UnitedHealthGroup Inc. is doing great. America’s largest health insurer released first-quarter results April 16 that beat analysts’ expectations, and it raised full-year earnings guidance. That’s par for the course for the company, which hasn’t missed a consensus EPS estimate for a decade.
Why is it, then, that UnitedHealth’s stock doesn’t entirely reflect that?
Shares of UnitedHealth are down for the year in an otherwise robust market. Several peers are doing worse amid growing anxiety about what’s happening in Washington. Democrats want ambitious health care reform, the Trump administration is supporting a lawsuit that would end the Affordable Care Act, and Congress is investigating the systemic roots of high drug prices; all of these things have the potential to roil the health-insurance industry.
The first-quarter results are a reminder that the status quo remains profitable, and UnitedHealth’s shares even enjoyed an early spurt in response to the buoyant earnings news. And yet, it felt like more of a temporary reprieve than a sign investors have thrown policy concerns aside.
UnitedHealth’s Optum unit includes a pharmacy-benefit manager that negotiates drug prices, analyzes a massive trove of health care data and runs a large network of clinics and surgery centers. It’s the company’s most profitable unit, and it helps to keep costs low on the insurer side of the business. If any managed-care company is built to survive turbulent regulatory waters, it’s this one.
Still, it’s tough for investors to feel certain about what’s next. The environment has shifted in a way that’s not good for insurers. Even the moderate cohort of the Democratic presidential primary pack largely supports some kind of government-run public insurance option.
OptumRX is the country’s third-largest PBM, and that entire sector of drug-pricing middlemen has come under increasing scrutiny for its alleged role in keeping some prices high. “Just to get the lobbyists in the room to shudder a little bit, I think the PBMs should be utilities, or converted to nonprofits, or something,” Maryland Democratic Rep. John Sarbanes said at a recent hearing on insulin prices that included a UnitedHealth executive.
The April 16 results reflect the market-friendly environment of today, but it’s tomorrow investors care about. Ahead lies a few years of campaigning, hearings and threatening policy proposals. Uncertainty lurks every day; earnings only come four times a year. n
Max Nisen is a Bloomberg Opinion columnist.
