Amidst Industry Outrage and Upheaval, UnitedHealthcare Confronts Pricing Obstacles by 2025
Following the fatal shooting of UnitedHealthcare CEO Brian Thompson, a spotlight fell on health insurance companies' denial of medical care and certain business practices. This was highlighted on social platforms and by industry critics, including some in Congress, who advocated for reforms. However, any potential changes are not expected to be implemented before 2025.
In the interim, UnitedHealthcare, alongside competitors such as Centene, Humana, Elevance Health, and CVS Health's Aetna health insurance division, face challenges in their government-funded ventures, including Medicaid coverage for low-income Americans and Medicare Advantage benefits for senior citizens.
A report from Fitch Ratings released last week indicated that pricing set by states hiring health insurers to manage Medicaid benefits will continue to put pressure on U.S. health insurers.
"Medicaid margin pressure could persist into the first half of 2025, but rate-setting discussions with states should eventually incorporate higher levels of acuity," Fitch analysts noted. "Recent comments from health insurers with exposure to the Medicaid market have raised concerns about inadequate rates paid to them per Medicaid beneficiary relative to the average costs of care, resulting in margin pressure on a product that already generates thin margins."
The pricing pressures from Medicaid programs aiming to control costs coincide with health insurers already dealing with increased expenses due to Americans seeking more care post-COVID-19. This trend is evident in both Medicaid and Medicare Advantage, Fitch mentioned.
The seven largest publicly traded health insurers are projected to have an annual medical care ratio—representing the percentage of premium revenue allocated towards medical costs—of approximately 86% for 2024, according to Fitch. UnitedHealthcare's MCR was 85.2% for Q3 2022, as reported by UnitedHealth in October, compared to 82.3% in the same quarter last year.
For over a decade, the top health insurers have maintained a medical care ratio between 82% and 84%, according to Fitch data.
"Weaker combined operating performance for the largest seven publicly traded health insurers for the first nine months of 2024 primarily reflected continued increases in healthcare service utilization in the senior population and higher acuity in the remaining Medicaid population following completion of the redetermination process," Fitch stated.
Despite these rising costs, companies like UnitedHealth Group, Humana, and CVS Health have substantial and expanding businesses that provide medical care, which could mitigate some of the impact on their health insurance divisions.
"Rising medical loss ratios in 2024 were partially offset by lower administrative ratios and stronger investment income thanks to higher market interest rates influencing the insurers' generally high-quality, short-duration bond portfolios," Fitch noted. "Business diversification among some health insurers in terms of insurance products, provider assets, and pharmacy benefit management operations also helps lessen the impact of heightened healthcare utilization."
UnitedHealth Group, as the parent company of UnitedHealthcare, is one of the health insurers that is currently navigating challenges in their Medicare Advantage and Medicaid ventures. Brian Thompson, the former CEO of UnitedHealthcare, saw his position under scrutiny due to health insurance industry criticisms regarding denial of medical care and certain business practices.
