UnitedHealth expects bigger hit to annual profit from hack costs

By Sriparna Roy, Mariam Sunny and Amina Niasse

(Reuters) -UnitedHealth on Tuesday forecast a bigger hit to earnings this year from a February hack at its tech unit as it notifies customers and provides loans to affected health providers, and said it was working to restore all operations.

The hack at the Minnetonka, Minnesota-based health insurer's Change Healthcare unit was one of the worst to hit the American healthcare industry and impacted payments to doctors and healthcare facilities.

Billing channels are still not back to normal for some providers, UnitedHealth CFO John Rex said on a post-earnings conference call.

The company said it expects a 30-cent higher hit to full-year adjusted profit from the disruptions caused to Change by the hack, mainly due to the loan program and notification costs.

Information made vulnerable in the attack is believed to include health insurance member IDs, patient diagnoses, treatment information and Social Security numbers.

The hack has had far-reaching affects across the industry, It also has led to higher medical costs for UnitedHealth as it suspended the prior authorization process for some insurance plans during the hack. Still, the company plans to resume share buybacks, which were paused due to the hack, in the second half of this year, Rex said.

UnitedHealth's shares rose 4.2% to $537.68 in early trading. The company's quarterly profit beat expectations, mainly due to strength in its healthcare services unit, Optum.

Its medical care ratio - a key measure of medical costs - was 85.1% in the second quarter, above expectations of 84.40%.

Insurers have grappled with elevated medical costs as a turnover in people enrolled in Medicaid plans led to a shift toward sicker patients.

During the COVID-19 pandemic, insurers were required to keep Medicaid members enrolled. Insurers have had difficulty projecting medical use rates as states redetermine eligibility for low-income Americans following termination of that policy in 2023. This trend should stabilize through 2025 as utilization rates are updated through the year, Rex said.

The company's medical costs were elevated, but the order of magnitude is not sufficient to cause concern for UnitedHealth, said James Harlow, senior vice president at Novare Capital Management.

Shares of other health insurers such as Humana and Elevance Health were marginally higher in morning trading.

UnitedHealth posted an adjusted quarterly profit per share of $6.80, topping analysts' expectations helped by growth in its healthcare services unit. Analysts were expecting quarterly profits of $6.66 per share, according to LSEG data.

Revenue from its Optum services unit increased about 12% to $62.9 billion in the second quarter.

(Reporting by Sriparna Roy and Mariam Sunny in Bengaluru and Amina Niasse in New York; Editing by Sriraj Kalluvila and Will Dunham)