UnitedHealth Group (UNH) is seeing a steeper-than-expected medical cost trend amid elevated Medicare coding intensity and temporary Medicaid acuity headwinds, RBC Capital Markets said in a note Wednesday.
RBC said it is raising its 2025 Medical Care Ratio estimate by 70 basis points to 84.7% and lowering its adjusted earnings per share estimate to $29.75 from $30.84 previously.
“Our estimate reflects elevated Medicare coding intensity, which has persisted beyond resumption prior authorization, as well as Medicaid acuity headwinds, which should be transitory,” RBC analysts said in the note.
UnitedHealth’s management cited three headwinds, including an about 20% rise in Medicare coding intensity, elevated Medicaid acuity from timing mismatches, and increased specialty drug prescribing, RBC said, adding that these specialty headwinds should not affect the medical cost ratio beyond Q4 as the company has priced for Inflation Reduction Act drug provisions in its 2025 bids.
RBC reiterated its outperform rating on UnitedHealth and lowered its price target to $595 from $615.
Shares of UnitedHealth were up 3% in recent Wednesday trading.