Bernstein's Lance Wilkes on UnitedHealth's Q4 results, state of the health insurance industry

Health reporting earnings of $6.81 a share beating estimates by $0.09. Revenue of $100.8 billion was slightly below estimate. Company affirmed its earnings and revenue guidance for the full year, but the stock is sharply lower because of the revenue miss. Let's bring in Lance Wilkes Bernstein, senior equity analyst. In your work, is this a first revenue miss in four years? It is the first time that United's missed on revenues. I'd say that I think the stock reaction is probably more related to the medical loss ratio. The membership and the like were pretty in line for United though. 85.5 and people that are trying to do this at home, that's like an inverse profit ratio. I guess people would like 80%. I don't know what that would take to get to 80%, but it was 83.2 in 2023 and 85.5 now, which is weird because of all the recent news with United Healthcare. Higher costs in Medicare with older individuals on some of the government backed Medicare plans is why the profit margins basically went down. We think of them as denying everyone's that narrative following the events of the last month that we don't need to go into. It almost sounds like they'd like to be trying to wring more costs out of their results. It's a really interesting time because I think the narrative out there that claims denials are so high is part of probably a long-term issue in the industry where programs just like your health insurance have these high deductible plans. Consumers are stuck seeing both prior authorization, so they're seeing the inner workings of insurance. They have a lot more out-of-pocket expenses with deductibles and things like that. I'd say that United is actually at the forefront of probably the next wave of trying to address that with value-based care for their Optum Health unit. That really tries to take that pressure off the consumer, have doctors steer you through the system, and have them get you to the right place as opposed to you as the consumer having to decide, do I want to go to this place or that place for an MRI? Lance, can I ask? The narrative has been that UnitedHealth has the highest denial rate in the industry. You cover the industry. Is that true? No, I don't think so. I know that a certain article certainly put that forth, but when you look at other sources of data, the state of Connecticut has a really transparent set of data across lots of different products. You've seen Kaiser Family Foundation do it. United is very middle of the road in terms of the percentage of prior authorizations that are denied, the percentage of claims that are denied. In general, I think everybody would agree that all those things are probably too high because they are a source of customer dissatisfaction. But for prior authorization denials, for example, that might be high single digits. Typically, medical necessity and things like that, which is what I think consumers would really be upset about, those are half a percent, 1% sort of numbers. Normally, these are more administrative sort of issues that are causing denials of claims or denials of prior authorizations. But Lance, I think you're hitting on a very interesting issue. You're suggesting that the number is small for absolutely necessary issues. I assume we're talking about people who are in the emergency room where something terrible has happened. Or they have long-term cancer treatments. But the question is about the advanced stuff. That's the hard part. I think actually, even in the context of cancer treatments and the like, oftentimes these things do require advanced approvals. And so all of a sudden, that's actually from the, not just an emotional standpoint, but from a health standpoint, the real question. I completely agree with you. And I think that when you look in the industry, there's a recognition that the evolution of health insurance really kind of evolved to let's get consumers skin in the game. Let's get consumers responsible for all these things. And consumers typically, especially if they're in advanced cancer treatments or things like that, that's not the moment that probably the least informed person in the system between a doctor or a hospital insurance company should have to have all the responsibility for choosing the most efficient sort of care. I think other approaches, which are emerging like value-based care, another approach is called gold carding, where you select sorts of positions that are really useful in the system and are sending people to the right places. You just waive prior authorizations for those groups. I think approaches like that are going to have to come. United Healthcare in their interrupted investor day was starting to talk about gold carding for prior positions. Again, value-based care. What does value-based care mean? What does gold carding mean? Because my uninformed perspective would be value-based means you're not going to charge me a lot, but you're not going to give me a lot. Gold carding means you're going to automatically authorize because I'm going to pay a lot more up front. Is that correct? Maybe you'll need to change the name for that gold carding then. For gold carding, what it really means is if you find groups of physicians that are sending people appropriately, and when there are prior authorizations, those prior authorizations are being approved. If things are getting appealed, they're being approved. Then you just say, okay, these are good actors. Let's exclude them from these restrictions within the system. You're trying to reduce the friction with an effort like that. For value-based care, the idea is if I go in for a back, I've got a back issue. I go and see my doctor, and he sends me across the street for an MRI at the hospital because it's quick. In fee-for-service medicine, the doctor needs to get to the next appointment. That's how he's getting paid. I'm the person who has to realize, oh, it's January. I'm in the deductible phase. I'm going to be paying for all this. How much does that cost? I'm not the best person to do that. On the other hand, with value-based care, if you're sending all that data into the doctor in his keyboard or in his tablet, he types in, oh, I'm going to send him to an MRI, it'll pop up. Here's the cost of the MRI across the street at the hospital. Here's where Lance lives. Here's three MRIs within 10 miles that cost $1,200 instead of $2,000. You're putting more friction on the doctor. Consequently, you have to reduce the number of patients the doctor can see. The payoff for that is the savings downstream and the expensive stuff that could be avoided either through proactive care or through steering somebody through the system better. Those savings then go to the doctor, they go to the payer, the consumer, they go to the value-based care company. That's the model associated with that. It makes it harder for the doctor, simpler for the consumer.