As UnitedHealth Group grapples with the horrific loss of the head of is health insurance business, the company faces rising costs and tough negotiations with governments it works with to provide elderly and poor Americans their health benefits.
In the wake of the shooting death of UnitedHealthcare chief executive Brian Thompson, a focus on health insurer denials of medical care and certain other business practices emerged on social media and by industry critics, including some in Congress who’d like to see reforms. Any reforms, if they happen at all, are unlikely to take effect in 2025, however.
But in the near term, UnitedHealth’s UnitedHealthcare business along with industry rivals including Centene, Humana, Elevance Health and CVS Health’s Aetna health insurance unit face challenges in their government-funded businesses including Medicaid coverage for poor Americans and Medicare Advantage benefits for Americans 65 and older.
Take a report Friday from Fitch Ratings, which said pricing from states that hire health insurers to administer Medicaid benefits will “continue to challenge U.S. health insurers.”
“Medicaid margin pressure could persist into 1H25, but rate-setting discussions with states should eventually incorporate higher levels of acuity,” Fitch analysts said of the first half of 2025. “Recent commentary from health insurers with exposure to the Medicaid market has highlighted 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 relatively thin margins.”
The pricing pressures from state Medicaid programs looking to keep a lid on costs comes as health insurers have already been seeing increased costs from Americans getting more care now that the COVID-19 pandemic has passed. This trend has been seen in both Medicaid and Medicare Advantage, Fitch said.
The seven largest publicly traded health insurers are projected to have an annual medical care ratio — which is the percentage of premium revenue that goes toward medical costs — of nearly 86% for 2024, Fitch said. UnitedHealthcare’s MCR was 85.2% for the third quarter of this year compared to 82.3% last year, UnitedHealth reported for UnitedHealthcare in October.
For the better part of the last decade, it’s been between 82% and 84% for the top health insurers, according to Fitch data.
“Weaker combined operating performance for the largest seven publicly traded health insurers (year over year) 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 said.
Still, companies like UnitedHealth Group, Humana and CVS Health have large and growing businesses that also provide medical care, which could blunt some of the impact of the rising costs in their health insurance businesses.
“Rising medical loss ratios in 2024 were modestly offset by lower administrative ratios and stronger investment income as higher market interest rates continue to permeate the insurers’ generally high quality, short-duration bond portfolios.” Fitch said. “Business diversification among some health insurers in terms of insurance products, provider assets and pharmacy benefit management operations also continue to soften the impact of elevated healthcare utilization.”
