UnitedHealth's Medical Costs Jump in Third Quarter, Shares Drop

The logo of UnitedHealthcare is shown in Cypress, California April 13, 2016. (REUTERS/Mike Blake)

(Reuters) -UnitedHealth Group's third-quarter medical costs exceeded Wall Street estimates on Tuesday, as the insurer paid out more due to persistently high demand for healthcare services and received lower reimbursements on government-backed insurance plans.

Demand for healthcare services under the government's Medicare plans - for people aged 65 years and older or those with disabilities - has surged since late last year as many older adults opted for procedures they had delayed during the pandemic.

Shares of UnitedHealth fell 3% in premarket trading after the health conglomerate also trimmed the higher end of its annual adjusted profit forecast by 25 cents to $27.75 per share.

The cut was partially due to an increased hit of 10 cents per share from a cyberattack on UnitedHealth's technology unit, Change, in February. The company now sees a business disruption impact of $705 million, or 75 cents a share, this year.

UnitedHealth issued billions in loans to providers affected by the ransomware attack on Change, part of the conglomerate's healthcare services unit Optum, and incurred costs related to notifying customers of the breach.

Despite all its measures, UnitedHealth's smaller rivals say they are signing longer-term contracts with hospitals and other customers who had temporarily switched from Change.

For the third quarter, UnitedHealth's medical loss ratio - the percentage of premiums spent on medical care - stood at 85.2%, higher than the 82.3% reported a year earlier, as well as analysts' estimate of 84.2%, according to data compiled by LSEG.

Despite the rise in medical costs, UnitedHealth beat Wall Street estimates for adjusted profit by 15 cents due to increased memberships across its businesses.

Higher medical costs were also partially offset by lower-than-expected selling and general expenses, J.P. Morgan analyst Lisa Gill said.

The company reported revenue of $100.8 billion, compared with estimates of $99.28 billion.

(Reporting by Puyaan Singh and Leroy Leo in Bengaluru; Editing by Shinjini Ganguli)