor day presentation, where executives highlighted technology and businesses they said would drive the company’s growth. UnitedHealth said it expects revenue between $277 billion and $280 billion next year, with earnings from operations of $22.6 billion to $23.4 billion.

On a per-share basis, the company expects adjusted earnings for next year in the range of $17.75 to $18.25. That includes the $2 billion negative impact from Covid, which is equal to about $1.80 per share, the company said. At the mid-point, the forecast represents a 7.5% increase in adjusted earnings per-share growth over this year’s expected full-year results --below the company’s stated long-term growth target of 13% to 16%.

Analysts called the new guidance conservative. The company “typically takes an under-promise and over-deliver approach” to its initial annual outlook, Cantor Fitzgerald analysts wrote in a research note.

UnitedHealth shares were up 2.6% to $345.02 at 12:25 p.m. in New York. So far this year, the stock has gained 17%.

About two-thirds of the impact from Covid is expected to be seen in the company’s insurance business, while one-third would affect the company’s Optum health-services division, Chief Financial Officer John Rex said. The projections assume coronavirus vaccines won’t become widely available until “fairly deep into 2021,” Rex said.

Care Disruption

The disruption to care for its members in 2020 may also have an impact. “Many seniors haven’t even seen a doctor this year,” Rex said. That could affect their health, as well as other factors that influence how much health plans get paid by the federal Medicare program.

UnitedHealth expects to grow total medical enrollment by as much as 1.5 million members next year. Still, the company sees economic headwinds. It expects some members now on furlough, who retain health benefits, may be terminated, but it’s planning on an employment recovery in 2021.

“We expect at some point next year we’re gong to see unemployment subside,” said Dirk McMahon, chief executive officer of the company’s UnitedHealthcare insurance business. “That’s going to help us from a membership perspective.”

UnitedHealth also expects states will resume applying stricter scrutiny to whether Medicaid recipients are eligible for the program, a process that was suspended during the pandemic.

The effects of the pandemic beyond next year are uncertain. “At this distance, we’re not sure how long we should think about Covid testing and treatment costs continuing,” Rex said.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.