UnitedHealth Group Incorporated, Q2 2024 Earnings Call, Jul 16, 2024 - NYSE:UNH

NYSE:UNH

Andrew Philip Witty, the CEO and Non-Independent Director of UnitedHealth Group, made several statements during the Q2 2024 Earnings Call. Here is a detailed list of his remarks:

Opening Remarks

• Growth and Performance:
  • Highlighted the diversified and durable growth of the company.
  • Emphasized the commitment to high-quality care for all patients served.
• Business Disruption Impact:
  • Acknowledged the $0.60 to $0.70 per share impact from business disruption due to a cyberattack.
  • Confirmed the affirmation of the full-year adjusted earnings outlook despite the cyberattack.
• 2025 Growth Position:
  • Noted the company’s strong position for growth in 2025, based on the selling season and customer choices.
• Value Proposition:
  • Stressed the company’s role in reducing fragmentation and improving coordination in the healthcare system.
• Medicare Advantage Value:
  • Cited a Milliman study showing that Medicare Advantage costs 4% less to taxpayers than traditional fee-for-service Medicare.
  • Highlighted the additional value provided to seniors, including dental, vision, and hearing services.
• Home Visits Program:
  • Mentioned the program’s positive impact on seniors’ health and the identification of unmet needs.
  • Emphasized the program’s role in reducing hospitalizations and emergency room visits.
• Optum Rx Efforts:
  • Praised Optum Rx’s efforts to deliver low-cost drugs and comprehensive pharmacy services.
• Technology Innovation:
  • Discussed the company’s investment in modernizing legacy technology and leveraging new technologies.
  • Noted the growing AI portfolio and its potential to generate billions in efficiencies.

Response to Questions

• Medical Loss Ratio (MLR):
  • Addressed questions about the MLR, noting the impact of member mix, Medicaid timing mismatches, and upcoding issues.
  • Reiterated the company’s response to the V28 funding cut and its navigation of the funding reduction.
• SG&A Cost Savings:
  • Explained the use of AI and technology to drive cost savings and efficiencies.
  • Provided examples from OptumRx and OptumHealth regarding the successful implementation of technology to manage growth without increasing personnel costs.
• Medicare Advantage (MA) Bids:
  • Deferred from making predictions about 2025 MA growth, citing the unpredictable nature of the market.
  • Asked Timothy John Noel to address the details of the MA bids.
• Medicaid Pressure:
  • Asked Krista Nelson to discuss the company’s expectations for Medicaid pressures subsiding.
  • Confirmed the confidence in the Medicaid situation resolving itself over time.
• OptumHealth Margins:
  • Asked Amar A. Desai to provide insights into OptumHealth’s margin performance and outlook.
  • Expressed confidence in the OptumHealth team’s ability to manage through the V28 funding reduction.
• Provider Coding Activity:
  • Addressed questions about changes in provider coding activity, noting the impact of utilization management protocols during the cyber disruption.
  • Reinforced the utilization management protocols and the expectation that coding impacts would dampen over time.
• Closing Remarks:
  • Expressed appreciation for the team’s hard work and discipline.
  • Concluded the call by thanking participants for their time.

These remarks provide insight into UnitedHealth Group's performance, strategic direction, and response to challenges.

John F. Rex, the President and CFO of UnitedHealth Group, provided a detailed overview of the company’s financial performance and addressed various financial aspects during the Q2 2024 Earnings Call. Here is a summary of his statements:

Overview of Unique Items in the Quarter

• Change Healthcare Focus: UnitedHealth Group has been focusing on supporting patients, care providers, and customers impacted by the cyberattack. Payment and claims have returned to normal for most care providers, but the company continues to work with those who are still experiencing issues.
• Financial Support to Providers: Over $9 billion in loans and advanced payments have been provided to help providers mitigate the impact of the attack, at no cost to them.
• Cyber Impacts: The total impact of the cyberattack in Q2 2024 was $0.92 per share, with an estimated full-year impact of $1.90 to $2.05 per share.
• Direct Costs: Direct costs in Q2 were $0.64 per share, including costs related to restoring the clearinghouse platform and higher medical expenses due to the temporary pause of some care management activities. The full-year estimate for these direct costs is $1.30 to $1.35 per share.
• Business Disruption Impact: The impact related to disruption of the ongoing Change Healthcare business was $0.28 per share in Q2, with a full-year estimate of $0.60 to $0.70 per share.

