UnitedHealth Group reaped the financial benefits of COVID-19 in the second quarter of 2020, reporting net income of $6.7 billion, nearly double what it recorded during the same period a year ago.
The nation's largest insurer on Wednesday kicked off the latest earnings season, the first that fully incorporates the effects of the coronavirus crisis and related economic downturn on the healthcare system.
Its experience confirmed what most experts had anticipated: that large, publicly traded insurers would substantially benefit from the pandemic even as most health systems and other providers bleed money due to the unprecedented deferral of elective procedures and routine care. UnitedHealthcare benefited across its health insurance and care delivery business segments.
"UnitedHealthcare and Optum have both experienced the effects of an unprecedented decline in healthcare services," UnitedHealth Group CEO David Wichmann told industry analysts in a conference call Wednesday morning.
Those declines in healthcare services spelled massive returns for the company, despite UnitedHealth's assurances that it has and would continue to return any "financial imbalances" resulting from deferred care. UnitedHealth has spent billions of dollars to prop up providers and to lower premiums and copayments for its members amid the crisis. Like other insurers, it also committed to absorbing COVID-19 testing and treatment costs for many customers.
Still, its second-quarter earnings skyrocketed 97.8% over the same quarter a year ago. While its revenue increased just 2.5% to $62.1 billion, its operating costs dropped 5.3% to $52.9 billion as it spent less on medical care. Medical costs fell 11.5% to $34.7 billion.
UnitedHealth's medical loss ratio, which represents the amount of premiums the insurer spent on medical care and quality improvement activities, plummeted to 70.2% in the second quarter from 83.1% a year ago. Under the Affordable Care Act, insurers are required to spend 80% to 85% on medical care or else rebate the difference to customers. Depending on how the rest of the year goes, UnitedHealth may owe large rebates in future years.
UnitedHealthcare—UnitedHealth's insurance arm—drove the earnings growth. The business recorded earnings from operations of $7 billion compared to $2.6 billion in the same period last year.
John Rex, chief financial officer of UnitedHealth, explained that inpatient care fell to about 75% of its normal levels at its lowest point in April, while outpatient care and physician services fell to 60% of normal levels. By the end of June, care access was already returning to near-normal levels as healthy systems and physician offices reopened.
Revenue for the segment increased slightly as membership in Medicare Advantage grew 8% to 5.6 million. UnitedHealthcare also began to feel the effects on enrollment of the worsening economy and widespread job losses.
Since March 31, its Medicaid membership increased 5.6% to 6.2 million, likely reflecting the suspension of eligibility redeterminations. Meanwhile, UnitedHealthcare commercial membership dipped by 270,000 people—about 1%—over the quarter as some employers laid off workers to reduce costs. Rex said the decrease in commercial enrollment was lower than expected since many employers continued to provide benefits for furloughed workers. Overall, membership totaled 48.4 million, down 2.3% year over year.
UnitedHealth's fast-growing Optum business also contributed to the earnings growth, posting operating earnings of $2.2 billion, an increase of 6.3%. OptumHealth, the care delivery unit that employs or contracts with 52,000 physicians, grew earnings from operations 22.2% to $841 million. Two-thirds of OptumHealth's business is risk-based while the other third is fee-for-service based, so it wasn't impacted as heavily by the decrease in elective care as predominantly fee-for-service providers may have been.
Wichmann said he expects the pandemic to drive more clinicians toward value-based care models like those at Optum. This year, Optum has added 6,500 clinicians, including primary care physicians, specialists, nurse practitioners and physician assistants, he said.
"Recent months served as compelling example of why care delivery has and should continue to advance in this direction," he said.
Going forward, UnitedHealth executives said they expect medical costs and the MLR to increase above normal levels in the second half of the year as people seek the care they put off earlier this year. That care may be more expensive than it otherwise would have been if patients' conditions worsened in the meantime.
That's why UnitedHealthcare maintained its previous earnings expectations for the full year. Executives' comments also suggested they won't lower premiums to account for the earnings windfall UnitedHealth has experienced so far.
Bill Golden, CEO of UnitedHealthcare's employer and individual business, said the insurer will continue to price premiums based on what it expects future cost trends to be. Those costs could include COVID-19 testing and treatment costs, vaccine costs, and the cost of care that had been deferred in 2020. There could also continue to be a lower demand for care in some states, he said.