Older adults are finally catching up on delayed surgeries. That means pain for health insurers, gains for hospital operators.

By Steve Goldstein and Eleanor Laise

Seniors are scheduling procedures they postponed during the pandemic. That's hurting health insurers' stocks and helping hospital operators.

Older adults are finally catching up on surgeries for problems with their knees and hips they delayed during the pandemic. That means higher costs for health insurers and potential gains for hospital and surgical-center operators.

The trend was revealed by executives at Dow component UnitedHealth Group Inc. (UNH) at a Goldman Sachs investor conference held on Tuesday. The revelation dented UnitedHealth shares by 5.6% in premarket trade, while shares of rivals also saw steep declines. Humana Inc. shares dropped 8% premarket, while Elevance Health Inc. (ELV) shares dropped 4.8% and Cigna Group (CI) fell 4%.

Shares of hospital and surgical-center operators, meanwhile, profited from insurers' pain. Shares of Surgery Partners Inc. (SGRY), an operator of surgical facilities and related services, gained 7.4% premarket, while shares of hospital operator Community Health Systems Inc. (CYH) jumped more than 10% and shares of hospital giant HCA Healthcare Inc. (HCA) gained 3%.

"We're seeing as behaviors kind of normalize across the country in a lot of different ways and mask mandates are dropped, especially in physician offices, we're seeing that more seniors are just more comfortable accessing services for things that they might have pushed off a bit like knees and hips," said Tim Noel, UnitedHealth's chief executive for Medicare and retirement, according to a FactSet transcript of his remarks.

There's also more capacity in the healthcare system to handle these operations. "We're just seeing more services which, again, we're really happy to see that our seniors are accessing the care that they need," he said.

CFO John Rex put that trend into numerical terms. He said the medical care cost ratio -- medical costs divided by premium revenue -- for the second quarter will be at the upper bound, or moderately above the upper bound, of its full-year outlook.

According to FactSet, analysts were expecting a medical cost ratio of 82.6% for the second quarter, after a ratio of 82.2% in the first quarter. Analysts at Oppenheimer say the news puts UnitedHealth in danger of missing second-quarter earnings estimates and hurts Humana in particular because of its larger Medicare Advantage business.

The Goldman analyst, Nathan Rich, tried to put a shiny spin on the trend, pointing out that outpatient costs were "obviously the lower cost side of care."

"The bulk of it's outpatient, but enough to be meaningful," Rex replied.

Truist analysts on Wednesday cut their price target for UnitedHealth stock to $580, from $610 previously, but maintained their buy rating. The higher utilization trend stems from higher volume rather than acuity and is narrowly focused on a couple of outpatient areas, the analysts noted.

Although UnitedHealth's comments weren't necessarily applicable to its rivals, the company was seen as a bellwether for the group and is known for its conservative guidance, J.P. Morgan analysts wrote in a research note. Therefore, UnitedHealth's remarks "meaningfully increase the perceived risk" for its competitors, the analysts wrote.

-Steve Goldstein

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06-14-23 0908ET

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