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Tight rein on costs helps UnitedHealth beat profit expectations, raise forecast

FILE PHOTO: The corporate logo of the UnitedHealth Group appears on the side of one of their office buildings in Santa Ana, California

(Reuters) – UnitedHealth Group Inc on Thursday raised its 2021 adjusted profit target, as tight control on medical costs helped the largest U.S. health insurer handily beat first-quarter profit estimates, sending shares up more than 4%.

The industry bellwether’s results lifted shares of rivals. Anthem Inc was up 3%, Cigna Corp up 1% and Humana Inc up 3%.

Health insurer medical costs have been fluctuating since the coronavirus outbreak as dollars saved on patients delaying care and procedures early in the pandemic was later offset by higher expenses related to testing, treatment and vaccination against COVID-19.

Graphic: UnitedHealth’s medical costs trend below estimates during pandemic https://graphics.reuters.com/UNITEDHEALTH-RESULTS/azgvoxnrypd/chart.png

UnitedHealth benefited from a decline in COVID-19 costs during the latter half of the first quarter after a wave of infections and hospitalizations waned.

“To put this in perspective, February and March showed COVID-related care at about half the level experienced in January,” Chief Financial Officer John Rex said during a post-earnings call.

In April, the company began to see another rise in COVID-19 related care, though not yet approaching January levels, he added.

UnitedHealth’s medical loss ratio – the percentage of premiums paid out for medical services – was 80.9% for the quarter ended March 31, lower than the 82.9% consensus forecast by analysts, according to Refinitiv IBES data.

UnitedHealth’s first quarterly earnings since new Chief Executive Officer Andrew Witty took the reins in February will reset Wall Street expectations for all health insurers this quarter, some analysts said.

UnitedHealth now projects 2021 adjusted earnings of $18.10 to $18.60 per share, up from its previous forecast of $17.75 to $18.25.

The company said it expects to record a majority of its previously forecast $1.80 per share hit from COVID-19 costs in the back half of the year.

Health insurers across the board will still likely remain relatively conservative around their expectations for how healthcare activity could play out over the rest of the year, Stephens analyst Scott Fidel said.

(Reporting by Manojna Maddipatla in Bengaluru, Caroline Humer in New York; Editing by Shinjini Ganguli)

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