UnitedHealth Bumps Change Hack Cost Estimate to Nearly $2.9B

UnitedHealth Group Inc. booked $475 million in total costs related to the February cybersecurity breach at its Change Healthcare unit during the third quarter and its executives expect to incur another roughly $420 million in costs late this year.

As part of the Minnesota-headquartered insurance and health services giant’s Q3 report, CEO Andrew Witty and his team also adjusted their full-year estimates for the direct response and business disruption costs of the Change hack. They now think those expenses—which cover spending on both direct remediation and support payments to providers as well as broader disruption costs that are mostly lost revenue—will total $2.87 billion in 2024, up significantly from the range of $2.3 billion to $2.45 billion they sketched in July.

While those dollar figures are massive by themselves, the $2.87 billion number—which is some 80 percent larger than management’s estimate from six months ago—will account for “only” about one-fifth of UnitedHealth’s expected net earnings for the year. And Witty and other executives spoke of something of a silver lining to the hack in that several of United’s technology systems have been rapidly rebuilt and upgraded. Witty noted that recovery efforts have “also given us the stimulus to really, really reimagine” the future of United’s Optum Insight group that houses Change and other tech-focused ventures.

That said, a full recovery from the security breach is going to be a slog. Both Witty and Optum Insight CEO Roger Connor said the re-recruiting of customers who left United will continue well into 2025, when the company also expects to book millions more in business disruption costs.

Conner also told analysts on an Oct. 15 conference call that some providers are taking a different approach to their claims payments.

“Customers are coming back. We’re actually making good progress there,” Connor said. “What we’re seeing is the volume that’s coming back isn’t coming back to the pre-attack levels. And customers are really looking for vendor redundancy. What they’re out there looking for is another one or two sources of their software systems, for example. Now we understand that. We think that’s a good thing for the health system, but that is having an impact on us this year.”

Other items from United’s Q3 report included:

• The company’s Optum Health group of provider businesses grew its operating profits to nearly $2.2 billion from less than $1.6 billion in the prior-year quarter. Total revenues rose to $25.9 billion from $23.9 billion in the 2023 quarter.
• As has been the case with other large health insurers of late, United’s medical care ratio climbed, coming in at 85.2 percent, nearly three percentage points higher than a year earlier. President and CFO John Rex said some hospital operators have been “notably and persistently aggressive” in submitting pricier claims while a rise in the use of several higher-cost specialty medications also contributed to the increase.
• Because of that, Witty said he and his team “anticipate stepping out for 2025 more conservatively than is typical” when it comes to earnings growth. Adjusted earnings per share, he said, will likely be around $30 next year compared to this year’s forecast of around $27.75.

Shares of United (Ticker: UNH) closed trading Oct. 17 at about $566, about 7 percent below where their level before executives announced Q3’s numbers. Analyst Sarah James of Cantor Fitzgerald thinks investors should take advantage of that drop, in part because uncertainty around insurance trends as well as Change and other factors has cleared up. James has lifted her price target for the shares to $644 from $591.

"We think this was a good clearing event," James said on CNBC.