UnitedHealth sees rising costs from Inflation Reduction Act: 10 notes

Changes from the Inflation Reduction Act are one factor driving up medical costs for UnitedHealth Group. 

The company reported its third-quarter earnings Oct. 15. UnitedHealth predicted its 2024 earnings per share would be toward the lower end of the guidance it issued at the beginning of the year. 

On an Oct. 15 call with investors, UnitedHealth Group CFO John Rex said medical spending was higher than expected in the third quarter because of increased coding intensity from hospitals, the effects of Medicaid redeterminations and rising prescription drug spending. 

Here are 10 things to know about the trends UnitedHealth Group reported: 

  1. Some hospitals have increased coding intensity by upwards of 20%, Mr. Rex told investors. UnitedHealthcare CEO Brian Thompson said the trend was driven by a few large systems.

  2. A "timing mismatch" between state Medicaid rates and medical costs also contributed to rising medical costs, Mr. Rex said.

  3. According to KFF, Medicaid membership has declined by 15% nationwide since 2023, when states began disenrolling Medicaid beneficiaries for the first time since continuous enrollment requirements took effect during the COVID-19 pandemic. UnitedHealth and other payers have said beneficiaries that remain in Medicaid tend to have higher-acuity and higher costs.

  4. In the third quarter, there was a "rapid acceleration" in use of specialty medications, Mr. Rex said, especially to treat cardiovascular disease, autoimmune conditions and cancer.

  5. Provisions of the Inflation Reduction Act that took effect in 2024 contributed to rising use of specialty drugs, Mr. Rex said. Beginning in 2024, Medicare beneficiaries who have drug costs so high they enter the catastrophic phase of coverage will not owe any additional copays for the year.

  6. UnitedHealth executives said they believed promotional campaigns from drug manufacturers played a role in driving utilization in the third quarter.

  7. The effects of the Inflation Reduction Act came earlier than anticipated, executives said. Mr. Rex said the company expected the changes to have a greater effect on utilization in 2025. Beginning in 2025 out-of-pocket Medicare drug costs will be capped at $2,000 per-enrollee each year.

  8. UnitedHealth Group's medical loss ratio in the third quarter of 2024 was 85.2%, up from 82.3% in the third quarter of 2023.

  9. Because of the multiple headwinds the company is facing, UnitedHealth will take a more conservative approach than usual when issuing its earnings guidance for 2025, CEO Andrew Witty told investors.

  10. The upper end of the company's earnings-per-share guidance for 2025 will be around $30, Mr. Witty said. 
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