US health insurers post strong Q1 earnings as medical costs stabilise
Major players including UnitedHealth Group and Cigna beat expectations, but Wall Street firms warn that sustained trends must be confirmed before declaring a victory.
US health insurers delivered first-quarter earnings that surpassed analyst expectations, signalling a shift towards stabilising medical costs after three years of sustained pressure. The results from major industry players, including UnitedHealth Group, Cigna, Humana, Elevance Health, and Centene, represent the sector’s strongest performance since the COVID-19 pandemic. This improvement comes despite the S&P managed care index declining more than 12 per cent since July 2023, a period marked by rising medical costs in government-sponsored health plans.
The positive results were driven by a combination of seasonal factors and improved cost management. A weaker respiratory season, weather-related delays in care, and the typical pattern where members have not yet met their annual deductibles contributed to lower claims payouts during the quarter. Historically, insurers report stronger first-quarter earnings for this reason, but analysts note that the current environment reflects a better grip on managing higher costs following years of strain from elevated demand in Medicare plans and changes in Medicaid enrollment rules.
Despite the upbeat figures, Wall Street analysts from firms including Oppenheimer, Morningstar, UBS, Leerink Partners, and Cantor Fitzgerald are urging caution. They argue that a second consecutive quarter of strong results is required to confirm a trend reversal. Julie Utterback of Morningstar noted that while stock price performance has been robust, it may be premature to call a victory given the influence of a weak winter respiratory season. Similarly, Whit Mayo of Leerink Partners highlighted that the second quarter is traditionally the critical test for claims trends, as historical data shows claims often run out in May, potentially surprising insurers.
UnitedHealth Group Chief Financial Officer Wayne DeVeydt emphasised the importance of the coming months. Speaking at the BofA healthcare conference, he stated that April and May are vital for understanding claims trends, as many first-quarter claims are paid during that window. DeVeydt indicated that if the positive trends observed in the first quarter continue, the industry could face a very strong year. However, he acknowledged that clarity on these trends will only emerge as the payment window closes.
Analysts also distinguished between temporary headwinds and fundamental improvements in cost control. Cantor Fitzgerald analyst Sarah James argued that temporary factors largely impacted lower-acuity services, such as eye care and gastrointestinal procedures, while insurers demonstrated core strength in managing more serious cases. This view was echoed by Oppenheimer’s Michael Wiederhorn, who suggested that unsustainable cost levels reached over the previous two years may finally be decelerating. UBS analyst AJ Rice added that cost trends appear to be stabilising, leaving room for further positive earnings estimate revisions.
