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Health insurers slammed after UnitedHealth says more surgeries driving up costs

Health insurer stocks dropped sharply on Wednesday after UnitedHealth Group said its costs were on the rise due to an increase in surgeries among older adults.

Health insurers slammed after UnitedHealth says more surgeries driving up costs

Shares of UnitedHealth, the largest U.S. healthcare provider by market value, closed down 6.4% at $459.86, wiping out roughly $29 billion from the industry bellwether’s market capitalization.

Medicare-focused insurer Humana Inc closed about 11% down, and a broader index of managed care providers closed 6.9% lower.

Insurers have been benefiting from a delay in non-urgent surgeries due to the Covid-19 pandemic and hospital staffing shortages, but UnitedHealth’s comments show that the gains may be waning.

Meanwhile, stocks of medical device makers and hospital operators rose, as increased frequency of surgeries mean more revenue for them.

Older adults aged 65 and above covered under Medicare, who had largely stayed indoors during a large part of the pandemic, are getting “more comfortable accessing services for things that they might have pushed off a bit like knees and hips,” UnitedHealth executives said.

The company highlighted strong demand for hip and knee procedures at outpatient centers, as well as for home health services and behavioral services.

Insurer Elevance Health, CVS Health Corp, Centene Corp and Cigna Group closed between 3% and 8% lower.

UnitedHealth’s warning was, however, in sharp contrast to commentary from other insurers, including Elevance, which said on Monday that medical care trends were in line with expectations.

Elevance executives had said they did not expect a surge in demand due to people making up for delayed procedures.

UnitedHealth said it expects second-quarter medical loss ratio – a percentage of spend on claims compared to premiums collected – to rise to the high end, or moderately above its full-year outlook of 82.1% to 83.1%, due to pent-up demand for surgeries.

The company’s 18.51 forward 12-month price-to-earnings ratio, a common benchmark for valuing stocks, is higher than rival Cigna’s 10.29 and CVS Health’s 8.26.

“A lot of this (increase in demand) is being driven by physician offices opening up and increasing capacity,” Jefferies analyst Brian Tanquilut said, adding that he expects the pent-up demand to act as a tailwind for hospitals at least for the next two quarters.

Shares of hospital operators HCA Healthcare and Tenet Healthcare closed up between 1.5% and 2.5%, while implant and joint replacement product makers Stryker Corp and Zimmer Biomet closed about 4% higher.

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