UnitedHealth Group forecasts growth despite 'price cut' in Medicare Advantage

UnitedHealth Group expects continued growth in revenue and earnings next year despite what its CEO called a significant "price cut" in government payments for seniors in the company's Medicare Advantage health plans.

Federal officials announced in March a series of changes to improve the accuracy of government payments to Medicare health plans. The decision came as part of their annual update to rates in the program, where seniors opt to receive government benefits from private managed care companies.

Taken together, the changes will have a "material impact" on revenue at the insurance division of Minnetonka-based UnitedHealth Group, said Andrew Witty, the company's chief executive officer, during a Wednesday investor conference.

"Yet here we are today, standing up and saying despite that change — despite that impact — we are committed to the kind of earnings growth rate over the next 12 months that you would expect from us, even if there hadn't been a rate notice cut," Witty said.

On Wednesday, executives forecast that revenue next year will grow by about $30 billion, or roughly 8%, to between $400 billion and $403 billion.

UnitedHealth Group is Minnesota's largest company by revenue. In addition to operating UnitedHealthcare, which is one of the nation's largest health insurers, the company has a fast-growing division for health care services called Optum.

For more than a decade, more seniors have been opting for Medicare Advantage plans and UnitedHealthcare is the largest seller of the coverage.

"We focused on how we can protect members and their benefits, we focused on how we can take more cost and efficiency into our organization and we focused on how we can double down on eliminating waste and unnecessary care in the health system more generally," Witty said.

The company said net earnings, or profit, should grow by roughly 10% to a range of between $24.2 billion and $24.8 billion.

When announcing the Medicare Advantage payment policies in March, the federal government said the changes would be phased in over several years. Between 2023 and 2024, Medicare Advantage plans will see an average payment increase of a little more than 3%, according to the Centers for Medicare and Medicaid Services (CMS).

"Paying Medicare Advantage plans more accurately for the care they provide is how we ensure that people enrolled in Medicare Advantage, especially populations with the highest health disparities and people in underserved communities, can continue to access the care they deserve," said CMS administrator Chiquita Brooks-LaSure in a statement.

At UnitedHealth Group, the changes mean the medical care ratio — a widely watched indicator that factors premium revenue vs. medical costs — is expected to grow next year to about 84%. This means the company expects to spend about 84 cents of every premium dollar on medical costs — up from a ratio this year of about 82.6 cents on the dollar.

This ratio is sometimes called the medical loss ratio, or MLR, for short.

"That price cut has a direct effect on MLR," Witty said of the Medicare changes. "It is a straight-forward shift in the denominator … and it represents the bulk of what you're seeing in the change."

Next year, UnitedHealth Group expects overall health insurance enrollment to grow by at least 1.375 million people, to more than 54 million enrollees overall.

Within Optum, the company expects its business running clinics and outpatient medical centers will see revenue growth of about 16%.

Witty said that UnitedHealth Group employs about 450,000 people.

Similar to his comments at last year's investor conference, the CEO said about 3.9 million people have applied to work at UnitedHealth Group over the past year. Witty added on Wednesday: "So far this year, our voluntary attrition has dropped by about a third."