By Sriparna Roy, Mariam Sunny and Amina Niasse
(Reuters) -UnitedHealth forecast on Tuesday a bigger hit to annual earnings from a February hack at its tech unit, but maintained its full-year profit forecast.
Shares of the Minnetonka, Minnesota-based company surged about 6% to $544.32 as it beat Wall Street estimates for second-quarter profit and signaled that it would resume share buybacks after pausing them due to the hack.
The cyberattack at the healthcare conglomerate's Change Healthcare (NASDAQ:CHNG) unit was one of the worst to hit the American healthcare industry and disrupted payments to doctors and healthcare facilities.
Billing channels are still not back to normal for some providers, UnitedHealth (NYSE:UNH) CFO John Rex said on a conference call.
The company said it expects a 30-cent per share higher hit to full-year adjusted profit from the disruptions caused by the hack, mainly due to a loan program to assist providers affected by the hack, and notification costs. UnitedHealth reiterated its full-year adjusted profit forecast for between $27.50 and $28.00 per share.
The company has not disclosed how many people were affected but has said that hackers could have stolen data from one-third of Americans.
The hack has had far-reaching effects across the industry. It also has led to higher medical costs for UnitedHealth as it suspended the prior authorization process for some insurance plans.
Its medical care ratio, a measure of medical costs, was 85.1% in the second quarter, above expectations of 84.40%.
COSTS ELEVATED, BUT MAGNITUDE NOT A CONCERN
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 pandemic, insurers were required to keep Medicaid members enrolled. Insurers have had difficulty projecting medical use rates as states re-determine 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 not so much as to cause concern for UnitedHealth, said James Harlow, senior vice president at Novare Capital Management.
Stephens analyst Scott Fidel said UnitedHealth's shares rose after the company did not identify any new trends of higher-than-expected medical care expenses. Its higher quarterly costs reflected transient events, such as the Change hack and the sale of its South America operations, he added.
Shares of other health insurers such as Humana (NYSE:HUM) and Elevance Health rose 2-3% in morning trading.
UnitedHealth posted adjusted quarterly profit per share of $6.80, topping analysts' expectations, helped by growth in its healthcare services unit. Analysts were expecting quarterly profit 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.