International Business Update

• South American Operations: The remaining South American businesses have been classified as held for sale following the sale of larger Brazil operations. This classification includes a total of $1.3 billion in impacts, mostly non-cash and due to foreign currency translation losses.
• Regulatory Action in Chile: A regulatory action affecting all health plans resulted in a $220 million charge, which was recorded as a reduction to premium revenue in Q2 2024, increasing the reported medical care ratio by about 25 basis points.

Medical Care Ratio (MCR)

• Impact of Suspended Care Management Activities: The MCR was impacted by about 40 basis points ($290 million) due to the suspension of some care management activities after the cyberattack.
• Non-repeating Impacts: Total non-repeating impacts, including South America, were about 65 basis points.
• Other Factors: The MCR was also affected by member mix within Medicare Advantage and dual special needs plans, a timing mismatch between Medicaid member health status and state rate updates, and an upshift in provider coding intensity.
• Full-Year MCR Expectation: Excluding 30 basis points of cyber and South American effects, the full-year MCR is expected to be within the range provided in November, albeit at the upper end.

Business Performance

• UnitedHealthcare (UHC): Revenues grew by $3.6 billion, with domestic commercial membership growing by 2.3 million in H1 2024.
• Medicare Advantage Bid: The recently filed Medicare Advantage bid for 2025 took a balanced approach to provide stability for seniors while factoring in funding cuts and current care patterns.
• Medicaid: Membership levels are expected to stabilize in H2 2024, with the company executing well on renewals and expansions.
• OptumHealth: Revenues grew by 13% to $27 billion, with the operating margin expanding over the previous year. Progress is strong on engaging patients earlier and deeper to improve health outcomes.
• Optum Rx: Revenues grew by 13% to over $32 billion, driven by customer response to the differentiated value, consumer experience, and clinical expertise offered.
• OptumInsight: Strong performance in line with expectations, with a revenue backlog of nearly $33 billion, driven by business process and information technology services for health systems.

Other Financial Updates

• Medical Reserves: An additional $800 million in medical reserves was established in Q1 2024 to reflect potential impacts on claims receipt timing due to the cyberattack. Claims are now flowing at more normalized levels.
• Cash Flows: Cash flows from operations in Q2 2024 were $6.7 billion, or 1.5x net income, even with the accelerated funding for care providers.
• Dividend Increase: The Board of Directors increased the dividend by 12%, marking the 15th consecutive year of double-digit dividend increases to shareholders.
• Share Repurchase: The company prioritized supporting care providers over share repurchase during the quarter. However, with ongoing strong capital capacities and abating support needs, the company expects to achieve its full-year repurchase objective.

Full-Year Adjusted EPS Affirmation

• Affirmed Full-Year Adjusted EPS Range: Despite absorbing $0.60 to $0.70 in business disruption impacts, the company affirmed its full-year adjusted EPS in the range of $27.50 to $28, with a balanced pacing expected in the second half of the year.

**- Timothy John Noel addressed a question regarding margins in the MA (Medicare Advantage) business and the 2025 bid

• He confirmed that UnitedHealth Group maintains a consistent approach to planning margins and is operating comfortably within the margin range as in the past and for 2025

• Noel stated that it's too early to provide specific details on pricing and growth outcomes for 2025 as CMS is currently reviewing the bids

• He indicated that the company is comfortable with whatever growth results from the products launched in 2025**