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UnitedHealth Sees Increased Labor Cost Pressure

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What You Need to Know

  • Revenue and net earnings were higher than in the third quarter of 2020.
  • Lower spending on routine care helped offset an increase in spending on COVID-19 care.
  • Medicare Advantage enrollment increased, and Medicare supplement insurance enrollment fell.

UnitedHealth Group provides health coverage for about one in eight Americans, and its annual revenue amounts to about 1.4% of U.S. national income.

Executives there see signs of cost pressure moving through the economy.

Dirk McMahon — the chief operating officer of the Minnetonka, Minnesota-based health insurer and health care provider — talked about cost pressure Thursday, during a conference call with securities analysts.

UnitedHealth held the call to follow its earnings report for the third quarter with securities analysts. Securities analysts are people who help investors understand what’s happening at companies that sold large amounts of stock to ordinary investors.

The third quarter of 2021 ended Sept. 30.

UnitedHealth is reporting $4.2 billion in net income for the third quarter on $72 billion in revenue, compared with $3.2 billion in net income on $65 billion in revenue for the third quarter of 2020.

Executives said the unexpectedly high cost of continuing to fight COVID-19 was offset by a decrease in spending on ordinary preventive and sick care.

Cost of Labor

Stephen Baxter, an analyst with Wells Fargo Securities, asked about the possible effects of a tight labor market on reimbursement rate negotiations with health care providers.

More on this topic

McMahon said labor costs are coming up in negotiations with care providers.

“What we’re hearing from network partners is that their cost of labor is higher,” McMahon said. “Obviously, there’s staffing shortages. Many of the hospitals and other providers have to pay more for their input, and that’s going to be reflected in the economics as we go forward. And, of course, all that will be reflected in how we price going forward.”

Inflation Fighter

McMahon said UnitedHealth is trying to hold the cost of care down by using its size and technical skills to set up an efficient, digital primary care provider.

UnitedHealth’s virtual primary care provider operation should be more affordable than a brick-and-mortar primary care provider, and the company’s service appears to be about 15% cheaper than comparable services, McMahon said.

In the world of traditional commercial coverage, “we have a good program where we manage utilization,” McMahon said. “We work hard on our network contracts.”

UnitedHealth’s pharmacy benefits manager business has a “laser focus on affordability and a laser focus on serving people, and getting the medications in people’s hands when they need them,” McMahon added.

Enrollment

Here’s what happened to the number of people with key types of UnitedHealth health coverage between the end of the third quarter of 2020 and the end of the latest quarter:

  • Risk-based: 7.96 million (up from 7.95 million)
  • Fee-based: 18.6 million (up from 18.4 million)
  • TOTAL COMMERCIAL: 26.6 million (up from 26.3 million)
  • Medicare Advantage: 6.5 million (up from 5.7 million)
  • Medicaid: 7.5 million (up from 6.4 million)
  • Medicare Supplement (Standardized): 4.4 million (down from 4.45 million)
  • TOTAL PUBLIC AND SENIOR: 18.4 million (up  from 16.6 million)
  • TOTAL DOMESTIC MEDICAL: 45 million (up from 43 million)
  • International: 5.5 million (up from 5.3 million)
  • WORLDWIDE TOTAL : 50 million (up from 48 million)

UnitedHealth’s headquarters building in Minnetonka, Minnesota. (Photo: Mike Bradley/Bloomberg)