UnitedHealth reports rising medical costs from RSV vaccines, seasonal illness

UnitedHealth Group reported Friday that its fourth-quarter profit beat expectations even as the Minnetonka-based health care giant saw a noticeable increase in medical costs — growth that executives called temporary and seasonal.

Many seniors sought RSV vaccinations during the quarter, the company said, and received other services while making those clinic visits. Per-hospitalization expenses for COVID also ran high.

The end result was higher spending between October and December that pushed the full-year medical loss ratio — a metric that compares medical expenses to premium revenue — just above the company's range of expectations.

Andrew Witty, the UnitedHealth Group chief executive, said the increase did not change the company's outlook on medical costs for 2024.

"All of that is good news for health care," Witty said of the higher utilization during a conference call with investors. "These are seniors, many of whom had not been to the office for a long time. They've come back in and now gotten vaccinated, and physicians have picked up other things while they've been there."

Shares of UnitedHealth Group closed Friday at $521.51, down 3% for the day.

Investors worry about cost increases for health insurers because they can eat into earnings when expenses grow faster than expected. The medical loss ratio is a closely watched indicator because a higher value may signal more medical spending.

During Friday's conference call, analysts said medical costs at UnitedHealth Group apparently increased since the company hosted its investor conference in late November. Witty agreed, saying there had been "a click-up in some seasonal activity" during the final weeks of the year.

But Witty said executives "don't think [it's] really durable or relevant for the rest of the year."

UnitedHealth Group started signaling last summer that medical expenses, in general, were growing as more seniors used outpatient care and also moved forward with orthopedic procedures they previously might have been deferring.

As a result, UnitedHealth Group in November forecast for 2024 a medical loss ratio in the range of 83.5% to 84.5%. On Friday, the company reported a final ratio for 2023 of 83.2%, with costs peaking during the fourth quarter with a ratio of 85%.

Although the fourth-quarter increase might be temporary, signs of a broader growth in costs are rippling through the economy. Last year, a prominent survey found employer health plans are seeing rising costs driven by higher medication spending and more health care provider expenses.

UnitedHealth Group, Minnesota's largest company by revenue, operates UnitedHealthcare, which is one of the nation's largest health insurers, and a fast-growing health care services business called Optum.

On Friday, the company said its profit for the fourth quarter, after adjusting for intangible amortization, rose 15% over the same period last year to $5.46 billion. Earnings per share of $6.16 beat analyst estimates by 18 cents.

For full-year 2023, the company saw an adjusted profit of $22.38 billion on revenue of $371.6 billion.

In December, UnitedHealth Group said it was selling its health care business in Brazil to a private investor and expected to record a related charge of about $7 billion. The charge will affect the company's net earnings outlook for 2024, but UnitedHealth Group confirmed its previous adjusted earnings outlook of about $24 billion for the year.