UnitedHealth hack clouds outlook for insurers’ medical costs

(Reuters) – The hack at UnitedHealth’s tech unit has led to uncertainty around when high medical costs for health insurers will subside as the cyberattack leads to prolonged delays processing insurance claims, Wall Street analysts said.

While UnitedHealth said most of its pharmacy services operations, which were also taken down in the Feb. 21 attack, are expected to come back online as early as Thursday, the company has said its medical claims network will take longer to be restored.

United’s Change Healthcare unit is a vital lynchpin in the complex U.S. system for making and clearing insurance claims, connecting providers to not just UnitedHealth but also to CVS Health’s Aetna, Elevance, Humana, and others.

“There could be effects on cash flow and more uncertainty around medical utilization estimates going forward,” said Morningstar analyst Julie Utterback.

UnitedHealth and its rivals carefully monitor insurance claims, targeting to spend as close to 80% or 85% of the premiums they take in on medical services, as required under the U.S. Affordable Care Act popularly known as Obamacare.

Wall Street analysts have not yet given an estimate for the size of a financial impact to UnitedHealth or other insurers for the ransomware attack. The company is believed to have paid the hackers $22 million in cryptocurrency.

Shares of UnitedHealth and rivals have been under pressure since late November, when the industry bellwether said a late-year increase in medical care among older adults had led to elevated medical costs.

Humana and CVS Health have said they were not sure how long the trend of higher costs would last.

Investors had been hoping for evidence that medical services spending had returned to more normal levels, but the disruption to claims processing likely means that will be delayed until the companies report second quarter earnings later this year, said BofA Global Research analyst Kevin Fischbeck in a research note.

Citi analyst Jason Cassorla said in note on Wednesday that he “wouldn’t be surprised” if new patient healthcare appointments were impacted by the disruption to the claims processing system.

Most analysts expect a limited hit to UnitedHealth’s earnings from the hack, given that Change accounted for about 13% of the company’s total operating profit. United is expected to earn $6.69 per share in the first quarter, according to LSEG.

UnitedHealth has said hackers who identified themselves as the “Blackcat” hacking gang perpetrated the attack.

Cyberattacks like this tend to be “short-term blips” for the companies that have been hacked, said Morningstar’s Utterback.

“However, the longer this situation drags on and materially affects its customers’ operations, the more impact it will probably have on UnitedHealth’s reputation and business in the long run,” she said, “including customer switching.”

(Reporting by Pratik Jain in Bengaluru; Writing by Manas Mishra; Editing by Caroline Humer and Bill Berkrot)