The company reported its second quarter earnings July 16. The company’s medical loss ratio was 85.1% in Q2, up from 83.2% in the second quarter of 2023.
A “timing mismatch between the current health status of remaining Medicaid members and the state rate update” is one factor driving increased medical costs, UnitedHealth’s CFO John Rex told investors on a July 16 call.
Mr. Rex said he expects the mismatch to be resolved in the coming months.
UnitedHealth Group and other payers warned redeterminations were putting pressure on their Medicaid businesses in May. The comments caught investors’ attention, sending managed care stock prices down.
In 2023, states began the process of disenrolling Medicaid enrollees for the first time since 2020. States were prohibited from disenrolling any Medicaid beneficiaries, regardless of their eligibility, during the COVID-19 public health emergency.
As of July 12, more than 24 million people have been disenrolled through the redetermination process, according to KFF. Those who remain enrolled tend to have more health needs, driving up costs in the program.
UnitedHealth executives said they expect states to shift their payment rates to accommodate the higher-need populations remaining in Medicaid.
Krista Nelson, CEO of UnitedHealthcare’s community and state business, told investors that Medicaid rates are shaping up favorably for the second half of the year.
“We continue to work with our state partners to influence key assumptions before those rates become final. While we might see a little bit of dislocation for the rest of the year, states have really committed to accurately reflect the change in acuity for redeterminations into current and future adjustments,” Ms. Nelson said.
In June, Fitch analysts also predicted headwinds from Medicaid redeterminations would likely have only a short-term effect on insurers.
Mr. Rex added that the company expects its full-year medical loss ratio to land in the upper range of its projected guidance for the year. In addition to Medicaid, Mr. Rex identified two other factors driving increased spending.
The member mix in the company’s Medicare Advantage and dual-eligible special needs plans are contributing to higher medical costs, he said, driven by the “unusual competitive benefit configuration in the marketplace.”
UnitedHealth also saw higher coding intensity in the second-quarter. Mr. Rex told investors the increase likely occurred because the company suspended some utilization management requirements during the cyberattack on Change Healthcare.
The company’s earnings report noted “CMS’ Medicare funding reductions” as another factor contributing to rising costs. Every major payer has said medical costs in the Medicare Advantage business are on the rise, while funding from the federal government is declining.
CMS is also implementing changes to its Medicare Advantage risk adjustment model over three years.
UnitedHealth executives have previously said the company is well-prepared to weather the three-year transition, and has adjusted its Medicare Advantage bids accordingly.
UnitedHealth Group CEO Andrew Witty told investors on the July 16 call that the company is handling the long-term Medicare Advantage environment well, and pressures in coding and Medicaid are “transitory.”
“The biggest incoming dynamic on MLR at the beginning of this year was the funding reduction in MA. You can see, we are fundamentally navigating that, I think, extremely well,” Mr. Witty said.
