Wall Street is assessing whether UnitedHealth Group (UNH) will face a tougher operating environment after the horrific murder of its UnitedHealthcare insurance division CEO Brian Thompson. After suffering its biggest weekly percentage drop since the Covid lockdown in March 2020, UNH stock recovered some lost ground in Monday stock market action.

UnitedHealth stock rose 2.4% to 561.10 after getting a vote of confidence early Monday from Jefferies analyst David Windley. The modest rebound came as authorities arrested Luigi Mangione, 26, in Altoona, Penn., in connection with Thompson's shooting.

UNH Stock Keeps Buy Rating

Windley tactfully broached the awkward question of whether Thompson's targeted assassination, which unleashed a torrent of online criticism of health insurance industry practices, might provoke a regulatory response.

The "shooting was chilling, and the social media reaction was inhumane," Windley wrote. The title of his note on UNH investor day: "Respectfully Providing Update, Thoughts on Recent Correction."

A masked man shot Thompson multiple times in midtown Manhattan at 6:46 a.m. on Wednesday. Reports of his death first came out around 9 a.m., after which UNH cut short its investor day presentation.

Despite the tragedy, UNH stock rose 0.9% on Wednesday, as investors seemed to react favorably to the company's new earnings outlook for 2025 and updated outlook for 2024 that were issued after Tuesday's market close. In Windley's view, the 2025 guidance wasn't rally material. He noted a 150-basis-point year-over-year rise in the medical loss ratio, or benefits paid as a percentage of premiums. "Equally, the -10% move Thurs/Friday also seems unjustified," he wrote.

Windley reiterated a buy rating while trimming his UNH stock price target to 635 from 643. The target implies 16% upside from Friday's close of 556.29.

Prior Authorization, Utilization Management Draw Scrutiny

Windley suggested that the sell-off in UNH shares, which included UnitedHealthcare rivals was tied to "fear of regulatory crackdown on MCO (managed care organization) cost controls." The sell-off also included Humana (HUM), Elevance Health (ELV) and Centene (CNC). In his view, such concern "seems to forget the US' healthcare cost problem, and the gov't spending austerity we seem to be moving into."

UnitedHealth, he adds, "would be able to reprice for regulatory changes over time." The implication is that while restricting cost controls might pinch managed care profits, it would lead also to cost-shifting. If senior Medicare Advantage members become more costly based on regulatory changes, that might put upward pressure on government costs as well.

The cost-control strategy that's come into focus is the requirement that plan members get prior authorization (PA) from their insurer before getting a medical procedure or drug. The insurer often decides authorization based on utilization management (UM) analysis, which is meant to keep patients from getting treatments that are unnecessary or ineffective for their condition.

"Even before any snowballing public scrutiny" of prior authorization and utilization management, Windley infers that UNH was "planning to back off PA/UM levers that are being pulled in 2024." As a result, he expects UNH earnings per share will slip to 10% in 2026 from its long-range target of 13%, to 16%.

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